Let down by the golden promise of digital age

’Everyone thinks our world is being transformed. Well, that’s wrong, at least in historical and relative terms.’

I know nothing of my grandparents, born in the second half of the 19th century, but they probably bathed in the kitchen in a tub filled with water carried by pail and were lucky to get a bath once a week – yet they were companions to a revolution that would transform the world.

That revolution was economic, not political. That is not to belittle the narrative of democracy and Australian nationhood but these events had trajectory momentum. The economic revolution between 1870 and 1970 was different. It came as an eruption that was “unique in human history, unrepeatable because so many of its achievements could happen only once”.

The revolution was in the daily life of everyone. Households were freed from manual labour, darkness, isolation, drudgery, grind and early death. Inventions, innovations and rapid commercialisation are the keys to the revolution.

It is easy to think that economic progress is a steady, reliable process, yet the evidence contradicts this – progress is erratic, turbulent; some eras boom and others dwindle.

How does the current age rate? Has there ever been a more exciting time of technological transformation, social improvement and human betterment than the age of Bill Gates, Steve Jobs and Mark Zuckerberg? Well, actually, yes. And it’s a no-brainer. The digital revolution has been going long enough, the data has arrived and the conclusions are not good.

They are laid out in massive analytical detail by economist Robert J. Gordon in his book The Rise and Fall of American Growth, universally hailed on publication as a breakthrough event. Two big ideas dominate the Gordon thesis – that the unprecedented advances in living standards during the century to 1970 and, in particular, during the 1920-70 era arose primarily because of unique innovation and unmatched productivity; while the current era and its celebrated innovation pales by comparison, failing to deliver the productivity and living standards gains so confidently predicted by the techno-optimists.

Gordon refers to economist Robert Solow’s immortal 1987 quote: “We can see the computer age everywhere but in the productivity statistics.” At a time when Australia hovers at the edge of a debate about poor productivity and weak living standards growth, the Gordon thesis offers deep economic and cultural insights into what he calls our “dazzling but disappointing” age.

The thing you need to remember about the current age is that appearances deceive. Everyone thinks our world is being transformed. Well, that’s wrong, at least in historical and relative terms. Gordon quotes economic commentator Steven Landsburg, who said modern history began about 100,000 years ago and not a lot happened for the next 99,800 years. Real output in Britain barely doubled in the four centuries between 1300 and 1700. Since then, writing about the US, what Gordon calls the Great Leap Forward began after the civil war and surged with huge productivity growth over 1920 to 1970.

This was the real transformation. Electricity brought light to homes and safety to streets; the electric elevator permitted skyscrapers, leading to urban density; the workplace was transformed by machine tools and assembly-line organisation; the internal combustion engine meant cars replaced horses; railways brought nations closer and jet planes presaged globalisation; the electric refrigerator changed food supply and eating habits; public water supply protected every household; the retail store replaced homemade clothes; medicine included X-rays and antibiotics; people lived differently, with the US urban population lifting from 25 per cent in 1870 to 74 per cent in 1970.

Gordon writes: “The 1870 house was isolated from the rest of the world but 1940 houses were ‘networked’, most having the five connections of electricity, gas, telephone, water and sewer.” He says this “special century” has been “more important to economic progress than have been all other centuries”. Human life improved in so many different ways. The speed of the transition was enormous – not a single US household was wired for electricity in 1880 yet by 1940 nearly 100 per cent of homes were wired and 73 per cent had gas for heating and cooking.

Gordon finds that between the late 1920s and the ’50s labour productivity and total factor productivity – the best measure of the impact of innovation and technical progress – outpaced any other decade in US history.

He attributes this to the great inventions of the second industrial revolution whose efficiencies extended for many decades. The Depression and World War II were vital factors – the resulting growth in real wages drove investment in machinery while the huge lift in production efficiency achieved in the war was retained in the peace.

The next question Gordon asks is: why has growth slowed since the early ’70s in the US and Western Europe? He points out the technical advances since the ’70s cannot possibly compete with the previous age in their impact on life and work. The post-’70s story is restricted to a much narrower sphere of human life concerning entertainment, commun­ica­tions, and the collection and processing of information.

He highlights the “apparent conflict” between “the excitement of techno-optimists” over new capacities in artificial intelligence and robots that will surpass human activity as we have known it yet, on the other hand, the “slow ongoing growth” of total factor productivity.

“Progress slowed down after 1970 both qualitatively and quantitatively,” Gordon writes.

He says the evidence, so far, is against the techno-optimists who predicted a productivity explosion as part of a society-wide transformation. That’s not happening. Gordon says after 1970 total factor productivity grew at barely a third of the rate achieved between 1920 and 1970. He rebuts the arrogance of the present – from the 21st century we look back on the early 20th century through to the ’50s with a patronising superiority. But our performance means we have nothing to be superior about.

He does not deal with the cultural destruction wrought by the digital age. Remembering the bathtub analogy, Gordon’s book implies (but does not argue) that our current study of history should have a far better appreciation of the actual achievements of the past rather than a manic focus on its flaws.

Hairdressers, restaurants, cooks, delivery drivers, teachers, much of the service sector remain people-focused, with the shift to robots and artificial intelligence occurring at “glacial speed”. The dilemmas of the current age are lower productivity, slower living standards growth, the loss of middle-level jobs and growing inequality. We can get by – but that’s no nirvana. Gordon warns the underlying causes of our malaise “will be difficult to offset”.

This is an American analysis. Australia’s productivity story has strong similarities along with points of superior distinction. But in recent years our productivity performance has slumped. There is great uncertainty about the future and how the Covid legacy might impact on living standards growth. We can agree with Gordon’s conclusion. There is only one option – a far more robust policy effort to promote higher productivity and less inequality.

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From today on Paul Kelly’s columns will also be available in audio form in the Podcasts section of The Australian’s app. App users can swipe to Podcasts and hit +Follow on Paul Kelly: Columns. Download the app via: Apple App Store | Google Play Store.