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.)


dearieme said...

Mankind has an apparently inexhaustible demand for entertainment.

Stilgherrian said...

Productivity is simply about how much is achieved for how much effort -- whether effort is measured directly in actual dollars or pounds, or indirectly through things taking less of your time. Just a few minutes of thinking back through just my own life over the past two decades soon reveals myriad new efficiencies.

Every time I meet with a client online rather than travelling to a physical meeting. Every time I research something from my desk rather than visiting the library. Every time I compare prices on websites and place my order rather than a length series of phone calls.

And most importantly, every decision I make is smarter because I have access to more information and opinions than ever before.

Maybe this is your explanation based on not having measured the improvements properly.

Anonymous said...

It sounds like you have a very solid understanding of economics so I can't really question you on points 1 and 3, however I would like further clarification on point 2 - what is the nature of this ever-expanding bureaucracy? Could you perhaps provide an example or two?

Keynesianism is just a farce, isn't it? Reaganomics is so much better.

a Finn said...

Internet creates new production and consumption, but it also takes away from the old production and consumption. Often it is just a question of old businesses using internet as new advertizing, selling and possibly distribution place. A list of a couple of factors:

- Internet creates new long tail sales internationally. E.g. digitalized book on demand printing service makes the sales of even one book profitable. More versatile and rare products have a market. Although there are some new sales, mostly it is a zero sum game. E.g. rare books displace some of the market of mass printed books.

- Computers, services, software and internet infrastructure creates sales.

- Content production by internet users. Displaces old service and product sale, not only because of comparable free products, but because internet displaces some of the time needed for other consumption.

- The weakening of copyright. Almost everything that can be digitized will be distributed free of charge in the internet. If a person knows what he is doing, he can vacuum clean needed content quite safely from internet. Also young people often don't care much about viruses, worms etc.; they either don't have anything they deem worth saving in their computers and format the memory when it becomes too burdened with malware or they have two computers, one for important information and one for play and regular memory formatting.

This is weakening many kind of sales.

- The creation of new subcultures, of which many oppose the present consumption culture.

- The creation of new subcultures, that develop cheap and simple do-it-yourself or we-do-it-together services and products that replace old sales, anything from motor production to farming.

Often connected to this is digitalized and encrypted pseudo money barter markets, which further removes these productions from the economy.


My educated guess is that the overall effect of internet to the official economy is negative. In response to this large complex organizations try to enlarge they power even more internationally than before; immigration; projects to increase third world consumption; centralization of power to state and international bureaucracies; Eu enlargement; simplified international cultures of the lowest common denominators; increasing psychological and other manipulation; etc.


Clay Shirky deals with this tangentially:


Bruce Charlton said...

@ a Finn - some good ideas here.

The internet has made a strategy of *self-distraction* easier and less expensive than ever before.

People of a certain personality type now only require basic food and shelter plus unlimited internet access; and they can get through life without suffering anything like as much boredom or misery as people in the past.

The internet is a powerful and long lasting analgesic against life.

Modern secular society has no resources to say why this kind of 'virtual life' is in any way inferior to other lifestyle options.

Of course it is sneered at as low status and 'pathetic' ('you need to get out' 'you need to get a life') but there is no secular rationale for the inferiority of a virtual and wholly 'distracted' life, any more than there is for the inferiority of a drugged and intoxicated life, or a life of serial promiscuity.

This analgesic and distracting power would give the internet an effect of economic demotivation (people don't need to earn so much money, do so much stuff), along(I would say) with many other kinds of metaphysical real world demotivation.

It could be that this has negated economic efficiency gains.