Edquist and Henrekson (2006) documented that after each of the three great general purpose technology breakthroughs - the steam engine, electrification, and information and communication technology (ICT) - measured productivity growth accelerated only long after the original invention (roughly 140 years for steam, 85 if the Watt engine is treated as the original innovation, and 40-50 years for electrification and ICT), that the measured payoff was concentrated in different industries across episodes and countries, and that only ICT products receive quality-adjusted (hedonic) price treatment in the statistics, and even then only for some ICT products in some countries (France, Sweden, and the United States, but not Finland, Germany, and the United Kingdom). They left open how much of this pattern is a measurement artifact, what explains the lag, and why the ICT revival after 1995 was broad in the United States but not in Europe. The problem asks for a quantitative account of how a general purpose technology is translated into measured aggregate productivity growth, in questions the source poses severally: (1) how measured productivity in the steam-engine and electric-machinery producing and using industries would change under systematic quality adjustment - no consistent quality-adjusted (hedonic) price index exists for steam power; (2) how the invention-to-productivity lag decomposes empirically into downstream complementary innovations, organizational redesign and intangible investment, and institutional or political conditions, as distinct from measurement artifacts; and (3) as instances of the same transmission question, why the ICT revival was US-centered, and whether productivity spillovers run from ICT-producing to ICT-using industries outside the United States and outside manufacturing. Later literature partially answered the US-Europe divergence (industry-level accounting plus organizational-management evidence) and constructed hedonic indices for Swedish electric motors 1900-35, but the steam measurement question, the lag decomposition, the international spillover question, and the institutional share of the US-Europe divergence remain open.

Background

A general purpose technology (GPT) is a technology, like the steam engine, electric power, or the computer, that is initially primitive but improves dramatically over time, pervades many sectors of the economy, and stimulates waves of complementary innovation in its applications (Bresnahan and Trajtenberg, 1995); Jovanovic and Rousseau (2005) synthesize the theory and evidence. A persistent empirical regularity is that the productivity payoff of a GPT arrives late. Paul David's 'dynamo and computer' thesis (David, 1990) explained the 1980s 'productivity paradox' - computers seemed to be everywhere except in the aggregate productivity statistics - by analogy with electrification: factories took decades to reorganize around the electric motor before productivity accelerated around the 1920s, and David and Wright (2006) extend this account. Theorized sources of the delay include innovational complementarities (users must invent improvements before the GPT is worth adopting), organizational redesign and unmeasured intangible investment, the creative destruction of old capital that must be written off, and political or institutional blocking by vested interests tied to the old technology.

Two measurement concepts are central. Labor productivity is output per unit of labor input; total factor productivity (TFP) is the part of output growth not accounted for by measured inputs of capital and labor, typically computed by growth accounting, the systematic attribution of output growth to input growth and technical change. A hedonic price index measures price changes while holding product quality fixed, by regressing product prices on measurable product characteristics and recomputing the index from the estimated quality-adjusted prices; a matched-model index instead tracks identical models over time and misses quality change whenever new models replace old ones. Because statistical agencies applied hedonic methods to semiconductors and computers only in some countries (France, Sweden, and the United States, but not Finland, Germany, and the United Kingdom) and no consistent quality adjustment existed for steam engines or electric machinery, cross-episode comparisons of producing-industry productivity are potentially distorted.

Edquist and Henrekson (2006) examined productivity growth after the three breakthroughs, emphasizing the distinction between industries producing and industries using the new technology. They found the long lags noted above; rapid real price declines for steam engines, electricity, electric motors, and information and communication technology (ICT) products; the highest productivity growth of the ICT era concentrated in ICT-producing industries (a pattern they could not establish for steam engines or electric machinery, plausibly because hedonic indices were not applied to the latter); no evidence of ICT spillovers to other manufacturing industries in the six countries studied; and a US-EU aggregate productivity gap after 1995 that arose mostly in retailing, wholesale trade, and financial services, possibly reflecting institutional and political differences. Their conclusions pose the open questions: how much the measured patterns would change under systematic quality adjustment for steam power and electric machinery; why the additional innovation after an invention takes so long and what its character is; why the ICT revival was broad only in the United States; and whether spillovers run from ICT-producing to ICT-using industries. Subsequent work sharpened these questions: Basu, Fernald, Oulton, and Srinivasan (2003) argued that unmeasured intangible organizational capital associated with ICT as a GPT can explain divergent US and UK TFP performance, and Brynjolfsson, Rock, and Syverson (2021) formalized the 'productivity J-curve', in which poorly measured intangible complements first depress and later inflate measured TFP around a GPT's diffusion. Industry-level comparisons across countries rest on harmonized growth-accounting datasets such as those underlying Timmer, Inklaar, O'Mahony, and van Ark (2010).

Problem Statement

The problem is a quantitative account of how a general purpose technology breakthrough is translated into measured aggregate productivity growth - its timing, its location across producing and using industries, and its incidence across countries - for the three historical episodes of steam power, electrification, and information and communication technology (ICT), in three components that the source poses as separate open questions. (1) Measurement: how much would measured productivity growth in the industries producing steam engines and electric machinery, and in the industries using them, change if quality-adjusted (hedonic) price indices were constructed and applied systematically, as they are for some ICT products in some countries? As of Edquist and Henrekson (2006), no consistent hedonic price indices were available for steam power or electrification; the electrification case has since been partially addressed only for Swedish electric motors 1900-35 (Edquist, 2010), which finds the price declines not on a par with those for ICT equipment in the 1990s even under hedonic indexing. The authors themselves caution that missing hedonic adjustment 'cannot be the whole explanation' of the high measured productivity growth in ICT-producing industries, since some countries without hedonic indexing (Finland, Germany, and the United Kingdom) also recorded it, and they offer the rival explanation that there is 'simply no equivalent to Moore's law for other technological breakthroughs'. (2) Mechanism: what explains the long lag between the original invention and the observed acceleration of productivity growth - roughly 140 years for the steam engine (85 years if the Watt engine is treated as the original innovation, and no longer exceptional if the high-pressure steam engine is taken as the innovation that paved the way for the steam revolution), 40-50 years for electrification and ICT - and how can the hypothesized channels be empirically distinguished from one another and from measurement artifacts: downstream complementary innovations that make the technology usable and more efficient; organizational redesign and intangible investment, including the creative destruction of old capital; and institutional or political conditions, including reform blocked by vested interests tied to the old technology? The source cautions that sharp tests of causal effects from GPTs introduced long ago are 'extremely hard, perhaps infeasible', and that exploratory analyses documenting whether identified patterns are consistent with loosely formulated hypotheses may be the achievable evidential standard. (3) Incidence, as instances of the same transmission question: why did the ICT-driven productivity revival after 1995 appear broadly in the United States but not in Europe (later work locates the gap in retailing, wholesale trade, and financial services and in organizational and management practices; what remains open is the institutional and political contribution, which the source offers only as a conjecture and which has not been quantified), and do productivity spillovers in fact run from ICT-producing to ICT-using industries outside the United States and outside manufacturing? The source poses these as separate unresolved issues, each with its own call for further research; the technological interdependence of the episodes (electricity replaced the steam engine, and the ICT revolution presupposed an extensive electricity network) links them as background, not as one indivisible program. The three components are largely independent rather than conjunctive: a complete answer to any one of them resolves the task, though the mechanism component's separation of the hypothesized channels from measurement artifacts may draw on the measurement component's result and so is not wholly self-contained.

References

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