Missing Productivity and the Rise of Social Production
A couple of days ago, I was discussing Michael Mandel’s Fake Productivity Hypothesis. In response to this, Tyler Cowen countered with the No Profits Here Hypothesis holding that:
[T]here was some productivity growth but much of it fell outside of the usual cash and revenue-generating nexus. Maybe you will live until 83 rather than 81.5 and your pain reliever will work better. In the meantime you will read blogs and gaze upon beautiful people using your Facebook account. Those are gains to consumer surplus, but they don’t prop up the revenue-generating sectors of the economy as one might have expected.
Good examples of this would have to include Wikipedia (which is hugely useful but doesn’t make anyone any money at all), Craigslist (which has revolutionized the way people do a lot of things but has done far more to destroy other firms’ revenue sources than to make money for itself), and much open-source software (where the absence of copyright-enforced monopoly profits make the product more useful, but less lucrative, than closed-source products). John Quiggin has been pondering the rise of social production for a while and has the following bullet points on the implications:
- If monetary returns are weakly, or even negatively correlated with the value of social production, there’s no reason to expect capital markets to do a good job in allocating resources to supporting innovation. (This point seems rather less controversial than when I made it in 2006.)
- As a corollary, it seems unlikely that large inequalities in income are beneficial to anyone except the recipients of high incomes (this issue is being discussed, in a much more abstract setting, at Crooked Timber)
- If improvements in welfare are increasingly independent of the market, it would make sense to shift resources out of market production, for example by reducing working hours. The financial crisis seems certain to produce at least a temporary drop in average hours, but the experience of the Depression and the Japanese slowdown of the 1990s suggest that the effect may be permanent.
- Creativity, broadly defined, seems likely to become more important, while markets, particularly financial markets, become less so. Firms that want to survive and prosper will have to behave quite differently from the way the did in the past. Google is an obvious example of a firm that is trying to do this, if not always succeeding.
I see two clear areas where the rubber may hit the road on this. One is in terms of working hours. Consider this chart:
Clearly, we’re going to be able to produce more market-value of stuff than the barely-working Dutch are. At the same time, if you visit the Netherlands it’s not as if people are starving in the street. They have plenty of stuff. And, obviously, they have more free time. That can be nice in its own terms, or it might just mean more washing dishes by hand. But in the brave new digital world where it’s possible to engage in endeavors that are useful to other people on a pretty large scale on a hobbyist basis, it also means they have more time to do non-market work—write open source code, record an album and have people download it on BitTorrent, improve Wikipedia entries, etc. Obviously, you couldn’t base an entire economy on this kind of thing, since you can’t produce any tangible goods this way. But 1,357 hours per year isn’t nothing, it’s just a lot less than 1,824 hours per years. And these days, more-and-more of what people are interested in are non-tangible goods.
It’s a bit of a cliché in politics to talk about the need to move from an “industrial age economy” to an “information age economy” but there’s relatively little thought given to what this might actually entail. But it might entail a lot! Among other things, it might entail that certain economic metrics developed for the industrial age are less-relevant, and therefore that appropriate tradeoffs aren’t what they once were. A friend of mine just twittered:
tinyurl is down. these URL shorteners are a real problem: essential but not a viable business, it’s a surefire recipe for tons of lost data.
The real “problem,” though, is broader than TinyURL. And the solution may be hoping that people have free time and, if bored, will be inspired to do something useful. It’s the vision of Marx’s early thought, or Star Trek.
A potentially related issue has to do with broadband infrastructure. My understanding is that the internet is radically faster in some Asian countries, notably South Korea and Japan, than it is here in part because the state has intervened in a more heavy-handed way to ensure that this is the case. Clearly, though, South Korea and Japan are not crushing the United States economically. One potential explanation for this is that all this talk about the Internet is way off-base, and digital communication isn’t actually all that important to the modern economy. I don’t find that especially plausible. Another explanation is the Cowen/Quiggen explanation—the consumer surplus associated with digital communication is only very partially captured as profits. That will predict that absent heavy-handed government intervention, capital markets will underfund broadband infrastructure and you’ll have less of it than would be socially optimal. This is, I think, a fairly reasonable interpretation of the broadband gap.
All that’s very left-wing, but there are also less left-wing implications for fiscal stimulus and the like. Although in either case “be more like Western Europe” turns out to be the prescription.
