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Focus on Productivity, Not Technology

 |  July 7, 2023

By: Dani Rodrik (Project Syndicate)

Productivity has long been recognized by economists as the key driver of prosperity. Sustained improvements in living standards can only be achieved when a country efficiently produces more goods and services using fewer resources. Throughout history, innovation has been the primary means of achieving this productivity growth, leading to the common association between technological progress, research and development, and productivity in the public’s perception.

Our understanding of how innovation enhances productivity is largely influenced by everyday business experiences. Companies that embrace new technologies often witness increased productivity, enabling them to outperform their technologically stagnant competitors. However, it’s important to distinguish between a productive firm and a productive society. What may promote productivity within a business context might not necessarily work, or could even have adverse effects, at the scale of an entire country or economy. Unlike companies that can selectively focus on improving the productivity of specific resources they utilize, a society must strive to enhance the productivity of all its people collectively.

Unfortunately, many economists and others have failed to fully grasp this distinction, operating under the assumption that technological progress will eventually benefit everyone, even if its immediate gains primarily favor a small group of firms and investors. In their insightful new book, economists Daron Acemoglu and Simon Johnson emphasize that historically, this assumption has not always held true. While the Industrial Revolution marked the onset of modern economic growth, it took nearly a century for most ordinary workers to experience tangible improvements in their well-being…