OECD Global Forum on Productivity Workshop - Berlin - 15 September 2017, Bart van Ark, Chief Economist, The Conference Board

1. The Productivity Paradox of the New Digital Economy
Bart van Ark, Chief Economist, The Conference Board
September 2017

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The New and Old Digital Economy represent distinctly
different technologies and innovation patterns
The Old Digital Economy
(1980s-2000s)
Digitization driven by the rise of
the personal computer and the
internet as key drivers of greater
business efficiency, creating
access for individuals to
digitization and the beginning of e-
commerce.
The New Digital Economy (as
of 2000s)
Digitization driven by a
combination of mobile
technology; ubiquitous access to
the internet; and the shift toward
storage, analysis, and
development of new applications
in the cloud.
Digital
Transformation
1st: The Industrial
Revolution
2nd: Steam and
Railways
3rd: Steel and
Heavy Engineering
4th: Energy and
Combustion Engine
5th: Digital Age
Based on Carlota Perez

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The global productivity slowdown is a bigger deal than
just the slowness of the New Digital Economy
Source: The Conference Board
 Chart or image
Global GDP per person employed, annual and trend, 1995-2017, %
Source: The Conference Board Total Economy Database
(https://www.conference-board.org/data/economydatabase/)
 The global financial crsis
 Emerging markets running out of
catching-up potential
 Regulatory environment
 Slow absorption of digital
technology:
 The New Digital Economy (NDE) is
diffusing rapidly but are not being
absorbed that quickly in business
models
 Slow adaptation of employee skills
and management skills to
requirements of new technology,
innovation and business models
We are currently still in the instalment phase of the New Digital Economy

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The productivity paradox of the New Digital Economy
Note: “Most intensive ICT-using industries” refer to the top half of the industries with the highest share of value of ICT investment plus
purchases ICT services as a percentage of “synthetic output” (which is value added at industry level plus the intermediate use of ICT
services ). Least intensive ICT-using sectors refer to the bottom half of industries in terms of ICT intensity.
Source: Bureau of Economic Analysis; Bureau of Labor Statistics; Eurostat; The Conference Board
Labor productivity growth and contributions from digital- producing and –using sectors, in %

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The productivity paradox of the New Digital Economy
Note: “Most intensive ICT-using industries” refer to the top half of the industries with the highest share of value of ICT investment plus
purchases ICT services as a percentage of “synthetic output” (which is value added at industry level plus the intermediate use of ICT
services ). Least intensive ICT-using sectors refer to the bottom half of industries in terms of ICT intensity.
Source: EUKLEMS update, September 2017, The Conference Board
Sources of Labor Productivity Growth in ICT-Producing and More and Less Intensive-Using
Industries, Germany, 1999-2015

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The productivity paradox of the New Digital Economy
Note: “Most intensive ICT-using industries” refer to the top half of the industries with the highest share of value of ICT investment plus
purchases ICT services as a percentage of “synthetic output” (which is value added at industry level plus the intermediate use of ICT
services ). Least intensive ICT-using sectors refer to the bottom half of industries in terms of ICT intensity.
Source: EUKLEMS update, September 2017, The Conference Board
Sources of Labor productivity Growth in ICT-Producing and More and Less Intensive-Using
Industries, Germany, 2007-2015

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The distribution of Digital Intensive-Using and Less-
Intensive Using Sectors is still random
1999-2006
2007-2015
0.0
0.5
1.0
1.5
2.0
2.5
0 10 20 30 40 50 60 70 80 90 100
CumulativeLaborProductivityGrowthcontribution
Cumulative industry share
ICT-PRODUCING ICT-INTENSIVE ICT-LESS INTENSIVE
Machinery &
equipment
Education
Business services
Transport & storage
ConstructionWholesale
Pub/audio/visual
Health care
Finance
Retail
Real estate
Government
Electronics
Transport equipment
Mining
Information services
Telecom services
Finance
Business services
Education
Health care
Construction
Retail
Utilities
Pub/audio/visual
Government
Real estate
Machinery &
equipment
Transport equipment
Wholesale
Chemicals
Transport & storage
Telecom
services
Germany
Source: EU KLEMS, The Conference Board, August 2017

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• Creative destruction
• Exploration of new markets
• Battle of new paradigm with the old
• Supply “push”
• Growth confided to small sectors
We are still in the Installation Phase of the New Digital
Economy
Installation
phase
• Creative construction
• Consolidation & expansion of new markets
• Widespread acceptance
• Demand “pull”
• Wide benefits for the economy
Deployment
phase
Source: based on Carlota Perez, Technological Revolution and Financial Capital. The Dynamics of Bubbles and Golden Ages, (Cheltenham,
United Kingdom, Edward Elgar Publishing Limited), 2002

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CEO Challenge Survey highlights the digital
challenges organizations face
Source: The Conference Board CEO Challenge 2017
Strongly agree Somewhat agree

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CEO Challenge Survey highlights the digital
challenges organizations face
Source: The Conference Board CEO Challenge 2017
Strongly agree Somewhat agree

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Big data applications are still in early stages
Commentary
Less than half the
companies from a large
sample (n=526) just
conducted have
embedded big data in
their operations or are
piloting it
North America more
advanced than Europe as
is retail which has an
explicit customer
marketing focus
Not surprisingly,
manufacturing
applications trail others,
but are also piloting usage
at the highest rates
Source: BARC 2015 Survey

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Six things that companies do (or not) in order to succeed
(or fail) in the New Digital Economy
Source: Navigating the New Digital Economy (The Conference Board, 2016). https://www.conference-board.org/digital-transformation-economies/

