Information and communication technology (ICT) is unavoidable nowadays. The invention of the smartphone, computer and Internet is a big part in our daily life. A quick look in your email inbox or a short call with your friend, it is all became normal. That makes it very interesting if it also took its part in doing business, in manufacturing or services. In particular, we took a close look into the overall productivity.
Bergaud, A.(2016) states productivity is one of the main determinants of lifestyle and that technological progress appears to be the main driver of productivity growth. Hence, technological progress determines our way of living and influences productivity. But what was the influence of the ICT Revolution on productivity in the last three decades?
Cardona, M. et al.(2013) claims innovations in information and communication technologies (ICT) drives economic competitiveness and sustained long-term economic growth. The innovation in ICT is the beginning of the digital economy two decades ago, it had a major effect on the productivity and provide goods and services.
Gordon, R (2012) disagrees and states the ICT revolution had its climax in the late 1990’s and the impact on productivity almost disappeared in the past eight years. The inventions since 2000 had no effect on labor productivity or the standard of living in the way that the invention form the industrial revolution had.
The views on whether ICT has improved productivity in the last three decades are very different and lead to an academic debate.
First, this paper will discuss some positive views on the debate and briefly summarize which points are made. Second, there will be negative views on the ICT’s productivity levels and last of all this paper will summarize its findings and come up with a conclusion.
Literature review
Oulton, N. (2002) looked at ICT investments and its results in the United Kingdom from 1989 to 1998. He particularly looked at the share of output that is accounted for by ICT investments and the labour productivity growth that was accounted for by the growth of ICT capital per unit of labour. He found that at the end of 1998 ICT output was only three percent of total GDP but the growth of ICT output was a fifth of total GDP growth during the period he was investigating. Also from 1994 to 1998 he found that 90 percent of all capital deepening came from ICT investments which resulted in a growth of output of 48 percent. Oulton, N. (2002) did however find that there is a slowdown in the growth rate of labour productivity but that in 1999 ICT investments have increased rapidly with about twenty percent. All of this indicates that ICT investments did increase productivity growth and the effect on labour productivity is diminishing but continuing.
Cardona, M. et al. (2013) questioned whether ICT was an actual GPT or not. A GPT (General Purpose Technology) is a technology that can have great impact on an economy and drastically change it by increasing productivity. Most interesting is that Cardona, M. found evidence that ICT played a very pertinent role in the growth of productivity. He states it was a significant effect which was growing over time. However, that does not mean that productivity increases when ICT investments increase. Cardona, M. et al. (2013); ‘ICT has to be embedded in complementary organizational investments, skills and industry structures.’ This indicates that according to Cardona, M. ICT does increase productivity significantly but it needs a structural base to be effective. Interestingly enough though, Cardona, M. did not find significant evidence that indicates the ICT-revolution was an actual GPT. He found positive evidence in the United States but in Europe the results were more ambiguous. ‘Therefore, a better understanding of how spillovers work with ICT might help to bridge the gap’. Cardona, M. thus finds ICT has a positive and very significant effect on productivity when it is supported by a structural base, but he could not find evidence ICT is a GPT.
Crafts, N. and O’Rourke, K. (2013) looked at the ICT revolution as a general purpose technology (GPT) and compared it to the steam and electricity revolutions as GPT’s. He looked specifically at the contribution to labor productivity growth and real price falls by these GPT’s and in comparison ICT contributed way more than the other GPT’s. The contribution of ICT to labor productivity growth was 1,45 percent in the period 1995-2006 and the real price falls due to ICT in the period 1989-2007 equalled 77,5 percent.
As stated in the introduction not everyone agrees with the statement that the ICT revolution has had a great influence on productivity. Gordon, R (2012) for example claims that the ICT revolution, in terms of productivity, has had its climax in the late 1990s and that since the 2000s the ICT had centered it’s focus on entertainment and communication which led to smaller and smarter devices, but did not have a great impact on labour productivity.
When in the 1980s the first computers arrived and a so called “new economy” was born. The e-commerce for example arose in the 1990s in what we call the “dot.com era.” This era was huge for the productivity growth since now instead of paper catalogues people used the internet to sell their products and reach a much greater audience. According to Gordon, R (2012) this labour productivity growth stagnated and on the period 2004-2012. In fact, in the period 2010-2012 the labour productivity growth rate slowed down to only 0.5 percent. We can explain this stagnation by the fact that the attention of inventions had not been on labour-saving innovation. The smartphone replacing the “dumb” cell phone is a perfect example of providing new opportunities for consumption but not for productivity.
Uchitelle (2000) disagrees with enthusiasm about the arrival of the ICT. He states the ICT have not led to an enormous productivity growth. He quotes Robert M. Solow, the Nobel laureate in economics, “We can see the computer age everywhere but in the productivity statistics”. The computer brought efficiency but productivity is more than efficiency. There is also a demand side of productivity. Customers fail to buy the needed additional goods and services. This leads to a productivity growth with a snail’s pace.
Conclusion
As shown in the literature review there are many different views on whether ICT is a source of productivity or just a waste of money. In the earlier years of the ICT revolution companies spend a lot of money on investments in ICT whether they had knowledge of it or not. The influence of the ICT revolution fluctuate a lot. In the earlier years, after a lot of companies invested in ICT capital, there was not a remarkable increase of productivity. This caused a bad image and scientist wrote a lot of bad things about the ICT revolution. A few years later ICT took its part in the manufacturing and services and increased the productivity. Later on, when ICT received its acceptance it also increased the labor productivity till a certain level.