Tuesday, 27 July 2010

Whatever happened to the massive economic benefits of the internet?

Whatever happened to the massive productivity boost which much (surely?) have been the result of the internet?

Because (surely?) the internet must have led to an unequalled, world historical boost in productivity?

A decade ago people all over the place were saying confidently that the economic effect of the internet would outstrip the effects seen by the invention of railways and telecommunications, and that new synergies from fast and universal communication would generate a society of massive capability (a huge step-up like the effect of the population concentration of the first cities, or the nation state).

Science and technology would be accelerated qualitatively by the speed of access to the scholarly literature, rapid and universal sharing of methods, critique and results, international collaborations...

That was the theory. 

Yet economic growth since the internet came has been, well - ahem! - very modest...

Indeed, the current 'credit crunch' recession revealed that much of what economists had thought was internet-produced growth in productivity, was in fact a progressive increase in borrowing.

Some possibilities:

1. Economists were correct, and there really has been a huge boost in productivity/ growth - but its measurement was not captured by GDP or other economic measures in use. This suggests that we need to develop new measures of productivity and economic growth.

(This is surely the explanation economists will favour, since it does not involve an admission of error, and gives them a new project to justify continued funding etc.)

2. The boost in growth has been almost-wholly or more-than absorbed by an expansion of parasitic bureaucracy. This suggests that bureaucracy is a cancer which will kill the economy no matter how fast it grows - unless there is some kind of rapid, massive and unprecedented roll-back.

(I tend to favour this expanation. That there was a huge increase in efficiency and capability but all of the benefits - economic and in terms of capability - were sucked-up by expanding bureaucracy; indeed bureaucracy out-expanded productivity enhancements, to the point of actually damaging both productivity (per person) and capability (per social function). In other words, increased output per person has led to more bureaucracy and then less output per person: the cancer is outgrowing the host. This is being concealed by an expansion of public relations, hype and outright dishonesty: by inflation, in other words.)

3. There was *not* in fact a huge boost in productivity, which means that economists profoundly misunderstand these things.

(I would not be surprised if this explanation was true as well as the previous one - I don't find it at all difficult to imagine that almost-all economists have been almost-completely wrong - especially given the recent resurgence in Clever Silly (or plain corrupt) ideas such as 'Keynsianism' and the economists support for 'the stimulus', bailouts, higher taxes, long-term-mass low-skill immigration etc. And if so, it means that we misunderstand the psychology of productivity; and that human affairs are much more zero-sum than we would have cared to admit.)