The Business Times

The missing pandemic innovation boom

Digitisation and new ways of working were meant to unleash productivity growth. What went wrong?

Published Mon, Aug 29, 2022 · 03:16 PM

AMONG the trials and tribulations of the plague years, there was a silver lining. In late 2020, with the approval of Covid-19 vaccines, and into 2021, as the jabs worked their magic, techno-optimism began to spread. If people could develop life-saving inoculations in months, why couldn’t the world move out of its low-growth, low-productivity slumber? Firms could embrace digitisation as never before; the shift to working from home could allow people, free of office gossip and draining commutes, to work more effectively; before long there would be vaccines for every disease imaginable. Governments promised to spend big on science; companies outlined juicy R&D plans.

It was quite a change of mood. In the years before the pandemic, the rich world’s growth rate had drastically slowed. In the 2010s American labour productivity—output per hour of work—grew half as quickly as in the decade before. Societies had become worse at finding new ideas, translating them into innovations and promulgating these innovations. Robert Gordon’s “Rise and Fall of American Growth”, published in 2016, argued that there were fewer life-changing discoveries waiting to be made. In early 2020 a paper in the American Economic Review, a leading journal, made the case that, even where there were ideas to be discovered, they were getting harder to find.

The possibility that the dynamic had shifted was intoxicating, and not just because it suggested that some good would come of the pandemic. Productivity growth is the root cause of higher real wages. As the supply side of the economy expanded, inflation would become less of a problem. And innovations would improve people’s lives in ways not captured in the economic data. But our analysis comes to a depressing conclusion: so far there is little sign that the global economy is getting more productive.



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