Solow computer paradox
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The Solow computer paradox, also know as the productivity paradox, is that the productivity of the work force has not risen as information technology has extended through western industry.
In 1987, Nobel Prize winner Robert M. Solow observed:
- "You can see the computer age everywhere but in the productivity statistics."
It was widely believed that office automation was boosting labour (or total factor) productivity, but the growth accounts didn't seem to confirm the idea, because the "computer-era" from the early 1970s to the time he was writing included a massive slow-down in growth as the machines were becoming ubiquitous. (Other variables in country's economies were changing simultaneously, growth accounting separates out the improvement in production output using the same capital and labour resources as input by calculating a "Solow residual".)
The computer industry's response to the paradox was to say that computers actually would improve productivity, and that investment in more information technology would be a path to growth, based on two arguments:
- There may be a "lag" in productivity improvements (the idea was that the economy would need to adapt before the capital investment in computerized automation would pay off). In 1990 the economist Paul David made an analogy from the modern PC to the introduction of the electric motor after its 1880 invention; the payoff from the new technology was not measured in economic statistics in the interval starting 1913. (This would suggest a lag of at least thirty years before production can fully utilize IT advantages, but by 1990 the acceleration in growth might have been detectable on this timescale.) The electric motor had a "lag" in productivity because people could not really benefit from the increased efficiency until electric generators were introduced, supplying electricity to factories. For this same reason, the "lag" in productivity exhibited by the computer industry is because computers did not show their productivity until things like software, the internet, and handhelds became prevalent. A chart of GDP growth from 1870 to 2006 illustrates this point very well. (see General purpose technology#Lag)
- The productivity growth produced from IT may already be occurring, but a flaw in the measurement tools available are hiding it.
Another answer, from economists Stephen Oliner & Dan Sichel was to deny the significance of the (high-profile) IT-sector; they said that information technology accounted for no more than two percent of the capital stock in any country in the world.
Other economists have made a more controversial charge against the utility of computers: that they pale into insignificance as a source of productivity advantage when compared to the true industrial revolution, or the adoption of the motor car.
[edit] References
- Greenwood, Jeremy (1997) The Third Industrial Revolution: Technology, Productivity and Income Inequality AEI Press.
It is hard to see whether or not computers will finally catch on. As GDP indicators show us, growth did not have a rapid return after the introduction of computers. For now we still see, according to David's article, that only "2% of the business world has there information digitized"...there is no telling how long it will take for others to catch on.
