Wed, Jun 08, 2016 - Page 9 News List

Why the economic payoff from technology is so elusive

While some industries like technology, finance and media have adapted well to digital technology, others like healthcare and hospitality have trailed as they found the cultural adjustment challenging

By Steve Lohr  /  NY Times News Service

Illustration: Mountain People

Your smartphone allows you to get almost instantaneous answers to the most obscure questions. It also allows you to waste hours scrolling through Facebook or looking for the latest deals on Amazon.

More powerful computing systems can predict the weather better than any meteorologist or beat human champions in complex board games such as chess.

However, for several years, economists have asked why all that technical wizardry seems to be having so little effect on the economy. The issue surfaced again recently, when the government reported disappointingly slow growth and continuing stagnation in productivity. The rate of productivity growth from 2011 to last year was the slowest since the five-year period ending in 1982.

One place to look at this disconnect is in the doctor’s office. Peter Sutherland, a family physician in Tennessee, made the shift to computerized patient records from paper in the past few years. There are benefits to using electronic health records, but grappling with the software and new reporting requirements has slowed him down, he said.

He sees fewer patients and his income has slipped.

“I’m working harder and getting a little less,” he said.

The productivity puzzle has given rise to a number of explanations in recent years — and divided economists into technology pessimists and optimists.

The most prominent pessimist is Robert Gordon, an economist at Northwestern University. His latest entry in the debate is his new book, The Rise and Fall of American Growth. Gordon contends that the current crop of digital innovations does not yield the big economic gains of breakthrough inventions of the past, like electricity, cars, planes and antibiotics.

The optimists are led by Erik Brynjolfsson and Andrew McAfee, codirectors of the MIT Initiative on the Digital Economy. They argue that there have always been lags between when technology arrives and when people and institutions learn to use it effectively. That has been true for a range of technologies, including the electric motor and the Internet, which contributed to the last stretch of healthy productivity growth in the late 1990s and early 2000s.

The gains from current tech trends like big-data analysis, artificial intelligence and robotics will come, they say. Just wait.

Some economists insist the problem is largely a measurement gap, because many digital goods and services are not accurately captured in official statistics. However, a recent study by two economists from the US Federal Reserve and one from the IMF casts doubt on that theory.

Technology spending has been robust, rising 54 percent over a decade to US$727 billion last year, according to the research firm International Data Corp. Despite all the smartphone sales to consumers, most of the spending is by companies investing in technology to increase growth and productivity.

However, an industry-by-industry analysis, published by the McKinsey Global Institute, the research arm of the consulting firm McKinsey & Co, found that the march of digital technology across the economy has a long way to go.

The McKinsey researchers examined 22 industries, measuring not only investment, but also the use of technology to change how work is done. Some industries, like technology, media and financial services, were well along, while others, like healthcare and hospitality, trailed.

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