13 minute read
Amber Mac: Hello Graeme, it's great to see you, and thanks so much for your time today.
Graeme Leach: My pleasure.
AM: Productivity is a difficult term to define. How would you describe productivity?
GL: Back to first principles and what drives the economy in the long-term, not in the short-term in the next couple of months, but on the kind of long-term decade basis, what will be the determining factors? And there it's changing the quality and the quantity of labor employed, the quantity and quality of investment, and then it's the effectiveness which we use the two together, which is called total factor productivity. A bit boring, but the key thing there is that is the determinant in the long-term of economic growth in the economy, and that is the efficiency with which we bring investments and people together.
So, it's pretty foundational and is absolutely crucial. And one of the amazing factors over the last decade has been that despite the fact that we've been undergoing a technological revolution when you would expect positivity growth to surge, well it hasn't. And there's been talk about secular stagnation, which is just economics jargon for hardly any growth in productivity.
“At this point, I think this is precisely the wrong time in history to be looking at the road ahead through the rear-view mirror”
And now of course, in the wake of COVID as well, people are saying well, you know, it's been bad over the last decade, it's going to be even worse over the coming decade. And at this point, I think this is precisely the wrong time in history to be looking at the road ahead through the rear-view mirror. And that's what everybody's doing at the moment. And they're missing what I would call the great inflection. The V surge back. The Nike swoosh where it's been really low and now it begins to accelerate. I'm not saying that happens immediately. There will be lags here but what is clear is that this is probably the worst point in economic history to be downbeat.
This is a bit like at the beginning of the 19th century, Thomas Malthus wrote a book which became a seminal treaty on population and economics. And basically he said, look, what's happened for the last 2,000 years is hardly any growth. And we're going on for the next 2,000 years with hardly any growth. And the key thing is there, of course, is that when he was going that way, the economy suddenly went that way and it spiked upwards. And I believe that while it won't be immediately. This is the opportunity for the world economy in the 2020s, 2030s, to grasp the benefits of technology.
And then we can go back to my initial description of productivity and what it is. So you've got growth in labor, which is becoming more difficult because you've got aging population and you haven't got so many people coming through in terms of working population as in the past. And we need something to really, really drive growth forward, and that last great hope is productivity growth. And the key there to productivity growth is going to be the efficiency with which we bring capital and labor together to create the business and entrepreneurial ideas and the innovators and the innovations of the coming decades, which will ultimately drive growth.
AM: Why do you think we'll see an upsurge in productivity growth over the next 10 years, driven by 5G?
GL: Why would the economy start going more fast in the 2020s? Than they did in the 2010s and they did in the 2000s. What's going on here? And I would argue that what's going on is 5G and its combination with Internet of things and how it brings together technologies to accelerate economic growth.
One of the key factors here we are arguing is that technology, 5G, is what we would call a general purpose technology. GPTs in the jargon and GPTs are what change the curve. Those are the factors that turn the curve upwards because of a new technology which not only impacts it in its own sector. It enables a whole swathe of other technologies at the same time as well. So, it brings other ideas and business ideas and entrepreneurs into the process because they see the impact of 5G on their sector. And they thought of a new model of delivery in the wake of that.
So general purpose technologies, they're absolutely enormous and they don't come around every day. I mean, the classic example of general purpose technology is electricity. There were power stations, the technology was there in the 1880s, but it wasn't until the 1920s that we had the Roaring '20s when the effects of technology, in terms of electricity, spread out across the whole economy and really began to impact growth. And of course, then we are the phrase, the Roaring '20s. And we could repeat that, it could be the 2020s, just like the 1920s.
And there are similarities in other ways as well because after the First World War we had the Spanish flu and then we had the Roaring '20s. So, let's hope after COVID-19, we get the Roaring 2020s.
AM: Is the real game changer not just technology, but also connectivity?
GL: The big change now is 5G from 4G or 3G is the way you will combine with other technologies. So you've got AI, Internet of things, all these things are bought together with 5G in a way they haven't in the past. So the past is a very poor predictor of the future. And just as the Reverend Thomas Malthus made that mistake 200 years ago, we risk making the mistake again. If we don't really look at how this surge is just going to enable so many different things, so many different things that we've talked about, which haven't yet happened will begin to happen. So smart cities on a truly global scale. And in addition to that, autonomous vehicles. Everybody's been talking about these for many years, but it's only with 5G that we'll see plans transferred into action.
AM: When we talk about 5G technology who are the biggest winners?
GL: The impact of new technology has been very much focused on the consumer side. We've seen the smartphones, we've seen all the things which has gone along with it, but it's going to be different this time. So instead of being consumer focused, the burst of productivity in the 2020s and beyond is going to be from a producer perspective.
And very often in economic history you'll see that actually the producer effect was the biggest effect, but it wasn't at all obvious. And so the economy as we see it today, may not look dramatically different to the one that appears over the coming decades, at least in terms of the standard daily grind as it were. Yes, there will be some change, autonomous vehicles, smart cities, but you're not going to see a massive change there.
So I think that outside of actually the autonomous vehicles it won't be that visual but that doesn't mean it won't be that impactful. It is going to be tremendous. Because again, this key point that 5G enables so many other technologies as well and brings them to a tipping point.
There's a fascinating survey from the World Economic Forum which surveyed I think a couple of thousand chief technology officers around the world. And in technology after technology after technology, they said the tipping point to achieve mass market status would be by the middle of the 2020s.
AM: Are there any real watch outs when we talk about this technological transformation?
