productivity across every sector and
industry, why is this
growth not reflected in the
Technology has propelled
productivity but its gains in the jobs
market and income growth have been
uneven across the wealth spectrum,
leading to a revival of
political and economic populism
There are two sets of
dueling forces at play:
productivity vs. populism and monetary
policy vs. trade policy—and the way it shakes out will affect portfolios
The paradox around productivity
when the numbers don’t seem to add up and why it matters
Companies invest long term in self-driving cars but they’re still new to the roads.
There is a sizeable time lag between an investment in a new technology, such as robotics-based cars, which will take many years to be fully developed and roll off the assembly line, therefore delaying a firm’s realized productivity that would show up in the economy-wide statistics. Only when the heaviest investment is tapering off and the product is in commercial use will the economic data reflect a boost to productivity.
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Market creation involves a firm’s decision to keep prices low or give away a product for free (think Alphabet-owned Google or YouTube) to create a new or increase share of an existing market. The value of these products is technically accounted for in productivity with “advertising dollars” but is prone to mismeasurement and likely underrepresented in gross domestic product (GDP), as benefits to grabbing market share exceed ad revenue.
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What someone is willing to pay for a good or service above and beyond what they currently pay (consumer surplus) can be seen in the instance of digital media. Today, for example, a family of four may spend $60 or more on a night out at the movies. Compare that to the $5 to $12 monthly cost they may devote to streaming services to consume dozens of movies and TV shows. The value to the family of all that media consumption typically far exceeds the outlay, but that “consumer surplus” does not find its way into the GDP or productivity numbers.
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Firms like online retailer behemoth Amazon are cannibalizing other firms — so why, if the giant represents about 38% of online sales, isn’t it making productivity soar? Because its growth is largely due to stealing market share from unproductive mall and big box retailers, which lumber along despite lower profits due to less foot traffic and high overhead. Rather than growing the productivity pie, Amazon has—for now—put a cap on retail sector growth. Once the competition disappears, profits and productivity should rise.