46 Responses to “Missing Productivity and the Rise of Social Production”
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March 5th, 2009 at 4:29 pm
But seriously — good post.
March 5th, 2009 at 4:29 pm
Certainly food for thought — though Alvin Toffler goes into these ideas in much more detail in his latest book.
March 5th, 2009 at 4:32 pm
1,357 hours a year works out to 30 hours a week with 8 weeks vacation.
Suddenly keeping 45% of your paycheck doesn’t sound so bad.
March 5th, 2009 at 4:37 pm
I’m not going to even bother with the rest, but:
Good examples of this would have to include Wikipedia (which is hugely useful but doesn’t make anyone any money at all).
1. There are pictures on their site showing WP’s server farms. They’re definitely making some more for those who sell those products, connectivity, etc.
2. WP is like a giant google funnel. They get links from all manner of useful idiots (including, of course, MattY), and they put nofollow tags on almost all of their outgoing links, including to the sites whose content is used to create their entries. Note that I said almost all.
March 5th, 2009 at 4:41 pm
And Clay Shirky’s book, in particular its extended argument on media consumption. (Though my friends take issue with his disparaging of gin.)
A potentially related issue has to do with broadband infrastructure. My understanding is that the internet is radically faster in some Asian countries, notably South Korea and Japan, than it is here in part because the state has intervened in a more heavy-handed way to ensure that this is the case.
There are qualifiers here, which is to say that the density of PRK (and the Netherlands, for that matter) meant that home broadband was faster ten years ago than what gets offered by many local monopolies. On the other hand, seeing the local cable monstrosity dig up, fill in, dig up and fill in holes actually makes me think of how work must have been done in the Eastern Bloc.
March 5th, 2009 at 4:41 pm
Shut the fuck up, Lonewacko.
March 5th, 2009 at 4:44 pm
Conservatives: Obama doesn’t want to talk about the economy.
Obama: [talking about the economy today]
Sean Hannity is still stupid, and Rove is still lying.
March 5th, 2009 at 4:45 pm
People say ‘move from an industrial age to an information age’ as a buzzword to try and deflect from the reality of us losing high-income factory jobs and gaining low-income service jobs. They never actually wanted to see it become a reality, they just hoped they could dazzle enough of the middle and lower class that they could destroy them without them noticing.
What you highlight here is the reality of moving from an industrial age, when people need only things, to an information age, where people want a better world.
March 5th, 2009 at 4:45 pm
So essentially, we need to devise a metric that includes comments on this post into the GDP.
Add $5 for this one.
March 5th, 2009 at 4:46 pm
Another thing that i wish we had is a more flexible work schedule. I know a lot of people work from home, but most don’t. Most people, like me, are forced to work 9-5. I don’t want to work 9-5. I want to work 7-3. That way when I get home I can be much more productive, and work at various hobbies that may or may not contribute a value to society. But instead, I MUST work from 9 to 5. Getting home at 5:45+ is not conducive to hobbying-it-up or being productive. By 6 it is dark out, i want din din, and im tired. Therefore i don’t want to do anything. I think the 40 hour week can certainly allow for valuable hobby time, but for me 9-5 just doesn’t do it. But alas, for some absurd reason I am stuck working 9-5.
March 5th, 2009 at 4:58 pm
maybe tinyurl should emulate the embedded advertising that might go on in commercial free TV — brand placement
a la (not an actual URL) http://www.tinyurl.com/cheerios/subject or
http://www.tinyurl.com/prada/content
March 5th, 2009 at 5:01 pm
OK, more detailed question:
Matt’s (thought provoking) analysis seems very similar to Alvin Toffler’s concept of the prosumer.
First — does he or anyone reading think this a fair, or unfair, comparison?
Second — what of Toffler’s view (discussed in Chapter 24) that as prosumption plays an ever greater role in various economic sectors?
Like health care — in this view, the doctor-patient relationship will change as the population takes health increasingly into its own hands? Does anybody agree, or disagree? If the former, does this have implications on the type of health care reform the US should be looking for today?
March 5th, 2009 at 5:02 pm
Wrong Korea. In the PRK, Ted Stevens would be right!
March 5th, 2009 at 5:04 pm
Also, the US annual work hours total may be highest because Americans put in more of their facebook/blog time at the workplace.
