The coronavirus pandemic hit the global economy hard in 2020, but the economy may be close to consolidating years of technological advances — and ready to take off in a burst of productivity growth.
Why it matters: Productivity is the engine that makes the economy grow for everyone. If long-gestating technologies like AI and automation really are ready to fulfill their potential, we’ll have the chance to escape the great stagnation that has choked our economy and poisoned our politics.
What’s happening: Hidden in part by the human and economic suffering of the pandemic, 2020 saw a collection of remarkable technological breakthroughs, including a mRNA vaccine for COVID-19 and advances in AI language generation.
Context: In a blog post published last month, the economist Tyler Cowen added in a few others, including affordable solar power and remote work, and asked whether total factor productivity (TFP) — a rough approximation of the effect technological and strategic progress has on economic productivity — in 2021 “will be remarkably high, maybe the highest ever?”
- Cowen’s musings matter because he literally wrote the book on “the great stagnation” — his term for the curious and persistent slowdown in wage and productivity growth in the U.S. over the past few decades, even as the internet and everything that grew out of it seemed to transform life as we knew it.
Flashback: After a few postwar decades of scorching growth, labor productivity began to decelerate sharply in the 1970s, and aside from a period of 3% growth in the mid-1990s to early 2000s — which economists attributed to the widespread effects of the computer — it’s stayed mired at about 1.2% a year ever since .
- Some experts have argued that conventional economic metrics fail to fully measure the productivity benefits of newer technologies like social media and the internet, but even so, they don’t compare to the advances of the past, like widespread electrification and antibiotics.
It looks increasingly possible that the last decade plus of sluggish productivity growth isn’t a sign that the benefits of new technology have permanently plateaued, but that businesses were using the time to invest in and adjust to those new advances — and that we may now be ready to reap the benefits.
- Economists like Erik Byrnjolfsson have argued that we’re experiencing a “productivity J-curve.”
- When powerful new technologies are introduced into the economy, productivity may flatten or even dip a bit as initial investments are made — the first part of the J. But once those technologies have been fully digested, productivity can swoop upwards — the second part of the J.
- That’s what we’ve seen in the past. Computers began to filter into the workplace in the 1970s and 80s, but it wasn’t until the 1990s that the productivity gains of all those PCs were finally felt.
What they’re saying: “Often times in the short term it can be costly to invest in new business processes and skills, and during that time you won’t see productivity rising,” Byrnjolfsson told me earlier this year.
- “But in the years after you’ll see the upwards part of the J, and COVID-19 has catalyzed the energy and creativity around this process.”
By the numbers: A survey by the World Economic Forum in October found more than 80% of global firms plan to accelerate the digitization of business process and grow remote work, while half plan to accelerate automation.
- About 43% expect those changes to reduce their workforces overall, which implies an expected increase in productivity.
The catch: If those gains don’t filter down to workers — or worse, end up eliminating jobs without replacing them with better ones — even a faster, more productive economy won’t ameliorate the inequality-driven political divisions that have dogged the U.S. in recent years.
The bottom line: As bad as 2020 has been, we may look back upon it as the year that finished the launchpad for a new Roaring ’20s.