(The opinions expressed here are those of the author, a
columnist for Reuters)
By James Saft
June 6 Worries about stagnation aside, the
bottom-up spread of technology like 3-D printing and artificial
intelligence may give global productivity, and growth, a
Growth in the developed economies over the past two decades
has either been sub-par or artificially and often dangerously
supported by debt and asset bubbles. One key factor behind this
weakness, which leads some economist to argue we are in a period
of “secular stagnation,” is the steady downward trend of
U.S. output per hour worked advanced on average only 0.6
percent annually over the past five years, compared to rates
over 3 percent in the early years of the millennium.
Arguments rage over why, with some holding that all the
low-hanging fruit of technological improvements has been picked
and some that demographics are trapping us in a low-investment,
But investment manager PIMCO, with some supporting data from
consultants McKinsey & Company, argues we may soon be seeing a
dramatic increase in productivity as already discovered
technology is adapted.
“A productivity-driven return to 'old normal' 4-percent-plus
global GDP growth may lie within reach in the coming years,
based only on the spread ('diffusion') of existing
technologies,” Joachim Fels and Matthew Tracey of PIMCO write.
They caution that this isn’t their base case, just a growing
outside possibility, but it is hard to express exactly how
surprising and electrifying this would be to investors inured to
very low rates and low growth.
Many of the puzzles and features of the current economic
landscape - very low or negative interest rates, quantitative
easing and low growth - would be reversed or at least mitigated
by structurally higher productivity.
There is no small irony too that what we are discussing is
not the kind of top-down solutions which have failed or worked
weakly in recent years, but a bottom-up story in which new
technology is adapted and knit together in new ways to increase
To be sure, even this story doesn’t necessarily end happily,
given that many of the technologies, from robotics to the use of
computer-controlled printers to perform 3-D manufacturing, will
destroy jobs and may increase income inequality. But even for
this to happen, the adaptation of technology will need to
DOCTORS LOOKING AT SCREENS
McKinsey, in a 2015 study, said it saw potential for global
productivity to more than double its 1.8 percent average rate of
growth over the past half century.
“Five sector case studies - agriculture, food processing,
automotive, retail, and healthcare - suggest that annual
productivity growth to 2025 in the G19 and Nigeria could be as
high as 4 percent, more than needed to counteract demographic
trends,” according to a report from the McKinsey Global
That’s all premised on the intelligent spread of existing
technology, and three quarters of the potential growth simply
comes from the broader used of 'best practices' already
significantly in use. Some of this is nothing more complex than
the use, in places like Korea and Japan, of existing retail
inventory management techniques. Some is more futuristic, like
the use by Amazon of artificial intelligence and robotics to
make warehouse and shipping management more efficient.
Or take for example U.S. healthcare, in which cumbersome
information technology means doctors and nurses spend much time
looking at screens, often at the expense of gathering more
useful information from patients. Costs of new technology are
also coming down, making it more feasible for individual dental
practices to have 3-d printers. (here)
As implied, some of this is geographic, as technology
spreads more deeply into emerging markets, while some is
vertical, where smaller firms play catch-up to avoid destruction
by the likes of Amazon.
The spread of technology will destroy jobs and tend to
reward capital, of both the intellectual and financial sorts,
increasing inequality and social and political tension.
Production, which has long spread around the world to
arbitrage labor cost differences, will tend to gravitate towards
end markets, both because it is less labor-dependent and also
because more of the value is in proprietary software and
That could throw up political roadblocks to adaptation, as a
look at the recent flourishing of populist and often
anti-globalization politicians illustrates.
Fels and Tracey of PIMCO argue that high-tech-driven
productivity need not be a zero-sum game, and could lead to
increased competition and employment.
One thing a boost to growth would definitely mean is a hit
to the value of bonds, as markets re-set to a more normal yield
There are worse problems to have, even for bond investors.
(Editing by James Dalgleish)