March 5th, 2009 at 5:10 pm
Wrong Korea. In the PRK, Ted Stevens would be right!
I stand corrected: ROK, not DPRK. Tubes ahoy!
March 5th, 2009 at 5:28 pm
It seems to me that social and free sites like Craiglist deliver goods at lower cost to the consumer, freeing up capital for other activities. Money previously spent on buying encyclopedias should be going into the economy maybe paying for broadband routers, kindles, and better monitors. I don’t see it as a net loss, more as an economic shift.
March 5th, 2009 at 5:35 pm
Every time I saw “tinyurl” I read it as “tin-yurl” rather than “tiny-url.” I always wondered what it meant. Gosh, I am such a Luddite. I get it now. It’s a “small” url; a way of writing a shortened web address. Wow. Learn something new every day.
March 5th, 2009 at 5:37 pm
Good examples of this would have to include Wikipedia (which is hugely useful but doesn’t make anyone any money at all), Craigslist (which has revolutionized the way people do a lot of things but has done far more to destroy other firms’ revenue sources than to make money for itself), and much open-source software (where the absence of copyright-enforced monopoly profits make the product more useful, but less lucrative, than closed-source products).
These examples are not exactly what Tyler is talking about, as each of these do impact the “cash and revenue-generating nexus”, at least to some extent.
Wikipedia, Craigslist, and open-source software are no different than the proverbial “better mousetrap.” They provide a needed service cheaper and better than the previous technology. This is revenue-enhancing to the overall economy because the time that would be spent searching around the internet (or a library!) for various facts, the money that would be spent on newspaper advertising, and effort I spend dealing with crappy software are now free to be spent on other things! Meanwhile customers get the same (or better) value from these products/services as they were getting before.
Now there’s a second part to it which is when I’m having a few drinks with friends and getting into arguments about arcane trivia, I can pull out my blackberry and find the answer on Wikipedia. It’s this ability, however trivial, that is a part of the “consumer surplus” and is not captured by our traditional economic measures.
March 5th, 2009 at 5:38 pm
Mose, you might have been thinking of the latest upgrade available in rural Mongolia, the tin yurt
March 5th, 2009 at 5:47 pm
Matt’s (thought provoking) analysis seems very similar to Alvin Toffler’s concept of the prosumer.
But Toffler didn’t fully consider the implications of unlimited free internet porn on the consumer psyche, no? Especially regarding the prosumer.
Also, the exponential growth of spam has eclipsed the productiviy multiplier effects of e-mail and Internet applications. In fact the latest data shows that productivity has gone negative because of spam and Internet scammers preying on the elderly.
March 5th, 2009 at 6:11 pm
This post reminds me of the Michael Lewis post about Iceland. A small number of people are generating more wealth than they know what to do with. And a big group of middle-class, well-educated people now have nothing to do. So there’s a whole bunch of money in banks, and a whole bunch of people looking to “work”. Result? Iceland.
If existing improvements to ag and industry allow for all material goods to be created by a small group of people, what happens? Do we just stratify into various levels of service, from burger flipper to teacher to lawyer (guilty as charged)? Or can we do a better job of integrating leisure / non-economic work into our existing economic structures?
March 5th, 2009 at 6:24 pm
This shift makes a lot of sense, for three big causal reasons:
1) The economy is really just a complex distributed system for helping people trade their own labor for food, shelter, and niceties, so people who influence its design try to make it keep everyone a certain amount of busy so that everyone will do enough.
2) One such equilibrium is for everyone to work less and less as advancing technology makes production of food, shelter, and desirable physical goods more efficient, but that way is less beneficial to the investor class than the equilibrium where instead the amount of stuff people “want” expands to fill their remaining-steady level of per-capita paid labor.
3) Physical production is one-to-one and therefore easy to monetize (object X took Y average-person-hours to make, so you pay the value of Y plus the “I didn’t have to do this myself” surcharge) while information is inherently one-to-many and therefore very difficult to monetize.
The big problem with all the pie-in-the-sky information economy people in the 1990s is that they seemed to think that, in effect, people would give you food because you did something funny on Youtube, which seems clearly ridiculous to me; what they actually needed was pretty much the social democratic ideal, where a strong safety net and a more sane approach to demanding goods helps the entire economy step down to a less labor-intensive level.
