Bundesbank expert explores the impact of digital transformation on productivity growth
Frankfurt, Germany – In a guest article published in the Frankfurter Allgemeine Zeitung, Joachim Nagel, an expert from the Bundesbank, emphasizes the importance of digital change in driving higher labor productivity, which is crucial for maintaining a high standard of living and fostering prosperity.
Nagel highlights that prosperity encompasses various facets, including affordability, free time, social security, and a healthy environment. To sustain a high standard of living, it is essential to produce goods and services efficiently, making optimal use of resources. Increased labor productivity, achieved by producing goods and services with fewer labor inputs, creates room for shorter working hours or higher wages, providing individuals with more economic flexibility. Additionally, economies with higher productivity are better equipped to support robust public services, such as universal access to advanced healthcare.
Historically, productivity has depended on technical progress, driven by new ideas, innovations, and improved processes. Nagel acknowledges that productivity gains in many industrialized countries have been declining, but he emphasizes the rapid spread of digital technologies, such as robotics and digital platforms, as well as emerging technologies like artificial intelligence and the Internet of Things.
To explore the relationship between technological waves and productivity slumps, Bundesbank experts examined the impact of digital transformation on labor productivity in major euro area countries and the United States between 1997 and 2018. The results revealed that the production and use of digital goods, such as software and telecommunications technology, significantly boosted labor productivity.
While digital goods manufacturers represent a relatively small portion of the overall economic value added, their efficiency gains were considerable. Without these gains, productivity growth in countries like the United States, Germany, and France would have been significantly lower. Nagel emphasizes that digital technologies not only affect the industries producing them but also transform products and processes in other sectors, leading to increased labor productivity.
However, the impetus of digitization seems to have weakened during the study period, and the reasons for this decline remain unclear. Nagel suggests that further innovation and investment may be necessary for the practical application of general-purpose technologies such as artificial intelligence and quantum computing, which could potentially drive substantial productivity gains in the future.
To fully leverage the potential of digitization and spur further innovation, Nagel emphasizes the importance of favorable framework conditions. These include stable prices, a well-developed digital infrastructure, innovation-friendly regulations with clear rules for data usage and AI systems, and suitably qualified employees. Education plays a crucial role in ensuring that digital change is viewed as an opportunity rather than a threat, with continuous learning throughout professional life being key to keeping pace with rapid changes. The state can also provide support through social security networks to mitigate the hardships caused by digital transformation.
Furthermore, Nagel points out that efficient and modern administration is essential for maximizing the benefits of digital opportunities. The digitization of public administration facilitates the introduction of digital technologies in the private sector, as highlighted in the latest economic report for Germany by the OECD.
In conclusion, Nagel suggests that there are multiple opportunities to enhance productivity with the tailwind of digital change. While facing challenges, such as the need for investment, employee training, and the establishment of suitable frameworks and social safety nets, the progress made thus far indicates that the positive potential of digital technologies is far from exhausted. This bodes well for future prosperity in all its facets.