Does the Internet Actually Improve Productivity?

Most of us instinctively believe that applying more computing and communications necessarily improves productivity, even when we can’t really measure it. High speed access and smartphones provide examples. We just figure those tools make us more productive.

Whether that is the case or not actually is questionable, as counterintuitive as it might seem.

The point is that investments do not always immediately translate into effective productivity results. This productivity paradox was apparent for much of the 1980s and 1990s, when one might have struggled to identify clear evidence of productivity gains from a rather massive investment in information technology.

Some would say the uncertainty covers a wider span of time, dating back to the 1970s and including even the “Internet” years from 2000 to the present.

Computing power in the U.S. economy increased by more than two orders of magnitude between 1970 and 1990, for example, yet productivity, especially in the service sector, stagnated).

And though it seems counter-intuitive, even the Internet has not clearly affected economy-wide productivity. Some might argue that is because we are not measuring properly. It is hard to assign a value to activities that have no incremental cost, such as listening to a streamed song instead of buying a compact disc.

Still, “revenue” might be decreasing, even if usage is growing, in many industries. That’s the paradox, even in a time when the Internet seems so obviously to be providing higher value.

A productivity gain, by definition, means getting more output from less input. Perversely, very large productivity gains will shrink an industry, in measurable terms.

Also, how people use high speed access is more important than “how fast” they can use it, at many levels.

In other words, it is “how” technology is used productively that counts, not the amount of raw computing power or connectivity.

It is one thing when high speed access is applied effectively to “work” processes. It might be something else if those connections are used to watch entertainment video. Some might point to historical precedents, such as the fact that electricity took 40 years to change productivity in measurable ways.

By that measure, we should start to see measurable gains, soon, many would argue. Some would argue we already are seeing the gains. Economists just cannot measure the gains, is the argument.