On the productivity problem - are we measuring the right things?

From Goldman Sachs via Reason:

Goldman Sachs's economic research team has found that a lot of the innovation Silicon Valley generates isn't captured by standard measurements of GDP. For example, while email, direct messaging, and Google Maps clearly make all kinds of work easier or more efficient, they're free, so GDP doesn't include the value consumers gain from using them. It's telling that a recent MIT study found that the median person would be willing to pay more than $40 a month for Facebook. Just because users don't pay for a service doesn't mean they don't value it.

Every time I see an article on the dilemma of productivity (despite technological advance productivity flatlines) I think of this issue. After all back in 2008 almost nobody had a smartphone yet now they are ubiquitous and pretty cheap - I got a temporary one for £20 when my phone smashed. Yet little of this obvious betterment makes its way through into productivity measures.

Now since I'm not an economist I always tread carefully when dipping my toe in the waters of this sort of subject. It does seem, however, that there's been a shift in betterment from advancing productivity in the work place to a much more interesting improvement in consumer's lives. We always joke - "so much for austerity" - as we pass another dog walker's van parked up on the edge of the moor. A decade or so ago such businesses as dog walkers simply didn't exist but now there's sufficient money out there for people to afford to pay someone else to walk the dog.

This is just one example to which could be added a loads of others from specialist dessert cafes through to smartphone app based products like Airbnb, Uber and assorted takeaway delivery services. There's a craft beer explosion accompanied by hundreds of micro-pubs to go with the hundreds of micro-breweries and more places to eat and drink than we ever imagined. For not a lot of money people access a wealth of live sport, film, TV, games and other entertainment. And even if you're not prepared to pay an extra sub there's the joys of YouTube and the plethora of podcasts and ad-enabled music streams.

The point here is that consumers are seeing the benefits of technology ahead of businesses. The disruptive technologies - taxicabs, hotel rooms, food service - are not advances that, in the main, lead to productivity gains in business. This isn't to say that, in services such as law and accountancy, there aren't advances to be made or that the advent of new transport technologies won't see productivity gains as the need for drivers diminishes. But not only is business slow to change but also the outlook of government is to protect the existing infrastructure whether it's a legacy transport system like heavy rail or a professional protection that means, for example, only a human lawyer can do something.

Frontier Economics looked at the effect of ebay in the UK, France and Germany and found:

...eBay helps consumers save around 24 percent of what they would otherwise spend in France, Germany, and the United Kingdom. That translates to 1.1 billion Euros in savings per year.

None - or precious little - of this gain is translated into traditional measures of productivity and GDP. The critical change is that huge consumer benefits are delivered by Google, Facebook and other free-to-air platforms but while we calculate the contribution of these firms' ad revenue we ignore the value of the benefits realised by the mass of consumers using the free services.

We forget that these services - Twitter, Facebook, eBay, Uber, Airbnb, Spotify - didn't exist or were babies back in 2007 yet now are some of the most significant, almost dominant, consumer services to the point where politicians now want to clobber consumers by regulating or controlling these businesses. It there has been productivity gain - let's call it betterment - then it has been in the lives of consumers not the efficiency of businesses.

.....