Stagnation Summers
It was Zastoy who brought down Brezhnev's Russia. That is, the stagnation of the centralized economy. The stagnation had deeply eroded the Soviet economic and social model and had condemned it to an irreversible decline that even Gorbachev's reforms would not have remedied. History seems to be repeating itself for Soviet Russia's arch-rival, the United States of America.
The thesis of great stagnation, as an interpretative line of the American economy in the last half century, is gaining more and more support. Larry Summers, a Keynesian-trained economist as much appreciated as discussed, he has been talking about it for some time now. There is already a name for his thesis: "Stagnation Summers".
Even with a different approach, Tyler Cowen, an unconventional libertarian economist, came to conclusions similar to those of Summers. In 2011, he published a 15-word pamphlet titled The Great Stagnation that sparked so much discussion that it deserved an entire Wikipedia entry.
Then there is one of the most important maître à penser in Silicon Valley, Peter Thiel, who tells us that the great innovation of recent years has given birth to a mouse. He summed up his disappointment with the successes of the technology born in the Valley with these words: “We expected the flying car and we got the 140 characters of Twitter”. For now, flying cars can only be seen in the cinema, but in the meantime the characters on Twitter have increased to 240.
Gordon's thesis
The scholar who has most thoroughly investigated the secular stagnation of advanced economies is Robert Gordon, a respected and self-effacing Northwestern University economist. Gordon's analysis, conducted over the long term, reveals a slowdown in potential GDP growth due to a combination of demographic and debt factors. However, the drastic slowdown in innovation and technological progress was decisive, compared to the rapid pace recorded in the first half of the 20th century and above all in the 21st. This slowdown in potential GDP growth has depressed investment and, consequently, with savings remaining at constant levels, has resulted in "Summers stagnation".
Gordon writes at the end of his analysis on the economic growth trend of developed countries starting from 1750 when the first industrial revolution took place, which was followed by two others in close continuity:
“The first revolution, whose main inventions were developed between 1750 and 1830, introduced the steam engine, cotton spinning and railways. The second was the more important, thanks to three fundamental inventions: electricity, the internal combustion engine and running water, all in the relatively short interval between 1870 and 1900. It took a hundred years for the effects of the first two industrial revolutions to permeate the economy. Between 1950 and 1970 the benefits of the second industrial revolution were still transforming the economic system, with air conditioning, appliances and the highway network, while production slowed markedly after 1970, probably due to the fact that innovations fundamentals had been widely applied.
It is precisely starting from the seventies that something happens. In this regard Gordon writes again:
" third industrial revolution, the one linked to information technology, began around 1960 and reached its peak in the dot.com era of the late 90s, although its greatest impact on productivity has continued over the last eight years. Computers, which replaced tedious and repetitive office jobs, arrived a long time ago, in the 70s and 80s, while after 2000 innovation has focused on entertainment and communication devices ever more compact and intelligent, but they do not radically affect productivity or living standards as electricity, motor vehicles or running water have done”.
These reflections, set out in a systematic way, are found in a very substantial book published in 2016, The Rise and Fall of American Growth, whose importance has been compared to Thomas Picketty's Capital in the XXI.
Official thesis: Productivity is collapsing
Gordon's theses seem to find confirmation also in the data of the Bureau of Labor Statistics which recognize a stagnation and a drop in productivity starting from the mid-2000s, proving that the furious innovation of the last ten years has not raised the level of productivity, indeed it has depressed it, at least in developed economies. Many have already called it the “productivity paradox”.
A recent study conducted by the FED and the IMF has confirmed the validity of the detection and estimation systems of productivity applied by official statistics which had been questioned by the "party of technologists". Here is how the FED-IMF document puts it:
“Many of the great benefits consumers get from smartphones, Google searches and Facebook they are conceptually non-market: Consumers are more productive in using their non-market time to produce services of interest to them. But these benefits do not lead to a faster rise in output of market sectors than has been measured, even if consumer welfare has increased. Thus, gains in non-market production appear too modest to make up as a whole for the loss of prosperity resulting from a slowdown in the growth of market sectors.
Pretty clear. It means that the innovations brought by the internet and mobile they are changing the way we work, have fun and communicate, but they have a modest and hardly noticeable impact at a macroeconomic level. Transformative innovation is only happening on the internet and not spilling over into any other economic sector.
