It’s a puzzling but well-known fact that even though the economy has been in recovery and growing in the nine years since the Great Recession, productivity growth has been a laggard. Even more surprising is that those nine years have seen dramatic technological advances — and until now it’s generally been accepted that new technology drives greater productivity.
A McKinsey paper, “Solving the productivity puzzle,” succinctly sums up the issue this way: “Labor-productivity-growth rates remain near historic lows across many advanced economies…Yet in an era of digitization, with technologies ranging from online marketplaces to machine learning, the disconnect between disappearing productivity growth and rapid technological change could not be more pronounced.”
The paper offers a superb deep-dive into the quandary. It says that three economic waves have collided “to produce a productivity-weak but job-rich recovery, with productivity growth falling on average to 0.5 percent in the 2010–14 period compared to 2.4 percent a decade earlier.” The three waves are “the waning of a productivity boom that began in the 1990s, financial crisis aftereffects including persistent weak demand and uncertainty, and digitization.”
The paper offers recommendations for how to boost lagging productivity. One set of them details how overall demand for goods and services can be increased. Perhaps even more important is the other set of recommendations, about ensuing that digital technologies are used properly. The paper notes, “The productivity-boosting opportunities could be at least 2 percent on average per year over the next ten years, with 60 percent coming from digital opportunities…. those that boost operational efficiency, reduce costs, streamline labor requirements, and enhance innovation (for example via automation) as well as those that are reshaping entire business models and industries and changing barriers to entry (for example, via online marketplaces and platforms).”
In practice, that means “leading by example and digitizing the public sector, leveraging public procurement and investment in R&D, driving digital adoption by small and medium-sized enterprises, investing in hard and soft digital infrastructure and clusters, committing to the education of digital specialists as well as consumers, ensuring global connectivity, and addressing privacy and cybersecurity issues.”
The authors of the paper conclude on a positive note, writing, “A dual focus on demand and digitization could unleash a powerful new trend of rising productivity growth of at least 2 percent a year that drives prosperity across advanced economies for years to come.”
The paper reinforces a lot of what we’ve found in our work here at Alpha Software. We’ve worked hard to make Alpha Anywhere a big productivity-boosting tool. With its no code/low code approach, it lets people with little or no technical skills build powerful, sophisticated mobile and web apps. That’s one way to drive digital adoption at small and medium-sized enterprises, as the McKinsey paper recommends — and at large enterprises as well. Alpha Anywhere also cuts costs, increases innovation and automation, streamlines labor requirements and boosts operational efficiency, all of which the paper says are necessary to boost an economy’s overall productivity.