Productivity Paradox

Robert Solow

Won the Nobel Prize.

Robert Solow's famous observation, often called the "productivity paradox," highlighted a disconnect between rapid technological advancements and stagnant productivity growth, famously stating, "You can see the computer age everywhere but in the productivity statistics!".

NB: productivity kept increasing, but slowly. This is NOT about productivity declining.

Here's a more detailed explanation: The Productivity Paradox:

In the late 1980s, Solow noted that despite significant investments in technology, particularly computers, there wasn't a corresponding surge in overall productivity growth. This led to the idea that the benefits of technological progress were not being fully realized.

Solow's Growth Model: Solow's work also established the Solow Growth Model, which focuses on how economies grow over time, emphasizing the role of technological progress (or "total factor productivity") in driving long-term economic growth.

The Solow Residual: The model introduced the concept of the Solow residual, which represents the portion of economic growth that cannot be explained by increases in capital or labor inputs. This residual is often interpreted as a measure of technological innovation and efficiency gains.

Implications: Solow's work has significant implications for understanding economic growth and the role of technology. It suggests that simply investing in technology isn't enough to drive productivity growth; other factors, such as innovation, human capital, and institutional structures, are also crucial.

Modern Relevance: While the initial "productivity paradox" has been debated and reinterpreted, the core ideas of Solow's work remain relevant in understanding the dynamics of economic growth and the challenges of measuring and improving productivity in the modern economy.

OSE Interpretation

This explains the fascination with which we observe the failure of open source to move the state of the world forward, in the general sense - as counting by the further degradation of the Gini Coefficient and the IT productivity paradox [1]. There was the Golden Age of Open Source where everyone believed that the Zero Marginal Cost Society and paradise is nigh. But it didn't happen. This is visible in the lack of decrease of energy costs even through photovoltaics cost dropped from $78/watt in teh 1970s to 20 cents per watt in 2025.