Look at home to find the efficiency gains from recent technological innovation

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I can tap my smartphone and a cab will arrive almost immediately. Another tap will tell me the latest news, value my share portfolio or give me route directions to my next meeting. I can instantly find the time of a train to Margate, the weather in Majorca, download a rail ticket and receive a boarding pass for my flight. As a result, I do not need to stand on a street corner vainly trying to hail a taxi to the theatre, lose myself in London streets, miss my train or queue at a check-in desk. I can chat to friends, or arrange a loan, while appearing to pay attention to a dull meeting.

The changes that have occurred in the past decade have, from an economic perspective, increased at virtually no cost the efficiency of household production. Trying to account for this kind of development is the considerable challenge that George Osborne, the chancellor of the exchequer, has given Sir Charles Bean, former deputy governor of the Bank of England, in asking him to review how the UK’s official statistics are compiled.

The data framework within which economic analysis is conducted is largely the product of the second world war. In the 1930s American economist Simon Kuznets began to elaborate a system of national accounts. That work was given impetus when the war led governments to take control of important sectors of economic activity. It was soon realised that this required far better data than had previously existed, which in turn raised the challenge of how best to structure such information.

The framework of national accounts constructed then, and the indices and other tools derived from it, have been the basis of data collection by statistical agencies around the world ever since. The UN has provided a forum for international standardisation. And yet the wartime origins of the processes linger into current practice. Output is essentially a matter of quantities — you needed to know the volume of steel produced, the number of guns, the rate at which tanks roll off the assembly line. We still use gross national product as our primary measure because when you are facing deadly foes it is gross, not net, output that will enable you to repel them. In desperate times, you do not worry about wear and tear.

Household production — women’s work as homemakers — did not have much of a look-in; that was not the front line against fascism. The joke about the man who reduced national income by marrying his housekeeper, so that a market transaction became part of household production, was once a mandatory part of every introductory course on national income accounting but has succumbed to political correctness. (In fact, the introductory courses on national income accounting have gone as well, because no one much wants to teach them, which is one reason why Sir Charles’ review is necessary.)

Technological advance has always enhanced household as well as business efficiency. Our domestic productivity has benefited from washing machines, vacuum cleaners and central heating, and before that from electric light and automobiles. But at least these things were partially accounted for: from an economic perspective a car is a faster and cheaper horse. Statisticians in principle incorporated these improvements in the efficiency of consumer goods into their measurement of productivity, though in practice they did not try very hard.

But the technological advances of the past decade seem to have increased the efficiency of households, rather than the efficiency of businesses, to an unusual extent. An ereader in the pocket replaces a roomful of books, and all the world’s music is streamed to my computer. We look at aggregate statistics and worry about the slowdown in growth and productivity. But the evidence of our eyes seems to tell a different story.

 

This article was first published in the Financial Times on August 12th, 2015.

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