Why is there slowdown in productivity growth despite rise of IT-driven digital environment?

By Bhabani Shankar Nayak

From the World Wide Web to generative artificial intelligence, the ever-changing landscape of digitalization defines this century. From the 16-megabyte floppy disk, CDs and DVDs to multi-terabyte digital storage devices and online storage drives, the rapid evolution of innovative products and processes in digitalization is evident. These advancements are constantly accelerating due to ongoing research and developments in science and technology.

The pace of change is so rapid that one must be a continuous learner to keep up with daily digital advancements. Digitalization has enhanced human welfare and social progress with the rise of information technology and communication. It has increased the speed of information, accessibility of goods and services to people with purchasing power and digital links. Digitalization has also increased the productive power of labour.

However, digitalization is not necessarily leading to increased productivity growth. Such a slowdown is called digital productivity paradox. It refers to the slowdown in productivity growth despite the rise of an information technology-driven digital environment, where the nature of work, workers, and the workplace is increasingly shaped by digitalization. Prof. Erik Brynjolfsson termed it “The Productivity Paradox of IT,” building on the work of Prof. Robert Solow. As a result, it is often referred to as the Solow Paradox. This puzzle of digitalization in terms the Solow Paradox has continued to expand over the last two decades. It appears that the slowdown in productivity growth and the rise of digitalization is occurring simultaneously.

There are several reasons behind the slowdown in productivity growth during digitalization. Unlike past technological innovations, digitalization exhibits inherent class and urban biases. The digital divide is its inevitable outcome. The process is largely controlled by a few individuals and their large platform companies, giving these corporations an unfair advantage in leveraging digitalization for productivity growth. Meanwhile, many small and medium-sized enterprises (SMEs) have struggled to reap its benefits. As a result, digitalization has reinforced the dominance of large corporations over people and their productive capacities. The concentration of power in the hands of these dominant corporations and their digital partners has led to a decline in creative competition, stifling new innovations that could drive productivity growth. The diminishing digital dividend and the slowdown in productivity growth are thus integral aspects of digital capitalism.

Public investment in digitalization by states and governments largely benefits large corporations. For example, the National Science Foundation funds various technological innovations using American taxpayers' money, yet private multinational companies like Apple Inc. reap the benefits. This is not unique to the United States but reflects a global pattern where public funds are used to fuel the expansion of private corporations. This trend has only intensified with the advancement of digitalization under digital capitalism.

Technology can enhance the productive power of labour only when workers have access to it and receive adequate technological training. The slowdown in productivity growth is not inherent to digital technology itself but rather stems from the way it is accessed, owned, managed, controlled, and distributed by a select few. Digital capitalism, like all forms of capitalism, acts as a barrier to the democratization of digitalization, leading to stagnation, corporate dominance, and a decline in productivity growth. Therefore, democratizing digital technology—through inclusive innovation, research and development, public ownership, equitable control, fair distribution, and transparent management—is essential to bridging the digital divide and reversing the slowdown in productivity growth.

The availability and accessibility of technology, technological education, training, platforms, and a digital environment for all are central to overcoming the capitalist-driven slowdown in productivity growth. This approach is essential to creating an egalitarian, transparent, democratic and prosperous digital world that is free from inequality and exploitation.

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