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Technology and Welfare: Improving the Efficiency of Manufacturing

Penny Brooks

1st September 2014

With brilliant timing to coincide with the first bullet-point for the new AQA BUSS4 research theme, today's Deloitte Monday Briefing focuses on Technology and Human Welfare. The piece considers the paradox between the very considerable effect that communication technologies have had on our daily lives, and the far less noticeable effect on output; measured productivity – effectively the efficiency of production – has improved far more slowly than the capacity of computers.

Writing the Deloitte Briefing, Ian Stewart says that almost 30 years ago, the Nobel laureate economist, Robert Solow, observed that, "You can see the computer age everywhere but in the productivity statistics." - this became known as the Solow Computer Paradox. He goes on to reflect that

"One possible explanation is that it takes a long time for inventions to have their full economic effect. Economic historians often cite the long lag between the pioneering experiments of Thomas Edison in the 1880s and the organisation of US factories around electrical power, 40 years after."

Much of the analysis which follows relates more directly to standards of living and how they are impacted by technology, than manufacturing. However, in 2013 a number of US economists, led by Daron Acemoglu, investigated the US manufacturing industry to see whether the Solow Computer Paradox was evident, or whether technology was now leading to faster growth in productivity - and although this is specifically about the US and not the UK, as specified by the AQA Research Theme, might be a useful reference for comparison.

To find the report as a pdf, search for Return of the Solow Paradox? IT, Productivity, and Employment in U.S. Manufacturing - Acemoglu et al. Although the body of the report gives much more detail of the research than is needed for this purpose, the conclusions are useful, and not what you might expect:

This paper documents a pattern of growth among manufacturing industries that stands in contrast to
the powerful and intuitively-appealing technological-discontinuity view that IT-induced technological
changes are transforming the modern workplace and making workers redundant. We find little
differential productivity growth in IT-intensive manufacturing industries. In fact, such industries do
not even appear to experience faster growth of gross output than the rest of manufacturing. Though
there is some relative decline in employment in these industries in the 1990s, this follows their more
rapid growth in the 1980s and is followed by their relative rebound in the 2000s. Overall, there is
little support for this popular technological-discontinuity view within U.S. manufacturing.

Penny Brooks

Formerly Head of Business and Economics and now Economics teacher, Business and Economics blogger and presenter for Tutor2u, and private tutor

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