One of the debates loosely collected under the rubric "The Great Stagnation" during the last decade was the question of why the productivity gains of the IT revolution were disappointing. This was an example of a failure of perspective, particularly in its comparison of the last quarter of the 20th century with earlier revolutions and the adoption of general purpose technologies (GPTs) such as steam power and electricity. Productivity is relative, not just temporally (producing more today from the same inputs than we did in the past) but spatially. The slow dissemination of technologies in the 18th and 19th centuries gave the UK a notable "first mover advantage", so much so that this phrase became pervasive in discussions of startups around the millennium. The lesson of history was that gradual dissemination, as much as government policy (e.g. protective tariffs or import-substitution), drove the catch-up of competitors with equal or better natural endownments such as the USA and Germany in the late 19th century. The greater rapidity of dissemination in subsequent technological waves, enabled in part by the cumulative effect of those earlier GPTs, has meant that first mover advantage has shrunk: a narrowing of the window of opportunity for the relative out-performance of peers.
When all countries get the benefits of a new technology almost simultaneously the impact is diffused globally, but it manifests in different local productivity growth rates depending on the prior technological level. In simple terms, there is scope for a bigger step up in some areas than others. Consider the sub-Saharan African countries that skipped fixed-line telephony and went straight to cell networks and widespread smartphone usage after 2010. While the continent remains bedevilled by many structural impediments, it is now expected to be the second fastest growing region after Asia in coming years. Robert Solow's 1987 quip, "You can see the computer age everywhere but in the productivity statistics", was what you might expect from an MIT professor focused on the American economy. What he didn't seem to appreciate is that just as neoliberalism shuttered much of American industry and exported capital to peripheral nations, so it also exported productivity gains that might otherwise have been seen in the domestic data.
Perhaps the greatest impact of the IT revolution was that it enabled globalisation. While it was the container revolution and the falling cost of shipbuilding (as it moved to Japan and South Korea) that created the hard infrastructure for a huge increase in global trade, it was IT that enabled global inventory management and offshoring, which is why globalisation accelerated in the 1980s, not the 1960s. In other words, the productivity gains were revealed among developing nations able to leverage both the technology and low labour costs. Western corporations were able to tightly manage this process through technologies such as email, ERPs and CRMs, not forgetting the rapidly expanding and more reliable telecoms and datacoms that we nowadays take for granted. One part of the puzzle of Japanese stagnation, which started in the 1990s when North America and Europe were (relatively) prospering, was the country's reluctance to let go of the technologies that had powered its earlier boom years, such as fax machines and floppy disks. Other countries have read this as a lesson to embrace new technologies as soon as possible, which brings us to the current vogue for government AI strategies.
Much of the promise of AI is based on the assumption that it will drive productivity gains, but this can only be temporal rather than spatial because its dissemination is likely to take place pretty much everywhere at the same time. This is a consequence not only of that narrowing of the window of opportunity due to cumulative GPT waves (the most recent being the now-pervasive Internet), but because the technology itself is dependent on its concentration into global businesses that will necessarily seek maximum profit, and therefore rapid global spread, over national advantage (the tension between the MAGA right and the tech-bros in the US over immigration policy is reflective of this). Countries like the UK that produce national strategies for the development of AI as a productive industry, centred on light-touch regulation, facilitating infrastructure and leveraging "national data libraries", are seeking to combine the prescriptions of neoliberal development economics with the dirigisme of the postwar era, much as Joe Biden's administration in the US attempted more widely in respect of industrial strategy. It's not clear that this can succeed politically. That the electorate won't see the benefits any time soon is obvious, even to those who don't understand the technology. That AI's impact on wages may further erode the social solidarity necessary for a welfare state is perhaps less obvious as we try to peer through the hype.
The problem is that while the UK may well retain its position as a leading AI research centre this won't necessarily translate into a sustainable and significant economic advantage relative to other nations. What government subsidies will do is help defray the costs, both in cash terms and more importantly in terms of environmental externalities, for those global businesses that will dominate the sector, almost all of whom will be American. And you can be confident that they will pay minimal tax on their UK operations. But if the spatial advantage is likely to prove illusory, what of the temporal advantage? Will we at least see an above-trend improvement in domestic productivity? The first point to make is that if British firms have been slow in adopting new technology and working practices up to now, as evidenced by the poor productivity data, then it would seem unlikely that they'll suddenly embrace AI. The rate of the application of technology reflects multiple factors but the decisive one is usually management culture, and it's no secret that outside certain sectors and pockets (typically foreign-owned firms) British industry has poor calibre management.
The second point to make is structural. The UK's under-performance in productivity growth relative to its peers isn't because it lacks high-productivity businesses - there are many - but because of the composition of the national economy. The most obvious factor is the size of the service sector relative to manufacturing. Though the latter has shrunk relative to the former in all developed economies, the shift has been greater in the UK over the last 50 years. Achieving productivity gains in services is more difficult than in manufacturing where newer technology is often decisive. In services, productivity gains are limited by the human factor (the Baumol Effect), the greater difficulty in applying best practice to processes rather than tools, and by the low costs of entry (less need for plant and machinery). The latter encourages smaller, under-capitalised firms, which is a notable feature of the British economy. This is exacerbated by a tax regime that indulges sole traders ("Be your own boss"), small businesses (particularly family firms preserved by generous inheritance rules) and lifestyle companies (i.e. where the priority is a comfortable living rather than productivity).
If there is a strong sense of deja vu about the UK government's rhetoric about AI it is not simply because of its obliviousness to the structural peculiarities of the domestic economy or its proud technological illiteracy but because it sounds remarkably like the paeans once sung to globalisation by Tony Blair: "I hear people say we have to stop and debate globalisation. You might as well debate whether autumn should follow summer. They're not debating it in China and India." Thus Keir Starmer's recent article for the Financial Times opens "Artificial intelligence is the defining opportunity of our generation. It’s not a technology that is coming. It is already here, materially changing lives." The conclusion to the piece managed to be both needy and manic: "Put simply, that’s our message to anyone working at the AI frontier: take a look at Britain. Our ambition is to be the best state partner for you anywhere in the world. We can see the future, we are running towards it and we back our builders. Because we know that AI has arrived as the ultimate force for change and national renewal."