Solow Paradox Revisited
By Arnold Kling
The rebound of US productivity growth has been a major economic development over the last decade. This “miracle” is linked to IT as the productivity acceleration was particularly strong in those sectors that used IT intensively – such as retail and wholesale. Europe did not experience this acceleration in the same sectors. We have shown that the bulk of the evidence from firm level, micro-economic studies is that IT does have an economically and statistically significant impact on productivity but this varies dramatically between firms: having the right organisation helps greatly in making the most of ICT [information and communications technology]. We have suggested that these organisational differences also lie behind the different productivity performance between the US and Europe – US firms are better placed to take advantage of ICT. It is likely that European firms will have to adopt more US style business processes to obtain the same level of productivity advances.
Many people like to quote Robert Solow that “We see computers everywhere but in the productivity statistics.” Few of them seem to realize that he said that in 1987, and in the past five years most economists who have studied U.S. productivity growth have seen plenty of evidence of computers in the productivity statistics.
This paper says, in effect, that we can see computers everywhere but in the productivity of non-U.S. firms.
Thanks to Michael Stastny for the pointer.