March 5th, 2009 at 7:22 pm
Pedro
I have to be honest — I’m not entirely clear on what you’re talking about.
(Aside from spam and scams distorting productivity through their negative impact on seniors. Do you have a link?)
March 5th, 2009 at 7:40 pm
Wikipedia, Craigslist, and open-source software are no different than the proverbial “better mousetrap.” They provide a needed service cheaper and better than the previous technology. This is revenue-enhancing to the overall economy because the time that would be spent searching around the internet (or a library!) for various facts, the money that would be spent on newspaper advertising, and effort I spend dealing with crappy software are now free to be spent on other things! Meanwhile customers get the same (or better) value from these products/services as they were getting before..
No question about it. Talk to any small business owner who has to advertise for help. Or any big corporate HR department, for that matter. Recruitment advertising used to be crushingly expensive. Not so much any more. I’m sure the advent of such services hasn’t exactly hurt the profit of real estate agencies, either.
March 5th, 2009 at 7:43 pm
Oh, there won’t be any money equivalent for your posts. But when you die, on your deathbed, you will receive total consciousness.
So America has that going for it, which is nice.
But DTM, your foe, your enemy, is an animal, and in order to conquer him, you have to think like an animal, and whenever possible, look like an animal.
March 5th, 2009 at 8:02 pm
I would take some of those US hours worked numbers with a grain of salt. Certainly in my worklife I saw situations in which people stoked their hours at the office because that was basically what they did with their lives. And certainly some in higher level positions succeed in mixing business and pleasure in ways that I think would be out of place in Western Europe.
And not just the corporate officer who got his car stolen (the story was pretty credible) while he was with a hooker in the tenderloin.
March 5th, 2009 at 8:41 pm
Exactly. Yglesias, like many others, seems to get this essential point wrong—and getting this wrong reveals a fundamental miscomprehension of economics.
It’s just a more rarefied version of the “technology and automation are eliminating jobs! We’re all going to be unemployed and broke!” fallacy. The exact opposite is true.
That said, the fundamental problem with an “information economy” is that our metrics and analysis of economic activity relies upon commonsensical notions of value as it relates to tangible scarcity. Because there’s no way to account for this under the current paradigm without variables becoming infinite, people mistakenly believe that actual, real-life economic activity world will suddenly not exist or be infinite or otherwise follow the model when the model is simply insufficient to simulate reality.
So, yes, some kinds of familiar economic activity will qualitatively change. But others will not; and, more to the point, activities where scarcity exist will take the place of those where scarcity has disappeared. The details will change, but the overall system will look mostly the same. We’ll just be producing a different basket of “goods” than we currently are.
Again, the only serious problem that requires some revolutionary change is redefining “value” so that it rigorously includes the sorts of things that it currently does not. Such as Wikipedia. I guarantee that it represents a definite quantity of productivity boost—we just don’t have any ways of accounting for it, at present.
Matt writes as if the loss of the encyclopedia business without Wikipedia generating dollar revenues means a net loss in GPD. The exact opposite is true.
March 5th, 2009 at 8:57 pm
Matt, your post ties in with Richard Florida’s article in The Atlantic about the 2008 market crash. According to him, severe recessions or depressions accelerate long term trends. He says that long term trends were already pointing to an information-based economy but this process has been accelerated by the recession. Areas that have an information based economy will survive while those that have a manufacturing based one will wither away.
March 5th, 2009 at 9:13 pm
When I was much younger, there was a lot of speculation in the likes of Popular Science and science fiction magazines about all the leisure time the average American would have when it didn’t take so many American workers to crank out the goods and services we were accustomed to in the early ’70’s.
Now, we know. To a certain degree, some of us have redeployed labor and capital to develop new products and services. But, for the most part, we’ve discovered that “we’ve” been redeployed (to broad brush it) as clerks and truck drivers, deploying the goods and services. Since these aren’t, for the most part, high value added jobs, our wages have stagnated. I guess it really did matter whether one owned the means of production.
I’ve read previous examples of pseudonymous in nc’s theory for why the US’ broadband is so much crappier than much of the rest of the OECD, but it just doesn’t wash. Most American’s are packed pretty close together. If I’m in the middle of rural Iowa, I might expect a lower level of service than Anaheim. But, there’s no excuse for Anaheim to suck compared to Seoul, other than that AT&T doesn’t have to, the CEO having made it quite clear that he’s going to focus on squeezing dollars out of his existing infrastructure.
