The coronavirus pandemic is a global crisis that has been detrimental in so many aspects for businesses, but a few bright spots have emerged. One of these is that digital transformation has undoubtedly accelerated at a speed that was previously unthinkable, potentially lifting productivity and offering a solution to the so-called “productivity puzzle.”
Productivity is desirable because it is an important catalyst of economic growth and competitiveness in the longer run. It is also instrumental in unlocking wage growth and raising living standards. According to the law of diminishing returns, sustainable economic progress will not be achieved by simply using more factors of production, such as capital and labour, without increased productivity.
There are perhaps no faster routes to raise productivity than technological advances and their wider adoption by society. For example, transferring money between bank accounts can now be easily done with only a few clicks on our mobile phones. Travel websites can suggest hotels and airlines meeting your specific requirements and make reservations within seconds, saving time on consulting travel agents and comparing package catalogues.
Many of us may have expected that the age of internet and digital innovations during the past few decades would also have boosted productivity. However, despite the fact that they have changed the way we live, work and communicate with each other, productivity growth has been stagnant globally for some time, baffling economists and policymakers.
“You can see the computer age everywhere but in the productivity statistics,” said Robert Solow, a Nobel laureate in economics, in 1987. Unfortunately, this “productivity paradox” remains relevant three decades after Solow made his remarks.
According to the Conference Board, global growth in total factor productivity (TFP), which measures innovation-related efficiency gains, continued to stay at low levels in the decade after the global financial crisis. In 2019, it was -0.2% compared to 1% during 2000-2007, and 0.1% during 2010-2017. For Hong Kong, TFP growth in 2019 was an even more dismal -1.9%.
More than a year after the Covid-19 outbreak, we have begun to learn how to live with the impact of the virus. Under social distancing restrictions, businesses have been forced to adapt or fail. Could the pandemic bring us a productivity renaissance, initiating a period of faster productivity growth rates?
There are reasons to be optimistic, as we have seen a major shift to online for both businesses and customers, and from cash and credit cards to digital payments. All these changes have been accelerating at a rate that can be measured on a monthly basis.
In the meantime, in order to help curb the spread of the coronavirus, many companies have encouraged their staff to work remotely, which has become a large-scale worldwide experiment. In fact, the acronym WFH (work from home) was chosen by Oxford Dictionaries as one of the “Words of an Unprecedented Year,” along with Covid-19 and lockdown.
Some believe that this new form of work environment could make employees more productive, as they spend less time on commuting and dressing formally for the office. Firms can also hire overseas talent from a much wider labour pool, which was previously less feasible.
On the other hand, there are fears that governments and corporates may invest much less in R&D in the longer term. As they have put enormous resources into the battle against the coronavirus, high levels of debt could make them more cautious about major investments. Consequently, there is a possibility that future innovation and technological development may slow down.
As to remote working, productivity doesn’t necessarily go up. Employees may get distracted by issues including child care, and it may not be suitable for those living in a less desirable environment. In addition, with fewer opportunities for workers to exchange views face-to-face, innovation and creativity could suffer as a result. Younger workers would also miss out on learning opportunities with mentors and other experienced colleagues.
In conclusion, while the overall impact of Covid-19 on productivity in the long run is ambiguous, what we are sure about is that the tide of digital transformation is unlikely to turn back. According to the Chamber’s annual Business Prospects Survey, conducted in November, over half of the respondents said they planned to make a major investment in digitalization over the next 12 months. A similar number (55%) said they would allow employees to work remotely, at least some of the time, after the Covid-19 pandemic recedes.
Now that the pandemic has accelerated digital transformation, what really matters is whether governments and businesses are able to capitalize on the latest technology to improve work efficiency and facilitate innovation in order to lift productivity in a sustainable manner, turning a crisis into opportunity.
Wilson Chong, [email protected]