Internet and mobile phone technology have transformed daily life over the past ten years. Nobody needs to stop and ask for directions anymore, worry about night and weekend minutes, or wait for the nightly newscast to catch up on sports scores. Today’s kids struggle with the concept of television shows airing at specific times and take for granted that grandma’s face is just a couple of touchscreen pushes away.
But despite an incredible volume of hype about the economic impact of digital technology the harsh realty is that productivity growth during this period has been very slow.
Productivity — the value of a worker’s output during a given period of time — is a fundamental concept in economics. Rising productivity makes it possible for wages to rise without leading to inflation. Rising productivity creates a tax base that can be used to fund useful public programs. Rising productivity is why, fundamentally, people living in 2020 are much richer than people living in 1920 or 1820 or before. And in terms of raising productivity, the internet has largely been a bust.
It’s revolutionized the entertainment and media sectors, which occupy a lot of our collective time but don’t actually account for very much economic output. Productivity in those specific sectors has surged, but even though we talk about them a lot (in part because the media and entertainment sectors literally determine what it is that “we” talk about) but they’re tiny slices of the labor force and overall economic output.
Coronavirus and the attendant social distancing measures that have been widely adopted to slow its spread have changed all that. Suddenly workplace collaboration tools like Slack, and Zoom that have existed for years as promising sideshows are mission-critical infrastructure keeping the economy functioning. Vaguely promising ideas like telemedicine and remote learning are being used at mass scale, and frivolous food delivery apps have become a lifeline for small businesses. Critically, while the growing digitalization of everything is something that “big tech” participates in the circle of companies whose tools are emerging as vital suddenly extends far beyond the Google/Facebook/Apple/Amazon oligopolistic nexus.
This is not how anyone wanted the transformative potential of digital technology to be unleashed. But it is, right now, making our lives much better. And it’s at least plausible that this finite-but-extended period of mass adoption will allow us to break through some pain points and finally start reaping the long-term potential that’s been clearly visible but frustratingly hard to tap for some time. The tools that are keeping the economy on life support during the pandemic could, now that we are mastering them, help open doors to high-paid work outside of high-cost metro areas, improve the quality and convenience of medical care, and help broaden access to affordable forms of higher education.
The productivity paradox, explained
Thirty years ago the great economist Robert Solow, whose work is the foundation of the standard understanding of economic growth, quipped that “You can see the computer age everywhere but in the productivity statistics.”
This joke was a little premature when he made it, but it’s held up well. The vast majority of the digital revolution has happened since 1980. And despite the incredibly impressive advances in the digital sector, economy-wide productivity growth has been much slower post-1980 than it was in the prior 40 years.
What’s more, as Bloomberg’s Justin Fox has pointed out a very large share of the productivity increases we have seen are accounted for just by how much better we are at making computer chips. That improvement is genuinely impressive, of course. But what we keep hoping to see from the technology sector is tools that let us do things better rather than just tools that help us make better technology products.
The disjuncture between the apparently relentless progress in tech and the non-existing productivity acceleration has created a mini-dogma in Silicon Valley circles that it’s not the technology that’s failing, it’s our economic statistics.
“There is a lack of appreciation for what’s happening in Silicon Valley,” Google’s chief economist, Hal Varian, told the Wall Street Journal, “because we don’t have a good way to measure it.”
The article states that Varian believes a “problem with the government’s productivity measure” is that “it is based on gross domestic product, the tally of goods and services produced by the U.S. economy.”
But this is not a measurement error. This is the definition of economic productivity. When people can create more goods and services for sale in the market economy, their productivity goes up. When they cannot, it does not. It is obviously true that there are things in life that matter that are not monetized in this way — a child’s smile, the beauty of a sunset, or the entertainment value of amusing yourself with ad supported media. But this is just a fact of life, not a new phenomenon related to the internet.
During the productivity boom of the 1950s and 1960s we also got widespread adoption of free-to-watch ad-supported broadcast television, a change to entertainment habits that’s surely a bigger deal than Instagram. The fact that tech changes were largely limited to this kind of thing is exactly the productivity problem.
The changes feel revolutionary because, according to the American Time Use Survey, we spend nearly a quarter of our waking hours on various forms of media consumption which really have changed a lot. The sad reality for culture workers, however, is that culture isn’t that big of a deal economically. The invention of the printing press was inarguably a bigger deal for media consumption than the invention of Netflix, but as Kelsey Piper has written nothing really shows up in hard productivity numbers until the industrial revolution let us get better at manufacturing clothing.
One lesson of that is there’s more to life than economics. But economics still matters a lot, and the fact is early modern people spent a huge share of their incomes on clothing so textile factories moved the needle on living standards in a way that cheaper books couldn’t.
