The author of this piece, David Goldman, is Deputy Editor (Business) at Asia Times.
Prior to taking that position he was:
- Global head of credit strategy at Credit Suisse
- Global Head of Fixed Income Research for Bank of America
- Global Head of Fixed Income Research at Cantor Fitzgerald
In addition to apparently not being able to hold onto a job I think one of his requirements for moving on was a "Global Head" title. (JK, young Master. G.)
From American Affairs Journal, Volume V, Number 2 (Summer 2021):
One of the great paradoxes of recent economic history is how little the information technology sector has contributed to overall productivity. Economist Raicho Bojilov examined total factor productivity across the major industrial economies from the 1970s to the present and observed:
Somewhat surprisingly, we do not witness, even with a lag, a major pickup in the productivity growth in other industries that are directly and indirectly connected to the IT industry. One would expect that if the IT industry were the engine of the US economy that generates the products, technologies, and techniques of the future, then the other industries would eventually experience a jump in productivity rates to levels comparable to those of the IT industry. Thus, one may wonder why aggregate productivity in the US has not grown much more in accordance with the innovations and major productivity gains that have been achieved in the IT industry.1
Bojilov adds that “the annual rates of indigenous innovation in the US and the UK have made only a partial recovery during the IT revolution: while higher than the rates for the period 1970–1990, they are still lower relative to the rates witnessed in the postwar years until the late 1960s.”
Why have IT improvements failed to radiate through the broader economy? There are many possible explanations, but the transformation of once-disruptive tech companies into rent-seeking monopolies is surely an important one. The monopolization of information technology arises from the nature of the technology itself: so-called network effects make it convenient to have one venue on which to post political comments and cat pictures, one provider of office software that everyone uses, one giant internet retail marketplace, and so forth. But the fact that technological monopolies have their origin in network effects rather than in the nefarious manipulation of markets does not eliminate the potential for abuse.
Stagnating productivity worries Chinese planners at least as much as it does Western economists. China has by far the highest savings rate among the world’s large economies and an investment-to-GDP ratio of 43 percent (compared to about 20 percent in the United States). The productivity of capital investment, however, has stagnated, in part because China has maintained high rates of investment in older production facilities. Increasing productivity growth is, therefore, critical to China’s economic performance, especially as the movement of people from countryside to city tapers off and the workforce ages. To meet its economic goals, China needs its investments in IT—especially mobile broadband and artificial intelligence—to stimulate overall productivity.
Moreover, in China as in the United States, the top tech companies have a gigantic stock market footprint. Alibaba and Tencent, China’s two largest public tech companies, are not members of the Shanghai Composite Index; if they were, their combined $1.3 trillion market capitalization would make up 16 percent of the broad index. In the United States, as of February 2021, 23 percent of the S&P 500’s value belonged to Apple, Microsoft, Amazon, Tesla, Facebook, and Google, an unprecedented level of market concentration.
These are some of the motivations behind the antitrust measures that Beijing announced last year targeting its internet giants. American and Chinese regulators face similar issues, but China seems more serious about taking decisive action than its Western counterparts, and appears to be focusing on the monopoly problem in particular. The opening salvo of the Chinese government’s efforts to curtail tech monopolies came on November 3, 2020, when the Shanghai and Hong Kong Stock Exchange suspended the initial public offering of Ant Financial, which would have been the largest in history at around $240 billion. In subsequent actions, Chinese regulators warned the country’s internet giants that they could not maintain a monopolistic hold on the mass of personal data that drives their businesses and stifles competition from new market entrants, and proposed new regulations to prevent monopoly control of data. These measures have often been portrayed in Western media as old-fashioned Communist Party crackdowns on free enterprise, but they are in fact efforts to avoid the IT sector concentration problems that continue to plague the United States.
Innovation or Cannibalization?Many conjectures have been offered to explain lagging U.S. (and Western) productivity despite the enormous improvement in IT. One is that the IT industry grew at the expense of traditional retail and advertising businesses. The ratio of U.S. advertising spending to GDP has remained constant or even declined during the past twenty years, despite an enormous shift toward internet advertising at the expense of traditional media.2 Similarly, the rise of internet retailing did not cause U.S. consumers to spend more than they otherwise might have, but only shifted sales away from brick-and-mortar retailers to online enterprises.
Another view holds that the exercise of monopoly powers by large internet companies has reduced profitability in other sectors of the economy, and therefore drained capital from other industries that might benefit from innovation. In other words, the sector of the U.S. economy that appears to be most innovative, namely IT, in reality is restraining innovation throughout the economy.
That was the conclusion of a 2020 report by the U.S. Congressional Subcommittee on Antitrust:....
....MUCH MORE
