Do computers boost productivity?

According to one student of the numbers, the answer is: no way.

By Andrew Leonard
Published April 24, 1998 7:00PM (EDT)

In the church of the digital revolution, perhaps the most sacred tenet is the belief that computers increase productivity. Personal productivity, entrepreneurial productivity, Gross National Product productivity: You name it, computers are supposed to enhance it. Even better, once those computers are all linked together in a great big network, the sky's the limit. Computers and networks, we are told, have ushered in the era of the "new economy" -- an age of boundless wealth and prosperity. As Wired Magazine declared last summer in its self-described "radically optimistic" "The Long Boom" cover story, "We are watching the beginnings of a global economic boom on a scale never experienced before. We have entered a period of sustained growth that could eventually double the world's economy every dozen years and bring increasing prosperity for -- quite literally -- billions of people on the planet."

And we owe it all to computers. Or do we? The truth may be quite different.

In March, financial journalist Jeff Madrick, author of "The End of Affluence" and former finance editor at Business Week, painted a quite different picture in a lengthy New York Review of Books essay. Madrick is writing a book on productivity, and he's spent a lot of time crunching numbers. His article makes a compelling case that computer technology, at least so far, has yet to significantly increase productivity. On the contrary, he argues, computer technology may actually be slowing the rate at which productivity grows. Access to information, says Madrick, has so leveled the competitive playing field that people are more important than ever before. In the real "new economy," talent will be at a premium, just as it was in the pre-industrial revolution past, when individual artisans ruled the economic roost.

Madrick's essay is packed with a close review of productivity figures and statistics. Salon decided to cut to the chase and catch up with Madrick at his Manhattan office, where he alternates working on his new book (due out in 1999) with his job as editor of Challenge Magazine, a bimonthly journal devoted to economics and public policy.

When you discuss the "new economy" in your New York Review of Books essay, your argument could easily be taken as a direct rebuttal of Wired's "Long Boom" story. Were you familiar with that article?

I read it. It was quite fanciful. It's a profession of faith. It's not based on serious analysis. They are essentially talking about what may happen, and I keep asking the question, "Why hasn't it happened yet?" And I don't think they have a good answer for that, except for "These things take a long time." Well, that can't pass for intellectual analysis. It's conjecture.

Would you say the same is true for the whole concept of "the new economy"? That it's nothing but conjecture?

No, I think there is a new economy. What I don't think is that it's going to result in the same kind of productivity growth that the old economy generated. I don't deny that something significant has changed. What I disagree with, and what often upsets me, is the presumption that because something has changed, and because it is technologically exciting, it will therefore automatically produce rapid economic growth. That is simply not true. It may not produce rapid economic growth, and there is good reason to believe it will produce slower economic growth than the past.

Why is that? Are you saying that computer technology slows productivity gains?

I think that's true. In the '50s, '60s and early '70s, America grew because it was the champion of the standardized product. Everybody bought the same product. And in the age of mass production, you could increase productivity very quickly if you could sell more of that product through economies of scale and economies of distribution and size. But by the '70s, consumers were pretty satiated with the same product and they started to want variety. So corporations learned how to make a variety of products more inexpensively, to fill ever smaller market niches.

How do computers fit into this?

Computer technology really assisted in the creation of variety -- computerized inventory management and computer-driven manufacturing processes allow you to change very quickly, to very rapidly manufacture a different kind of product. But an economy that offers all kinds of products [as opposed to a mass production-based economy] emphasizes innovation, not only in terms of what kind of product you make, but also in the marketing of the product, the financing of the product and the delivery and distribution of the product.

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We've now become an economy that needs an enormous amount of innovation. And you cannot computerize innovation. The great irony is that computerization has made some kinds of tasks very productive, and has eliminated the need for people in production lines -- but in the process computers have made it so efficient to reach the consumer with new products that the consumer then demands a level of constant innovation that can only be supplied by people.

But wouldn't the moguls of Silicon Valley turn around and say, that's why the age of the network is so great -- because it facilitates the process of taking a new idea or innovation and transforming it into a marketable product? The more people who connect to the network, the better it is for everyone.

I think that is true. I'm not arguing that the computer hasn't made things more efficient. It has made things much more efficient. The best way I can put it is that when information is so available to people, it becomes less valuable. What becomes more valuable is what you do with that information. Computerization has made access to information extraordinarily available. But what matters, what makes money, is what you do with that information, what kind of product you come up with, how you innovate. And that increasingly requires people. In the past just having information gave you a competitive advantage. Now having the information no longer gives you a competitive advantage. The only competitive advantage is creative input.

And creative input is expensive. In your Review essay you write that "the modern economy, I would argue, may be returning to a high-technology version of a crafts economy, based on worker skills, thinking, and inventiveness, rather than on the muscle of large scale factories and distribution networks." Is that what you mean when you talk about "creative input" as "the only competitive advantage"?

I think one has to understand how extraordinary mass production once was. It created an enormous amount of productivity with relatively little creative input. It did not need people. You needed people on the assembly line, but you didn't need much creative input. What you needed was this massive organization and huge size. It created enormous productivity. Now you need engineers and consultants and designers -- that's where the value added is, and that's costly. The point is not that we are less productive now than we were then. We are much more productive than we were in 1929, or 1950. But our productivity is not advancing as rapidly as it once did. And, in my view, a big reason for this is that the economy now requires creativity, and you can't computerize creativity.

What are the implications of this?

Well, if we're balancing things out, on the one hand we have more interesting jobs, and more interesting products, more fulfilling jobs and more fulfilling products. But we have slower growing income, and the nation has to learn to deal with slower growing income, and that is very hard to do. America was built on fast-growing income -- the American society, our ideology and social and political institutions, were built on fast-growing income.

And that's not true anymore?

I think there's an illusion in Silicon Valley and Wall Street and Washington that people are doing great. But incomes have not risen for most people, or if they have, they've risen very slowly, and families only get by because the spouse now works. Medical costs have risen way faster than average income, and the cost of private education and higher education has also risen way faster.

Are there enough educated, talented people to satisfy the demand that this kind of "new economy" has?

Do I think there are enough creative people? Undoubtedly. I think the long history of civilization shows that there has only been one problem. It is not lack of ability, it is lack of opportunity for the ability that exists. Obviously genius and talent is always scarce, because you can always use more of it -- there is never a sufficient amount of it. But there is an awful amount of talent in America that has gone untapped, I assure you. We have to do something about enabling disadvantaged people to have access to decent education.

How do we tap that talent? Is this a job for government or for the free market?

My predilection is strongly in favor of government action, because it will equalize benefits. A market approach will make it more of a two-tier approach than it already is. There are some benefits to a market approach, I will grant, but I think overall it is the government's province to do this.

I'm not that optimistic that we will do what's necessary, however. I'm only saying that something can be done. But I'm not so sure that it is in the American character to do it. We've always had abundance and rapid economic growth, so we didn't have to think about it very much. We could support our educational requirements and our social programs because people's incomes kept going up. Now incomes are not going up, or they are going up rather slowly, except for a selected number of people. We may not have the will or the vision to do what is necessary. I would say in fact that the odds are against it.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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