Zombies Of The West

Govt bailouts prop up inefficient Western companies, sapping productivity. Emerging markets are better off

- Ruchir Sharma

By late 2020, many economists saw a silver lining in the pandemic. Stuck at home, people were adopting digital technology at an accelerating pace. Productivity was surging. Perhaps the long, debilitating decline in productivity growth was over. Alas, after peaking above 3% the surge collapsed, exposed as a blip typical during the early stages of a recovery, when businesses are slow to hire new workers.

This leaves unsolved a great paradox. Since the computer age dawned in the 1970s, we have lived with a sense of accelerating progress and innovation. Yet as the computer age began, the postwar productivity boom ended. Except for a revival around the turn of the century, productivity has trended downward for more than 50 years.

Optimists suggest that innovations like internet search are often free, and so fail to register in productivity measurements, or that the impact of technology comes in waves. The productivity revival that began in the late 1990s was driven by checkout scanners and other digital inventions, applied in retail stores. The impact of newer advances such as artificial intelligence will come, they say, just wait.

Pessimists respond that in earlier eras capitalism generated advances such as electricity and gas engines, which lifted productivity across industries. Now it produces distractions – digital games and social media.

But a closer look at the timing and location of the productivity slump points to an alternative explanation: the expanding role of government.