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Technology will not save the economy

Sorry to disappoint technology enthusiasts, but pinning economic growth on technology alone may be more optimistic than realistic.

For the last 30 years we have expected technology to deliver the next big increase in prosperity, as has been the case for the last 200 hundred years. But this assumption may not hold true any longer and the next phase of growth spurred by technology may have already come to an end.

Last year, economic growth expert Robert Gordon stirred up the debate about the prospects for growth through technology. Not withstanding the dismal global economic conditions affecting the US and elsewhere, Gordon said the most recent phase of technological growth was smaller than the previous one, and, in fact, his reams of statistical analysis point to indoor plumbing improving productivity and economic growth more than technology.

It is demonstrable that, in population terms, a healthy diet and good sanitation are more beneficial to an economy than a million smartphones. Growth and productivity are greater at the introduction of these basic improvements than social wellbeing rather than specialised high-end technologies.

Rather than technological leaps of the past, the future will be about smaller incremental growth. And this is the worry, because many countries are in a hole and looking to technology to solve big problems: to raise productivity, increase wealth and turn around the external balance of trade.

Gordon's thesis holds that this is a tough ask; while it has been achieved in the past it is not going to be easy in the future, even with all of the advances we've had. Here he echoes Benjamin Jones's argument on knowledge in his work The Burden of Knowledge and the Death of the Renaissance Man: Is Innovation Getting Harder?

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“If knowledge accumulates as technology progresses, then successive generations of innovators may face an increasing educational burden. Innovators can compensate in their education by seeking narrower expertise, but narrowing expertise will reduce their individual capacities, with implications for the organisation of innovative activity – a greater reliance on teamwork – and negative implications for growth.”

It may be easy to dismiss this, after all economics has not had a glorious record recently and its less science than skilled interpretation. The Economist published a rebuttal to Gordon which was instructive but was akin to a coach exhorting the team to find another incredible moment in history to disprove the naysayer.

Even so, these are ideas that are significant for Australia, a country, which according to investment bank, Societe Generale, is “a credit bubble built on a commodity market built on an even bigger Chinese credit bubble".

Technology, it is believed, can transform us from an exporter of coal and iron ore to an exporter of quality technology products and services with long royalties attached. Is this too much to hope for? Is it based on an understanding of markets and economies that has already expired?

We can't know the answer now or perhaps for many years either. It is certain that the fantasy of discovery and exploitation of ideas into technology is not what it was. In 1900 it was easier to dream about what electricity could do in all its various uses than it is now to do the same in relation to broadband, for example.

Inventor Ray Kurzweil makes the same point in that the direction of discovery and technological innovation can be surmised by the conditions which currently exist. The great leaps of the past, rather as Gordon argues, are not possible – or not so easily possible. This has implications for entrepreneurs and even for users of technology; it makes it less realistic to dream the previously unimagined dream, or to believe that infrastructure can be a catalyst for things not yet conceived. And if under the rare circumstances that they are, the results may be smaller.

While Australia's need to grasp this potential future scenario is not as grave as some other countries, it is something that needs discussion, so that big decisions can be made based on what the world is, not what it was.

Guy Cranswick is an analyst with IBRS. He covers Google, broadband/NBN, Web 2.0, government and channel strategy, including business productivity.

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