Urgent action needed to address stagnating productivity, says report

30 May 2019

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A report published today by the Oxford Martin Programme on Technological and Economic Change calls for action on multiple fronts to tackle the ‘productivity paradox’ plaguing OECD countries and undermining growth and living standards.

Despite rapid technological change, productivity growth in virtually all OECD countries has languished at below one percent since the early 2000s. The underlying causes may be much more complicated than previously thought, say the authors of the report, which covers all leading economies and considers dozens of possible reasons for ongoing stagnation. It shows that each of the reasons previously given is inadequate and that a range of interconnected factors, including some which are not widely studied, have caused the slowdown.

‘The Productivity Paradox: Reconciling Rapid Technological Change and Stagnating Productivity’ examines multiple underlying causes, including mismeasurement of productivity, the impact of immigration controls, declining R&D expenditure and risk aversion. It calls for investments and policy reforms to raise productivity, improve living standards and sustain growth.

Intersecting causes at play include:

  • The digital economy: current measurements of productivity fail to account for the pervasive nature of digital services and devices, and the blurring of lines between our working and domestic lives, but together these account at most for 20 percent of the slowdown;
  • Changing labour markets: ageing societies, the gig economy, restrictions on migrant workers and cuts to training and apprenticeships all appear to contribute to productivity decline, but to different extents in different countries. Many of these factors have become significant since the slowdown, so changes in labour markets are unlikely to have accounted for the scale of the productivity collapse;
  • The company: a polarised private sector – with ‘zombie’ firms kept on life support by near-zero interest rates and superstar tech firms suppressing competition – presents a two-fold challenge for policy makers wishing to stimulate productivity. Productivity declines however preceded monetary easing which followed the financial crisis;
  • Stifled innovation: New waves of technology require greater complexity and specialisation to achieve comparable outputs, yet cuts to public R&D, risk aversion and patents that privatise knowledge, rather than sharing it, all contribute to a drag on productivity.

While no single cause can be held responsible for the slow-down, a common theme connecting the range of explanations is the failure of governments to keep up with the implications of new technologies, says Professor Ian Goldin, director of the Oxford Martin Programme on Technological and Economic Change at Oxford University.

Ian Goldin1

"The hardware of our economies – machines and infrastructure – and the software – business processes, accounting methods, depreciation rates, skills, and regulations need urgent renewal to keep pace with the rate of change. This report shows that each of the explanations that dominate policy and public debate of the issue offer, at best, a minor contribution to addressing the problem. A comprehensive approach is required, focussed on policy reforms that will unleash vitally needed investments. We hope business leaders and policy makers will seize on this report as an agenda for urgently needed reforms to restore productivity growth.”

– Professor Ian Goldin