The Network Society - University of Massachusetts Amherst

374 The Network Society
Productivity and innovation
Economic theory shows that welfare, competitiveness and employment
can only be sustained in the long run if they are based on productivity
growth and innovation.
Over the years, we have favoured in Europe a combination of economic
and social progress, with built-in safeguards for equity on the
basis of solidarity.
However, economists have recently been warning that Europe’s
model can only be sustained if we significantly increase productivity
and innovation.
GDP can grow by increasing employment or by growing productivity.
Productivity growth comes about by investing more in capital
or in labour, that is, increasing skills.
The third contribution to productivity growth is called total factor
productivity or TFP. This measures growth through better combination
of labour and capital, for example through better organisation of
business processes enabled by ICT. One might say, TFP is about better
recipes for using labour and capital.
Recent studies (such as Van Ark and O’Mahony 2003 and
Conference Board 2004) show that the gap in labour productivity
growth between the EU and the US has become particularly evident
since the mid-nineties. Differences in productivity growth between
the two economies are more and more believed to be linked to the
production and diffusion of ICTs.
Investment in ICT is clearly a critical enabler of productivity
growth, and, for that matter, also of innovation. However, the key
question these days is not so much one of technology, but how technology
is used and the way it is affecting GDP growth through
improved productivity. We should not focus on technology just for the
sake of technology.
Investing in computers is not enough. If we want to reap the productivity
benefits of ICT, we need to invest, in parallel, in the reorganization
of companies and administrations and in skills. This is how
ICT will make total factor productivity grow.