Productivity Growth and Capital Deepening in the Fourth Industrial Revolution
The 4th Industrial Revolution has become a means by which political and business leaders frame the global economic transformation anticipated in the decades ahead. However, there has been limited formalization of the concept among economists, resulting in little agreement on causality, public policy efficacy, and the implications for workers and business sector strategy.
Economic historians have identified four such revolutions over 200 years, including the current era, each responding to similar underlying economics characterized by the age of the capital stock, the rate of knowledge diffusion and thus absorptive capacity, and shifting capital and labor income shares. The intersection of tangible and intangible capital investment, technology innovation and “creative destruction” is at the heart of each industrial revolution.
The industrial revolution framework also provides a point in time reference for placing current events in the context of sustained, multi-decade periods of faster or slower GDP and productivity growth. Political, social and economic transformation has accompanied each revolution. Improved economic performance in the decades ahead will depend on the extent to which households, businesses and governments are willing to transform behavior, engage in “creative destruction”, and respond to regime switching pressures to bring about a future of more rapid growth and more equal income distribution.
While disappointing outcomes often follow economic shocks, an open issue is whether the 2020-2021 global pandemic will be sufficiently disruptive to deliver fundamental transformation, resulting in improved economic performance and more stable political and social arrangements.
Author Martin Fleming