Counterthesis: You are not measuring productivity correctly
A first observation that could be made, in the light of the historical method, is this: how do you compare the revolutions that arise from certain historical contexts, from well-defined needs and from the culture and mentality of peoples living in such different eras. The first and second industrial revolutions had an impact on material resources and their transformation process with decisive effects on the primary needs of the populations and on their material living conditions which have been raised to a level never seen before in history.
The technological innovation of the Internet, e-commerce and social media is going to focus on the media, communication, relationships between people and time outside work, not by a whim of its protagonists or a roll of the dice, but because the needs of people who have benefited from the results of other industrial revolutions push them in that direction which, once accomplished, as Gordon tells us, have given rise to new needs that are not necessarily material.
Then there is to consider, in the evaluation of productivity so important for the wealth of nations, the relational and managerial models that new technologies are introducing in the world of economy, industry and services. On these aspects we are pleased to offer our readers the considerations of Stefano Pace, associate professor at the Kedge Business School (France), contained in his contribution Does it still make sense to measure productivity? published in the recent volume Mind the Change. Understanding the future to design the business of the future by Alberto Baban, Armando Cirrincione, Alberto Mattiello published by GueriniNext. Enjoy the reading!
Productivity and material resources
Productivity is a concept widely used in managerial, scientific literature and also in common parlance. This concept could undergo changes in the future, based on the technological evolution and managerial models we are witnessing.
In his book The Rise and Fall of American Growth, Robert Gordon of Northwestern University hypothesizes that the Industrial Revolution of the XNUMXth and XNUMXth centuries had more dramatic effects on productivity than the digital revolution. Gordon's reconstruction opens many questions: Is productivity measured correctly today? Does digital lead to a different paradigm than in the past also in the concept of productivity?
In basic terms, an increase in productivity means getting more output from the same inputs. According to Schmenner (see Roger W. Schmenner, The Pursuit of Productivity, in Product and Operations Management, April 10, 2014), a scholar of productivity and the impact of technological innovations, there are two factors that determine an increase in productivity: reduction of variability (of quality, quantity and time) and the reduction of production time.
If a technological innovation impacts one or both of these dimensions, there is an increase in productivity. This reconstruction of the concept of productivity focuses?—?like others?—?on material resources and their transformation process. All the technological innovations have brought an improvement in the two dimensions of variability and production times. For example, the invention of textile machinery and the factory made it possible to produce goods of uniform quality and to reduce production times. The Fordist chain was another innovation aimed at minimizing variations in output and speeding up the process. The development of containers has allowed?—?among other effects?—?better warehouse management, since products can be transported more easily and quickly than in the past.
A different conceptual point of view
Let's try to assume a different position, leaving the production process for a moment. In fact, the impact of digitization does not necessarily have to converge entirely with that of industrial automation. Digital comes out of the factory and makes it porous, even in a productive sense, with respect to the external environment. We go in the middle of the market, among the customers. Even if they are not inside the company, customers can participate in company productivity.
The concept of co-producer or prosumer it implies that the customer can participate in the company's production, albeit indirectly, and therefore the concept of productivity also becomes a box that opens to accommodate new measurement methods and new conceptualizations.
If we add to this that the product becomes a terminal of knowledge and exchange between customer and company, company productivity may evolve in the future. A product that collects and shares information on popular consumer practices could suggest improvements on the new model to the company. Such data could also concern improvements in materials or design that can make the production process more efficient.
For example, let's imagine a smart tennis racket, part of an Internet of Things system. If we measured productivity only on the basis of the single product, we would lose the history of its possible successive versions, allowed by the exchange of information between product and company. Overall productivity could then be measured on the basis of this exchange.
The racket collects data demonstrating the existence of a segment of players who have a style of play and power for whom a racket with different materials, perhaps less expensive, is advisable without losing game quality. With each use, the racket is virtually increasing the production efficiency of its next version. Even if this version were not convenient or not feasible for other reasons, the knowledge obtained by the company would still be an element of potential increase in productivity. Beyond the return of knowledge, the product becomes a living object that can interface with the company's internal processes.
However, this measurement would be made complicated (after all, the concept of productivity always has elusive sides) by the fact that there would not be a moment of true stoppage in production, but only pauses, given that the product would continue to talk about itself to the company in a continuous, suggesting possible improvements, also of the production process. A potentially unique flow between consumption and production that would express a new productivity.
