Page 35 - The Fourth Industrial Revolution

2014 was only 0.5%, a significant drop when compared to the 1.4% annual

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growth in the period 1995 to 2007. This drop in measured productivity is
particularly concerning given that it has occurred as the 50 largest US
companies have amassed cash assets of more than $1 trillion, despite real
interest rates hovering around zero for almost five years. 20

Productivity is the most important determinant of long-term growth and
rising living standards so its absence, if maintained throughout the fourth

industrial revolution, means that we will have less of each. Yet how can we
reconcile the data indicating declining productivity with the expectations of
higher productivity that tend to be associated with the exponential progress

of technology and innovation?

One primary argument focuses on the challenge of measuring inputs and

outputs and hence discerning productivity. Innovative goods and services
created in the fourth industrial revolution are of significantly higher
functionality and quality, yet are delivered in markets that are fundamentally
different from those which we are traditionally used to measuring. Many
new goods and services are “non-rival”, have zero marginal costs and/or

harness highly-competitive markets via digital platforms, all of which result
in lower prices. Under these conditions, our traditional statistics may well
fail to capture real increases in value as consumer surplus is not yet

reflected in overall sales or higher profits.

Hal Varian, Google’s chief economist, points to various examples such as

the increased efficiency of hailing a taxi through a mobile app or renting a
car through the power of the on-demand economy. There are many other
similar services whose use tends to increase efficiency and hence
productivity. Yet because they are essentially free, they therefore provide

uncounted value at home and at work. This creates a discrepancy between
the value delivered via a given service versus growth as measured in
national statistics. It also suggests that we are actually producing and
consuming more efficiently than our economic indicators suggest. 21

Another argument is that, while the productivity gains from the third

industrial revolution may well be waning, the world has yet to experience
the productivity explosion created by the wave of new technologies being
produced at the heart of the fourth industrial revolution.

Indeed, as a pragmatic optimist, I feel strongly that we are only just

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