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The Productivity Paradox of the New Digital Economy
Bart van Ark, Chief Economist, The Conference Board
September 2017
www.conferenceboard.org© 2016 The Conference Board, Inc. |2
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |3
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |4
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 %
www.conferenceboard.org© 2017 The Conference Board, Inc. |5
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |6
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |7
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |8
• 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
www.conferenceboard.org© 2017 The Conference Board, Inc. |9
CEO Challenge Survey highlights the digital
challenges organizations face
Source: The Conference Board CEO Challenge 2017
Strongly agree Somewhat agree
www.conferenceboard.org© 2017 The Conference Board, Inc. |10
CEO Challenge Survey highlights the digital
challenges organizations face
Source: The Conference Board CEO Challenge 2017
Strongly agree Somewhat agree
www.conferenceboard.org© 2017 The Conference Board, Inc. |11
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |12
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/
www.conferenceboard.org© 2017 The Conference Board, Inc. |13
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |14
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)
www.conferenceboard.org© 2017 The Conference Board, Inc. |15
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |16
 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”?
www.conferenceboard.org© 2017 The Conference Board, Inc. |17
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |18
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |19
Higher overall
risk of shortage
Larger excess
demand
Fewer alternative
work arrangements
Higher skill
requirements
www.conferenceboard.org© 2017 The Conference Board, Inc. |20
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |21
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/)
www.conferenceboard.org© 2017 The Conference Board, Inc. |22
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |23
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
www.conferenceboard.org© 2017 The Conference Board, Inc. |24
• 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
www.conferenceboard.org© 2017 The Conference Board, Inc. |25
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The Productivity Paradox of the New Digital Economy

  • 1. The Productivity Paradox of the New Digital Economy Bart van Ark, Chief Economist, The Conference Board September 2017
  • 2. www.conferenceboard.org© 2016 The Conference Board, Inc. |2 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
  • 3. www.conferenceboard.org© 2017 The Conference Board, Inc. |3 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
  • 4. www.conferenceboard.org© 2017 The Conference Board, Inc. |4 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 %
  • 5. www.conferenceboard.org© 2017 The Conference Board, Inc. |5 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
  • 6. www.conferenceboard.org© 2017 The Conference Board, Inc. |6 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
  • 7. www.conferenceboard.org© 2017 The Conference Board, Inc. |7 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
  • 8. www.conferenceboard.org© 2017 The Conference Board, Inc. |8 • 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
  • 9. www.conferenceboard.org© 2017 The Conference Board, Inc. |9 CEO Challenge Survey highlights the digital challenges organizations face Source: The Conference Board CEO Challenge 2017 Strongly agree Somewhat agree
  • 10. www.conferenceboard.org© 2017 The Conference Board, Inc. |10 CEO Challenge Survey highlights the digital challenges organizations face Source: The Conference Board CEO Challenge 2017 Strongly agree Somewhat agree
  • 11. www.conferenceboard.org© 2017 The Conference Board, Inc. |11 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
  • 12. www.conferenceboard.org© 2017 The Conference Board, Inc. |12 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/
  • 13. www.conferenceboard.org© 2017 The Conference Board, Inc. |13 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
  • 14. www.conferenceboard.org© 2017 The Conference Board, Inc. |14 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)
  • 15. www.conferenceboard.org© 2017 The Conference Board, Inc. |15 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
  • 16. www.conferenceboard.org© 2017 The Conference Board, Inc. |16  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”?
  • 17. www.conferenceboard.org© 2017 The Conference Board, Inc. |17 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
  • 18. www.conferenceboard.org© 2017 The Conference Board, Inc. |18 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
  • 19. www.conferenceboard.org© 2017 The Conference Board, Inc. |19 Higher overall risk of shortage Larger excess demand Fewer alternative work arrangements Higher skill requirements
  • 20. www.conferenceboard.org© 2017 The Conference Board, Inc. |20 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
  • 21. www.conferenceboard.org© 2017 The Conference Board, Inc. |21 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/)
  • 22. www.conferenceboard.org© 2017 The Conference Board, Inc. |22 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
  • 23. www.conferenceboard.org© 2017 The Conference Board, Inc. |23 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
  • 24. www.conferenceboard.org© 2017 The Conference Board, Inc. |24 • 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
  • 25. www.conferenceboard.org© 2017 The Conference Board, Inc. |25 Questions ?