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The shift from investment in ICT assets to spending on ICT
services happened at different times and speeds
Source: Bureau of Economic Analysis; Eurostat; German Statistical Authority; EUKLEMS; The Conference Board
Computer services and ICT investment as a % of GDP
UNITED STATES UNITED KINGDOM GERMANY

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The shift toward buying ICT services helps businesses
become more productive
Source: US Bureau of Labor Statistics, and elaboration of data from the US Bureau of Economic Analysis; The Conference Board
Note: Changes are measured as 2007-2014 (annual average) minus 1999-2006 (annual average)

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Total factor productivity growth doesn't seem to be improving
with the rise ICT service intensity
Source: US Bureau of Labor Statistics, and elaboration of data from the US Bureau of Economic Analysis; The Conference Board
Note: Changes are measured as 2007-2014 (annual average) minus 1999-2006 (annual average)
Change in total factor productivity growth (2010-2013 over 2002–2007) and change in ICT services
intensity (2008-2013 over 1997-2007), United States, annual average

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 Within the boundaries of how we define GDP:
 New products and services are never measured well. It MAY be happening faster,
but positive and negative effects are offsetting each other
 The measured price declines of ICT goods and services have slowed more than
seems reasonable, understating the pace of investment in the New Digital
Economy …
 … but most countries are net importers of ICT making it a wash for GDP (except
US, Japan, China and some smaller specialized economies such Ireland, Finland,
South Korea, Taiwan and Singapore)
 Business spending on intangible assets, such as R&D, design, organizational
innovations, marketing and branding is largely ignored as a productive asset, but
how big is the ROI?
 Outside the boundaries of how we define GDP:
 Consumer surplus – what is new? Is it bigger than it used to be?
 Free content – should we value it and how?
 The (real) value of production vis-a-vis the utility we derive from it: those are NOT
one and the same thing
Productivity measurement: “Lies, damned lies and
statistics”?

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Changes in Knowledge Based Assets and ICT services are
complementary and together they drive innovation
Note: Knowledge Based Assets refer to design ,brand, organizational structure, firm-specific employee training. and management of companies
Source: SPINTAN, INTAN-Invest, Bureau of Economic Analysis, The Conference Board
Changes in intangible and ICT services intensity, United States, 2008–2013 relative to the 1997–2007 average

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Not much confidence among CEOs in leadership
and employees’ IT skills
Source: The Conference Board CEO Challenge 2017
Strongly agree Somewhat agree Strongly agree Somewhat agree

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Higher overall
risk of shortage
Larger excess
demand
Fewer alternative
work arrangements
Higher skill
requirements

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The Digital “Debate” Divide is not as wide as claimed by
the pundits
“If I had to do it over again, I would put more emphasis on the way
technology leads to structural changes in the economy, and less on
jobs, jobs, jobs. The central phenomenon is not net job loss. It’s the
shift in the kinds of jobs that are available.”
Andrew McAfee, MIT, in James Surowiecki, “Robopocalypse Not”, Wired
“There’s a considerable divide... between those … who think that we’re
on the verge of revolutionary advances in technology and innovation….
As compared to me, where I think that new technologies are coming,
but they’re occurring at an amazingly slow pace…. The distinction is
fast versus slow.”
Robert Gordon, Economist, Northwestern University

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Can the New Digital Economy turn the productivity
slowdown around?
Source: The Conference Board, United Nations
GDP per person employed, trend growth, HP filter, 1970-2026
The end of the
“long 20th century”
(Robert Gordon)
Globalization,
innovation and
deregulation
Conflicting
trends
in mature
and
emerging
markets
Secular
or supply
side
stagnation?
Productivity
revival or
solidifying
the long-
term
slowdown?
Until late 1980s 1990s-early 200os Mid 2000s 2017 onwards2011-16
Source: The Conference Board Total Economy Database (https://www.conference-board.org/data/economydatabase/)

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Investment in knowledge-based
assets—in particular product and
services design, worker training,
and organizational innovations—
are key to the business innovation
process.
A tech-savvy workforce is
indispensable to get the most out
of digital technology to bring new
products and services to market
and become more productive and
profitable
Science, technology,
engineering, and mathematics
(STEM) occupations are critical
for organizations to transition
their digital innovations into
business innovations.
THE VIRTUOUS CYCLE of digital innovation, business
innovation and faster industry growth

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Investment in knowledge-based
assets—in particular product and
services design, worker training,
and organizational innovations—
are key to the business innovation
process.
A tech-savvy workforce is
indispensable to get the most out
of digital technology to bring new
products and services to market
and become more productive and
profitable
Science, technology,
engineering, and mathematics
(STEM) occupations are critical
for organizations to transition
their digital innovations into
business innovations.
THE VIRTUOUS CYCLE of digital innovation, business
innovation and faster industry growth

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• Creative destruction
• Exploration of new markets
• Battle of new paradigm with the old
• Supply “push”
• Growth confided to small sectors
How will the transition from the installation to the
deployment phase proceed?
Installation
phase
Frenzy period – sometimes followed by crisis
• Creative construction
• Consolidation & expansion of new markets
• Widespread acceptance
• Demand “pull”
• Wide benefits for the economy
Deployment
phase
Source: based on Carlota Perez, Technological Revolution and Financial Capital. The Dynamics of Bubbles and
Golden Ages, (Cheltenham, United Kingdom, Edward Elgar Publishing Limited), 2002

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Questions ?