If we look at the long arc of recorded history (even though we humans are but parvenus in terms of our existence), it is generally accepted that the rate of economic (and population) growth did not really begin to accelerate until the 18th Century, as a consequence of the First Industrial Revolution. And now we are supposedly going through the Third Industrial Revolution (although “Industrial” is really a misnomer), with inklings of a Fourth as Artificial Intelligence becomes more prevalent (and feared.)
So, as a cohort, Humanity is undoubtedly far better off in material terms than ever before (with arguments about the spiritual, psychological and emotional consequences being entirely separate, of course!).
Yet, in spite of that seemingly obvious fact, there is persistent hand-wringing over whether we are really as productive as we think we are; and whether all the additional resources now available to us in terms of inventions and intellectual property have actually increased the so-called “Total Factor Productivity” (TFP) beloved of economists.
As we have written before, some of the Awbury Team are sufficiently long in the tooth to recall the pre-computer, Analogue Age; yet now we habitually use technologies that simply did not exist when we started our working lives (even if some of us are more dexterous than others!) We have lived through, and survived, the Revolution; and certainly feel that, individually and collectively, we can accomplish far more than a team of the same size and composition even 20 years ago could have. How to measure that objectively is a different matter, which brings us to the paradox of productivity, and the debate that continues to rage about whether prospectively we are going to be able to maintain the same rates of growth as over the past couple of centuries or so.
Naturally, there is no universally agreed definition of exactly what “productivity”, TFP and “growth” actually are, nor, in particular about how they should, can be and are accurately measured. After all, it is a truism, that if you cannot measure something, does it really exist? And, in obsessing about such matters in the credit column, do we properly factor in debits such as environmental degradation? Perhaps we should create the concept of Net TFP, with appropriate offsets?
Furthermore, the intellectual framework surrounding the concept of productivity tends to see it as a continuum; yet there are numerous examples of what might be called “step-changes” (the controlled use of fire, the wheel, automobiles, transistors, quantum mechanics…), following which things were never the same. They were not inevitable developments; and, as the sayings goes, in many cases you could not have made them up, even if you had tried.
So, productivity, its meaning, consequences and future direction are both controversial and of fundamental importance to all of us, even if we tend to take them largely for granted.
We shall develop this topic, and what it may mean for the (re)insurance industry, in our next post.
The Awbury Team