Not claiming that’s “right” or “wrong”, but it has nothing to do with the geography of the US.
March 5th, 2009 at 9:21 pm
…other than that AT&T doesn’t have to care,…
March 5th, 2009 at 9:41 pm
Having worked in software and having used software the problem of software is support. Even in the best of cases (with the de-facto or crypto-backing of a major entity) who do you turn to when there’s a serious bug in a release candidate or product made/transcoded/moved with your software?
Open-source software is a great exercise in mastery and credentials for its makers but in major examples is unlikely to be adopted by most professionals in a given field.
March 5th, 2009 at 9:42 pm
the problem of open-source software I mean…
March 5th, 2009 at 9:54 pm
The other problem is the cost of maintenance. If you’re a company/some other entity that’s going to use open source software you will need to hire one probably more than one engineers to maintain that software and the cost of those services add up quickly; it’s money that could be going more productively elsewhere.
March 6th, 2009 at 6:27 am
Re: But, there’s no excuse for Anaheim to suck compared to Seoul,
But does it really? It’s all well and good to quote various gee-whiz statsitics. but how fast does broadband need to be for the average consumer’s needs? I’m perfectly satisfied with the performance of my service (albeit not the cost). Everytime this comes up it sounds to me like someone telling us that Germans engineer their cars to do 140mph, which is nifty I suppose, but do we need carst hat fast?
March 6th, 2009 at 6:29 am
Unnoticed by Matt on the broadband penetration thing: Japan and Korea are much more heavily urban (and smaller) than the US. Get fiber run into a small number of cities, and you cover most of the population. In the US< that’s simply not the case.
So it has very little to do with how much of a hand the govt does or does not take; it has an awful lot to do with living patterns and geography.
March 6th, 2009 at 8:03 am
People say ‘move from an industrial age to an information age’ as a buzzword to try and deflect from the reality of us losing high-income factory jobs and gaining low-income service jobs. They never actually wanted to see it become a reality, they just hoped they could dazzle enough of the middle and lower class that they could destroy them without them noticing.
March 6th, 2009 at 9:17 am
Craigslist may be destroying newspaper’s classified revenue stream, but it allows the seller to keep more $, and a buyer to get a lower price.
Look at the internet vs. printers of electronic product datasheets & databooks. You get electronics at a net lower price, which helps everyone but the datasheet printers.
Keith Ellis’s points are well taken.
March 6th, 2009 at 10:08 am
I made a creative commons science game using content from WikiPedia. I made twenty one cents from a google ad yesterday.
March 6th, 2009 at 11:08 am
From my viewpoint as a software developer, open source software gives me and my company a HUGE productivity gain in the creation and testing of our software. Likewise, Wikipedia and many other online, nonprofit information sites save countless hours in research and troubleshooting. So yes, I have no doubt that such services (also including Craigslist and its ilk) create big problems for their for-profit competitors, but I am sure they are a net positive for the economy as a whole.
March 6th, 2009 at 2:08 pm
JonF wondered: but how fast does broadband need to be for the average consumer’s needs?
A valid point. I’ll bring up a quote mis-attributed to Bill Gates quote to illustrate why the benefits of certain data processing enhancements aren’t immediately apparent: 640K [RAM] ought to be enough for anybody.
Actually, he thought 640K would be good enough for ten years. Still wrong.
I was one of the first DSL customers on my island, and at the time, few of my peers (outside of the IT industry) felt it was worth the extra cost, my wife included. However, over time, the advantages of a faster, always on data circuit became apparent in unexpected ways, beyond not having to deal with busy signals or waiting for the modem to connect.
So with respect to whether a 10-fold increase in broadband throughput is worth it, we won’t know until we get it.
March 6th, 2009 at 2:59 pm
Ok, this time I have to interject.
A crucial thing to understand when it comes to broadband in East Asia is that these societies are much more repressive. Japanese, especially, do not *really* have access to high bandwidth, and people in both countries are scrutinized more heavily for what they *do* with that bandwidth–from cp to anti-state talk. To a certain degree, much of the infrastructure in both countries are “dark” as far as the average consumer is concerned.
The general portable broadcasting situation with phones and other distributed media delivery devices is what’s interesting in E Asia, and not the bandwidth itself.
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