IEEE Technology and Society Magazine - March 2023 - 37

Hidden Consequences
of Innovation-Economic
Activity Beyond GDP
Stefan Fölster
Better Future Economics
13137 Stockholm, Sweden
 DecaDes of Digitalization, with a remarkable
explosion in performance and functionality of
digital technology as predicted by Moore's law, have
not left any significant footprint on the gross domestic
product (GDP) and productivity growth, as they
are measured in official national accounts. In the
aftermath of the pandemic, the disconnect is likely
to become even more accentuated.
Economists and other social scientists have
always known that innovations can have both positive
and negative effects on quality of life. Also,
economic growth as defined in terms of [monetary]
value added or GDP misses many aspects of
quality of life such as health, a sound environment,
or social justice (for example, recently in [1]).
Yet, it has mostly been assumed that GDP
growth captures economic value creation well. This
assumption is no longer justified, with potentially
grave consequences. The benefits of innovation
are underestimated. Innovative countries appear
less successful than countries that expand the production
of traditional products. New measures that
better capture value creation would lend support to
more ambitious innovation policies.
Economic growth is defined as a monetary
increase of value added created in the production
of goods and services. It has tended to increase by a
few percent per capita and year globally and probably
reflects short-term economic fluctuations well
enough. Yet, to many economists, it remained a mystery
that the remarkable explosion in performance
Digital Object Identifier 10.1109/MTS.2023.3241323
Date of current version: 7 March 2023.
Andrej Litwin
1134 Stockholm, Sweden
and functionality of digital technologies has not left
much of a footprint on GDP growth or productivity.
In the early 2000s, this paradox was confounded by
the so-called " productivity paradox. " Productivity
development throughout the world slowed down.
The new pattern also included an unusually low
inflation rate, lower investments, low interest rates,
and recurring risks of asset bubbles. The causes of
this episode of low productivity growth were hotly
debated and may turn out to be mostly down to
temporary factors following the burst of the dot.com
bubble in 2001 and the financial crisis in 2007/2008.
Episodes of low growth have occurred in the past,
sometimes even during times of rapid technological
change.
This still leaves the mystery of a widening gap
over several decades between rapid functional/qualitative
increase in performance and functionality in
many products and services that is not mirrored in
national account growth measures. The phenomenon
has sometimes been called the Solow paradox.
Some economists believe that productivity growth
may still occur, but with a significant lag. Others,
such as Robert Gordon at Northwestern University,
argue instead that the pace of innovation is now
slower than many believe and insufficient to offset
the growth-suppressing effects of an increasing proportion
of older people in the population and macroeconomic
imbalances.
One of the conclusions of this article is that there
is, in fact, substantial productivity growth but in
other dimensions than those captured in national
accounts. Using just one measurement unit [monetary]
to describe a complex economic environment
March 2023
0278-0097/23©2023 IEEE
37
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IEEE Technology and Society Magazine - March 2023

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