Technology is keeping the white collar economy alive
I’m writing this article from a little table in my basement while I work from home after consulting briefly on the pitch via Slack with two editors. Later I’m going to record an interview for a video our team is producing via a Zoom call and using my iPhone’s built-in camera. I do the Weeds podcast these days from my closet, because hanging clothing provides good sound-dampening for people who don’t have access to a studio.
None of this is ideal, but it all more or less works which as far as I can tell is the experience of most white collar office workers. The big unsolved pain point with quarantine-era working is caring for small children while schools and daycares are closed. But that’s just to say it’s hard to do literally two jobs simultaneously, not that the remote work as such isn’t functional.
This isn’t going to show up as surging productivity any more than iMessaging your friends does. But in this case special pleading is called for. Digital productivity tools aren’t making white collar office workers more productive than we were pre-coronavirus, but they are making us a lot more productive than we’d be if we faced the need to shelter in place without them. The global economy is currently facing a lot of problems, but a total collapse of white collar work is not one of them in the way that it would have been 20 years ago.
Teleworking as a concept, of course, is not new. But the modern tools are genuinely much better. A classic telework setup required a lot of dedicated equipment — a desktop computer, a dedicated phone line, a fax machine, a printer — that couldn’t be hurried set up en masse in response to a quarantine order. And modern asynchronous tools like email and chat let you communicate with people who may be momentarily occupied with something else and use away messages and calendar invites to clarify availability.
At the moment, I really miss chatting with coworkers over lunch and personally I am looking forward to getting back to the office. But thanks to digital technology things are basically working, and even classic face-to-face industries are trying to go remote.
Telemedicine and distance learning are finally getting a shot
The health care and education sectors are sort of the opposite of media and entertainment when it comes to the impact of technology. Even school and doctor’s office have computers, but the fundamental practice of both fields has been only minimally impacted by technology. Yet these two sectors, along with housing and transportation, account for the lion’s share of a typical household budget.
To really raise living standards, these are the things that need to get cheaper and better.
Right now because of coronavirus they are both getting worse. But the exigencies of the situation are forcing regulators and institutions to experiment with technological possibilities that have long been evident but little used. Remote medical consultations, which many providers had been reluctant to do both out of force of habit and because of difficulty getting reimbursed, are being normalized. This is in many cases a much more convenient way for patients to get care and in some instances a cheaper way for providers to offer it. It’s obviously not a full substitute for doctors visits or hospitals, but for certain classes of service — and especially for rural communities, elderly patients, parents of young kids, and people with mobility impairments — it could be a game-changer.
The education picture is more mixed. It seems pretty clear that even for college-age students, in-person instruction is superior in the vast majority of cases.
That said, the nature of scalable digital technologies is that even if only one professor in a hundred to come up with a distance learning paradigm that really works that could still have enormous influence in the years to come. The internet already revolutionized learning things (YouTube is a great place to seek instructions on everything from how to tie a tie to how to replace a garbage disposal) but it’s badly underperformed in terms of changing how formal education works. Coronavirus is forcing the pace of change to accelerate, which should leave a foundation of institutional knowledge for further progress down the road.
That is as long as we can get the overall economy moving again.
The risk of mass unemployment
One reason why digital technology seemed to punch below its weight over the past ten years is that for the vast majority of that period the unemployment rate was high and labor was plentiful. Restaurants developed websites and apps and even toyed around with advance ordering, but nobody went through the trouble of rebuilding the entire process around digital technology because it would have been a pain in the butt with little obvious upside.
That finally began to change over the past year or two as the labor market finally got tight and wages finally began to rise.
Rising pay is good on its own terms, of course, but it also creates a different set of management incentives. Suddenly thinking about how to adopt and adapt new technology becomes highly rewarded even if there are some hiccups along the way.
With unemployment currently skyrocketing again in the wake of the virus, the risk is that progress will be undone during another long slow recovery that sees weak worker bargaining power and a huge expansion in low-wage work.
But a rapid bounce-back led by appropriately robust federal stimulus policy could help us build something better than the food service and retail economy we had before the virus. One where demand for workers is high enough that most people can shift relatively rapidly out of that kind of low-wage employment and into better-paid sectors, and companies work hard to deploy digital technology to get by with fewer cashiers and servers.
Coronavirus response has often been compared to a war. And like a war, suffering under the thread of a deadly disease is bad for prosperity. But wartime pressures have often driven innovations — World War II gave us jet planes, radar, synthetic rubber and fabrics — that later unleash peacetime prosperity. So far we are seeing some early signs of something similar, less with new inventions than with new adaptations to technologies that have been lingering while undershooting their potential. If we’re lucky and smart, we can come out of this with a more prosperous country than ever before.