Financial innovation

Adoption, not invention, is the key to technology success

Technology adoption is the driving force in economic growth as users reap more benefits than inventors

Around the world, governments are jostling to be at the forefront of new technologies. Policies range from tax breaks, research grants, and science parks to subsidising innovative start-ups and favouring domestic firms when buying technology.

Some of this is undoubtedly helpful in driving technological development. However, adoption, not invention, is the main driver of economic growth in most countries.

True, the US economy is boosted by the new digital companies like Google, Facebook and Apple, but competitive pressures mean that the benefits of new technologies overwhelmingly go to the users rather than the producers.

Fast adoption is key and represents a massive opportunity for accelerated economic growth in the future

Especially for emerging markets (EMs), fast adoption is key and represents a massive opportunity for accelerated economic growth in the future.

The rapid spread of mobile, the cloud, big data, the ‘internet of things’ and drones is leading a third wave of digitisation, following on from the personal computer and Internet in the 1990s and mainframes in the 1970s.

Close behind are artificial intelligence systems (AI), 3D printing, robotics and driverless cars. Digital technology is a ‘general purpose technology’ or GPT, similar in its effects to earlier revolutions like the domestication of animals or electricity.

Technology will bring profound change

The three ‘Cs’ of computing, connectivity and copying are coming together to disrupt business models and bring profound economic change. If Moore’s Law holds, as most experts expect, computer power will be 32 times greater by 2025, doubling every two years.

Connectivity has become ubiquitous, with Wi-Fi, mobile and other technologies linking people and machines on a real-time basis. Copying of software and content costs virtually nothing; information can be shared and transported with total ease, across the room or around the world.

As long as they embrace change, developed markets stand to gain from all of this, with a surge in business investment, which will boost lacklustre growth in productivity and GDP. In recent years, we have not seen much evidence of this effect, but the example of electricity in the early 20th century suggests that GPTs can slow productivity growth initially, until businesses figure out how to use them.

Fear of technology causing mass unemployment in the West is misplaced. Routine jobs will continue to be replaced by machines, but the experience of rapid technological change in the last 200 years tells us that new jobs will always be created. Moreover, such jobs tend to be better paid, safer and more pleasant.

Meanwhile, for many EMs, adoption poses a challenge, as well as an opportunity. Many are still struggling to spread older technologies, such as clean water and rapid transport, beyond the big cities: more than two-thirds of Africans still live without electricity.

New technologies offer some scope for leapfrogging, as people and companies use innovations such as mobile banking instead of bank branches, delivery drones ahead of better roads, and solar power ahead of electricity grids. But all these still require higher investment, more trade and improved education.

Inflexible labour markets slow down adoption

The constraints are often the familiar ones: political instability, limited rule of law, lack of infrastructure and the difficulty of starting a business. But labour and product market inflexibility acts as a bigger brake on technology adoption than lack of government encouragement, even in developed economies.

GPTs don’t just introduce new products and services; they change where and how production is organised and managed, the infrastructure, laws and regulations needed; and the nature of work and leisure. All this requires flexibility. If labour laws make it difficult to change headcounts or discourage worker training, it is hard to garner the benefits of new technology.

This helps explain why some countries in southern Europe are struggling to generate growth. It also explains why a group of newly developed countries in Asia are moving to the forefront in technology adoption, including Korea, Singapore, Hong Kong and Taiwan. All have seen deliberate government policy to promote digital technologies, but their advance is also for a large part down to their flexible labour and product markets and corporate focus on technology.

Korea is now the world’s biggest spender on R&D, at 4 per cent of GDP and has the highest tertiary education rate.

Opportunities for emerging markets and governments

Eventually, robotics, 3D printing and smart artificial intelligence will challenge the advantage of EMs in low-cost manufacturing and services. But better communications technology will help expand global value chains for the next decade at least, benefiting these markets. And fast-growing EMs can incorporate the latest technology in buildings and processes to give them an advantage over older countries.

Governments can do a lot to speed up adoption, starting with themselves. Digital technology is transforming services as much as manufacturing, probably more so. The opportunity for governments to improve efficiency and streamline delivery of public services and welfare is huge.

In the long run, the benefits of new technologies accrue far more to the users than to the inventors

In EMs, technology can also help reduce corruption, as governments use digital payments to cut out the middle men in welfare provision or set up websites to report corruption, such as Stopthebribe in Nigeria.

Again, the focus should be on adoption, not invention. In the long run, the benefits of new technologies accrue far more to the users than to the inventors.

A version of this article first appeared in beyondbrics on 21 January 2015

 

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