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The History of Growth: Digitisation is Just Another Chapter

History matters.

In case there was any doubt, the recent financial crisis has reminded us that growth matters too. Considering growth in a longer historical context is also an interesting way of thinking about digital disruption.

I have recently been reading Dr Yuval Hararis book ‘Sapiens: A Brief History of Humankind’. Dr Harari reminds us that humans have been around for some 2.5m years, but ‘Homo Sapiens’ for only around 200,000 years.

When considered next to Dr Robert Gordon’s “The Rise and Fall of American Growth” (watch Dr Gordon’s TED talk here) we realise that economic growth is a very recent phenomenon. Dr Gordon gives 1870 as his key starting date for rapid growth; some choose 1770, a century earlier. Either way that means that for some 199,800 years little happened, economically speaking.

Obviously some economically significant things happened along the way in ancient Egypt, Athens, Rome or renaissance Portugal. But most humans, on most of the planet for most of history lived on a modern equivalent of about five hundred US dollars a year. They laboured hard, lived in isolation and died young. Amazingly, the average rate of growth from AD1 to 1820 was 0.06% per year or 6% per century according to Angus Maddison. Almost nothing happened.

As Dr Gordon points out a number of simultaneous innovations in transport, power and communications transformed our society; transport by horse became transport by plane and automobile. Home appliances drove female participation in the work force.

In Western Europe over the 20th century, employment as a percentage of population remained stable, but we work 50% fewer hours and GDP has increased 500%. This increase in our productivity explained our growing life expectancy and wealth. As Paul Krugman has noted:

Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.

To understand quite how disruptive these changes were consider the effect that the automobile had on agriculture: 25% of land was previously given over to producing crops for horses to eat.

But how does this relate to digital, the DisCo blog’s preoccupation? For those who value growth the message is clear: digital may be disruptive, but if you value growth it is not nearly disruptive enough. You should be doing everything you can to speed up digital innovation and ensure regulation encourages driverless cars, robotics, 3D printing and artificial intelligence into the economy.

What is worrying is not digitisation, but the prospect of not enough digitisation.

The prescription is different depending where in the world you are, whether your headwinds relate to ageing society or to educational attainment. Here are a few things for policy makers to bear in mind.

Firstly, to quote former European Parliament President Hans-Gert Pöttering noted “The pessimists always lose”; a good mantra to bear in mind.

Secondly, and something particularly aimed to our European readers, don’t shoot yourself in the foot. Good policy towards the Internet and digitisation will benefit all. Bad policy cannot be targeted at a few high profile targets.

Thirdly, 70% of the gains from digital innovation go to users of ICT. It matters not who makes information technology; the winners are the ones that use it most effectively.

Fourthly, hierarchies won’t win; networks will. They will move faster, know more and react quicker to market demands.

Ultimately digitisation isn’t about technology. It is about wealth creation. It is about continuing to grow and being able to provide education, health, pensions, social security and disposable income. Digital innovations allow us to produce more, at lower cost, more quickly.

As the Red Queen said in Through the Looking Glass” by Lewis Carroll,It takes all the running you can do to keep in the same place”.

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.