Is the Solow Paradox back?

Mekala Krishnan, Jan Mischke, and Jaana Remes – McKinsey Quarterly

In 1987, the economist Robert Solow observed that the computer age was everywhere except for the productivity statistics. In some sectors, that started to change a decade or so later. Now, a further two decades on, the nature of ‘the computer age’ is very different and there is a further round of technology-driven change with even greater potential than the last one. The main conclusion of this article is that there is another surge of productivity growth waiting to be captured, though acknowledging some significant transition inefficiencies along the way. And there are still wider effects not directly reflected here – autonomous vehicles, for example, have the potential to be more immediately efficient but might add to externalities elsewhere through increased congestion.

Stepping back from that, perhaps the deeper message of Solow’s paradox, now as much as when he posed it, is that technology-based change is never just about the technology and that understanding the social and economic context in which it is deployed is always a vital part of the overall picture.

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