As technological innovation massively transforms our economy, many of the metrics we use to assess economic health increasingly miss the real story. The WSJ reports on the apparent failure of companies to aggressively pursue investment in “new machines, factories and technologies.” Some believe this low investment could explain why economic and productivity growth remain subpar globally, but that might not tell the whole story:
Many economists say the trend may not be as alarming as it looks. Data showing weak corporate investment, they argue, fail to capture powerful new trends in technology and business practices. They also say the nature of production has changed: Technology and connectivity are making machines more efficient. Software and data processing also are reducing the need for traditional capital-goods equipment. […]The Organization for Economic Cooperation and Development, following a two-year project titled “New Sources of Growth,” said companies now tend to invest as much or more in knowledge-based capital as they do in physical capital, such as machinery and equipment. That, according to the OECD, is creating “new challenges for policy makers, for business and for the ways in which economic activity is measured.”
Pundits and policymakers often use GDP growth as the main gauge for economic vitality, but focusing our lens entirely on that kind of statistic means our analyses miss the larger picture of better functionality, efficiency, and affordability created by the information revolution and new digital technologies. Moreover, as the article states, our methods for collecting and analyzing output and productivity data are themselves past their sell-by date. We are in desperate need of better ways to assess the changes brought about by technological innovation.