I.
One of the more interesting responses I got to my article on Creator Economics was that I was seriously underestimating the growth potential of creator platforms like YouTube. I had failed to incorporate a key factor: automation. As robots start to take more work from humans, humans will increasingly come to employ ourselves as artists, creating works for each other, and paying for them through the wealth created by machines.
Automation is a word that constantly echoes through our social discourse. Tech leaders caution that it will put millions out of jobs and think tanks predict mass displacement in the labor market over the next decade caused by technological disruption, while entrepreneur Andrew Yang has made a notable primary run in the Democratic field by anchoring his campaign on fears of automation and the required policy response. While techno-optimists and pessimists debate what the effects will be, mosts people seem to agree: robots are coming for our jobs.
However, it’s unclear how justified these concerns are. US economic productivity — the ratio between how much stuff we create and how many people are creating the stuff — has seen slowing growth over the past decade:
If we were fast approaching an automated economy, we would expect the reverse trend: massively increasing productivity growth as machines make more stuff without requiring humans. To be clear, productivity growth it still positive: we are getting more efficient every year at generating economic output, just at a slower rate. Compare the above chart to the 1960s, when the manufacturing sector was making massive investments in automation:
We’ve gone from productivity growth averaging 3.5% in the 1960’s to averaging just 0.95%!
When I tell people this fact they’re generally pretty surprised, especially if they work in tech. After all, today is by many metrics a time of great innovation. Venture capital investment has never been higher. Of the five largest public companies, three were founded in the last 25 years and all in the last 50. The technological change we are currently undergoing appears to so sweeping, so ubiquitous that the World Economic Forum has declared that we are undergoing a Fourth Industrial Revolution. The technology industry has never been stronger. And yet the rate at which that technology makes us more efficient continues to slow. This fact is so surprising that economists sometimes call it the productivity paradox.
Probably the biggest trend in investing in the past thirty years has been the shift of capital from the economy of atoms to the economy of bits. Investors, entrepreneurs, and tech workers have all flocked to the internet as the core technology to develop and unlock value from. It has long been established that sustainable productivity growth can only be generated by new technology and innovation. Today the internet is the forefront of innovation, just as assembly line automation was 60 years ago and electrification was 100 years ago. Why is it not generating the same levels of productivity growth?
II.
Next time you’re home, take a look around your living room and ask yourself: what new things do you have right now you wouldn’t have had thirty years ago? Not home appliances, those have been around since the 1960s. Not central heating, refrigeration, or electricity, we’ve had those for even longer. No, what’s gotten dramatically better is entertainment. We’ve gone from bulky print magazines to an infinite social feed. From linear television to on-demand video streaming. From a local newspaper subscription to a news aggregator. Each one of these shifts created an order of magnitude improvement for consumers — and spawned multiple billion dollar companies in the process. But did they make our economy more productive?
Take a look at Wikipedia’s list of top internet companies. Of the top ten US companies on the list, four are primarily eCommerce companies (Amazon, Booking.com, eBay, Expedia), two are consumer advertising giants (Facebook, Google), two are B2B Software companies (Bloomberg, Salesforce) and the remaining companies are in entertainment and payments (Netflix and PayPal, respectively). Going down the list reinforces this trend: the majority of internet companies center around making it easier to buy stuff or making it easier to consume media. These companies of the Fourth Industrial Revolution have had massive impact, shifting consumer behavior and upending industries, but compared to past industrial revolutions it seems plausible that their impact on our economic production has been limited.
Now this isn’t to serve as a broad indictment of internet companies. Humans have been telling stories for millenia and consumer internet companies have made both the creation and consumption of those stories easier and better. eCommerce too has been an exciting development, allowing for novel consumer experiences and the dissolution of geographic barriers to buying goods. But productivity growth is important. It grows the economic pie and allows us to make more stuff with our existing resources, two effects sorely needed in our world of stagnating middle class wages and environmental depletion.
The internet, in the context of other disruptive technologies, is still pretty young, at about 30 years old. It was roughly 60 years, for example, from the development of the first steam engines to the industrial revolution in manufacturing in the 18th century. And there are reasons to think that that the internet companies built so far are just the beginning. Media is a natural fit for the internet: text, images, video can all easily be represented by 1s and 0s and transmitted over computer networks, which made it simple for internet companies to introduce them as features. Similarly, it makes sense that so much success has been found early from putting the multi-trillion dollar retail sector online.
When Steve Jobs wanted then-Pepsi Co President John Sculley to join Apple, he imparted an exhortation that defines Silicon Valley to this day: “Do you want to sell sugar water for the rest of your life or come with me and change the world?” While Jobs was talking about the personal computing revolution, the locus of that drive to change the world for the better has shifted to the internet. Technologists spin grand visions of the efficiency and power of an economy where everything is connected, where AI crawls over huge datasets to optimize systems, and where the surplus output can be captured by humans to pursue their own creativity. It is an inspiring vision (though not without its own complications). But as evidenced by the economic data, we are still in the early days.
If you have any comments, feedback, or thoughts feel hit me up at twitter.com/noah_putnam. I always am down to discuss what you thought of my arguments — especially if you disagree with me 😉. Finally, if you enjoyed this post consider signing up for weekly essays about similar topics delivered to your inbox every Sunday at around noon.