- Robert E. Lucas, Jr. “The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.” The Importance of Growth & Productivity
Dec 25, 2015
- Robert E. Lucas, Jr.
“The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.”
The Importance of Growth & Productivity
Major Avenues of Impact of Internet on Productivity Enhancing globalization Increasing business productivity Increasing consumption productivity (class favorite)
Shortening adjustment time for GPTs.
How Flat is the World? Globalization 1.0: 1492: Size large to size medium. Globalization 2.0: 1880s: Size medium to size small.
Globalization 3.0: 2000: Size small to size tiny.
Friedman’s 10 Flatteners Fall of the Berlin Wall Netscape IPO Work flow software Open-sourcing Outsourcing Off shoring Supply chaining In-sourcing In-forming
Some of your examples:•Skype 2.0•Craigslist•Babelfish•Download.com
Growth and Productivity The Solow Model of Growth
F( , , )GDP K L TFP
Gross domestic product Capital Labor Total factor productivity
1*GDP TFP L K
(Cobb-Douglas production function)
Sources of Growth: Accumulation Capital accumulation
Labor growthPittsburgh 1890s
Great Lakes, 1970s
New Zealand, 2005
1*GDP TFP L K
The Eventual Driver: ProductivityTotal Factor Productivity Relative to Somalia, 1960-1985
Helpman article, Figure 3.3
Something Big Recently Changed
1966-1975 1976-1985 1986-1995 1996-2004
United States 1.2 0.9 1.0 2.0
Euro area 1.7 1.4 1.2 0.6
Japan 0.4 0.6 0.7 0.3
1*GDP TFP L K
Average annual percentage changes in TFP per hour workedSource: Skoczylas and Tissot, Oct. 2005
The U.S. Productivity Boom (it wasn’t all hype)
Somewhat different breakdown with more detail and shorter horizon, but still same pattern.
New Growth Theory The Romer Model of Growth
F( , , , )GDP K L I TFP
Gross domestic product Capital Labor Ideas
TFP
Private investment in R&D spills over to society.Ideas are an externality, leading to possibility of much higher sustained growth.The Romer model makes technological change endogenous.
Productivity Surge & the Net
Personal computers
Networked computers
Class examples• Blast• In-flight WiFi• CRM Online• GasBuddy• LexisNexis• YouSendIt• Konfabulator• CafePress
Ecommerce Not (Yet) a Big Driver in the Statistics Back of the envelope
Brynjolfsson & Hitt: Prices roughly 10 percent lower.Annual Ecommerce 2000: Approximately $150 Billion
$15 billion << 0.1 percentage point of growth.
BUT, by 2003: B2B ecommerce = $843 billionB2C ecommerce = 75 billion
If savings still 10%, then savings almost $100 billion.(probably too high)
Consumer productivity changes Better shopping, payment, service
consumption
Your examplesPriceGrabber, Expedia, Priceline, Progressive, Carfax, Campusi,…
Teemaster, OpenTable, Fandango, CitySearch,…
BankofAmerica, PayPal, E-Trade,…
Time to Sow, Time to Reap
Years Since GPT Discovery
Out
put
Rel
ativ
e to
yea
r 0
Year 0
1
Investment phase Returns phase
(Checkfree, GasBuddy, Wikipedia, Safeway, …)
(CNet, Finance Yahoo, Stanford Library, IMDB, Orbitz, Dictionary, …)
Slump and Boom
iTi iT
1iT (Sufficient innovation & training to use effectively)
Phase 1: Slump Phase 2: Boom
Where are we with:
CRM online?
MapQuest?
Summary The Three GPTs have all affected productivity,
but are in different phases Digital/computing in returns phase Networking emerging from investment phase Individualization early in investment phase
The Internet is enhancing globalization, increasing B2B productivity, emerging in consumption productivity, accelerating GPTs.