Rapid Technological Progress Vs. Low Productivity Growth

Ryan Avent, economics columnist for The Economist, has written a fascinating book called "The Wealth of Humans". In this short text, he discusses one aspect of labour in the 21st century: how technological progress and low productivity growth fit together. This is arguably one of the most important debates in economics at the moment. (Here is another take that I piqd for piqd.de by Bank of England chief economist Andy Haldane.)

Ryan's argument is that technological progress is not too slow, as some have argued. To the contrary, the combination of slow productivity growth and rapid technological progress is not uncommon. 

Returning to the industrial parallel, it was not the case that James Watt developed his steam engine and everyone said “great, this technology is clearly superior to everything else and we will therefore use it all across the economy”. Rather, it was used in a small number of contexts in which the economics (expensive labour, cheap energy) pushed business owners to experiment. Then, over time, engineers improved the technology and firms built up a wealth of knowledge about how to use it to make a buck. Then eventually the technology was so good that it began to be adopted in places where labour costs were not all that high.

He argues that today, "cheap labour is reducing the incentive to push new technologies along a similar path". And technology has helped to keep labour cheap, which has four consequences that he discusses in the final sections of his piece: wages stagnate, bargaining power of labour erodes, the whole economy suffers from a lack of demand, which all combined mean that firms do not invest enough in turning technological progress into usable businesses. It is a very good, thought-provoking read on an important—if not the most important—debate in economics at the moment.