GL: One of the biggest issues, and we're already seeing the rolling hills of it and the mountains won't get basically, but there will at some point become a real tension between the rapidity of technological change and the impact on employment as a consequence. And what you find at the moment is very interesting - is that those who are most optimistic about the technology are the least optimistic about the employment consequences. In other words, they see widespread technological unemployment. And that technological unemployment has led to a whole swathe of ideas becoming very much center scene in terms of the policy impact. And that is that what will happen?
How do we manage the situation where you could have mass market unemployment at the same time we just got revolutionary economic change? Well, I think I differ with the change there because I'm very optimistic on the employment front and on the technology impacts as well. In other words, I think rapid technology growth is going to facilitate all sorts of effects and people have just been too narrow at the moment. They're looking at the initial direct impact of technology on employment. What you've got to do is think about all the indirect effects and the induced effects to come.
What about all those elements in the supply chain? And what about in terms of induced effects? What about all those high salary jobs which will now have spent in the local economy? Yes it will be a problem because not all the jobs lost will be in the places where the jobs are gained. So, there will be a mismatch there but it's an exciting prospect. The phrase is this time it's different. Well, I beg to differ. I think this time it's not different and this time we could actually see not only a very powerful direct impact in a positive sense, but possibly even more impact in terms of the indirect and induced effects. So I still favor the optimistic world - just got to be cautious though. And as I say, there will be those mismatches.
AM: Should we be excited about technologies that we haven't really thought about yet?
“The future of the economy is in the minds of those entrepreneurs and innovators who will actually deliver it”
GL: There will be new companies and the entrepreneurs of today and tomorrow they will dream up the ideas that will actually define the years to come. And if we could predict all of them now, we'd all go out and make our fortunes, wouldn't we? But it's not that easy. The future of the economy is in the minds of those entrepreneurs and innovators who will actually deliver it.
AM: How do you think technology and 5G will impact the public sector, especially when it comes to things like productivity?
GL: One of the biggest issues looking at the economic impacts of the public sector is this classic problem which is not just in the public sector, it's in the private sectors as well, but when you've got very people-facing services in education or in the NHS, whatever it might be, in those people-centered services it is very difficult to boost productivity. And now for the first time with the bringing of a whole swathe of technologies together it's showing that actually we've got the opportunity now. We can potentially transform public sector productivity in a way that does not even envisaged before but as you could combine AI with robotics and other issues, suddenly productivity comes into play in the public sector for the first time as well. Everybody's got a sort of sense in their too hard to do a tick box. And that's been the attitudes in the past but in the future, I think is going to be very different.
AM: Do ecosystems and supply chains have to transform together to adopt 5G?
“Does the experience of working online and working in new ways, does it actually trigger a fundamental reassessment of business processes?”
GL: One of biggest issues here is the impact of technology and the revolution in new technologies and the way they interact with each other. And what that means in the long term for the nature of globalization, will we see far more offshoring because the technology in 5G permits the transfer of knowledge in a way that has not been possible before? And so you get even more economic activity pushed off shore or actually does it do precisely the opposite of that? Does technology so remove employment that you can operate it anywhere in the world and you can do 3D printing of products in Ohio in the same way you could do anywhere else? And so that tension between onshoring and offshoring is going to range considerably across companies and across sectors, but it is going to have that impact. And I suppose one might say the present time is a key influence there and something which is accelerating this tendency is COVID-19. Does the experience of working online and working in new ways, does it actually trigger a fundamental reassessment of business processes?
AM: Can you talk a little bit about 5G's impact on so-called hidden technologies?
GL: Hidden technologies are all those technologies which are there behind the scenes, and actually in a long-term economic consequence then hidden technologies are a lot more powerful than those which are more in open view because it's the processes, it's the change of management structures, it's the change of organizational structure which result at the end of the day with the process - still looks like a mobile phone - but the way it's produced and the cost structure of that and the productivity across nations, and how 5G enables that information flow in a way hitherto to not possible. So these hidden effects may not necessarily mean that the phone in your pocket or whatever it might be looks dramatically different, but its capabilities and its reach are extended massively through 5G.
AM: Do you think the pandemic will be a tipping point for businesses to think beyond just growth and profit?
GL: I think there's a fascinating picture emerging as we progress in the early years of the 2020s, because what is really changing there is something which is not completely new. It's something which we saw a century ago. We saw electricity, the technology being there in the 1870s and the 1880s, but it didn't impact the automated car assembly line with Henry Ford until 1913. And then the demonstration effect there as other companies saw the capabilities and the potential that new technology to impact their sector as well. And then the suppliers for those companies had a similar experience. And so there's absolutely limitless potential, these general purpose technologies.
The car built by an automated production process in 1913 didn't look a whole lot different from a car built 10 years before that without automated assembly. But what went on behind the scenes, it was absolutely massive and it transformed the economy. And I think we're looking at a similar picture now. And whether you're talking about electricity or the automated assembly line and how that fed out across a whole swathe of sectors, that is the parallel that I think we face now. That is why the technological revolution in the 2020s will start to deliver. Just as electricity and just as automation production - those technologies had to wait for quite some time to have a big macro impact. We're on a journey, aren't we? We've gone from 3G to 4G now to 5G. But 5G is a step change, different not just as in a technological sense, it's a step change. Economically, it's a step change as well.
AM: Do you think there's a danger that we're overestimating the impact of some of these new technologies?
GL: The mistake we always make is that we tend to overstate the impact of technology in the short term and underestimate its impact in the long-term. Are we making that mistake again now?
AM: It's been great chatting with you. Thanks so much for your time.
GL: Thank you very much.
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