Carol Corrado discusses reasons for the recent slowdown in productivity growth. She argues that accounting for intangible capital investments and better measuring digital activities could help explain parts of the slowdown. Specifically, slowing growth of non-R&D intangible investments that generate spillovers may have reduced productivity. Additionally, investments in artificial intelligence and digital technologies may not be fully captured in current data, following an innovation "J-curve" pattern. Improving measurement of information and communication technology investments, digital services, and quality changes could significantly impact GDP growth estimates.

1. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 20171
Productivity in a World of Disruptive Technologies
Carol Corrado
The Conference Board and
Center for Business and Public Policy, McDonough School of Business,
Georgetown University
3rd Annual OECD Conference of the Global Forum on Productivity
Panel 2: What do we know about the Productivity Slowdown
Bank of Canada, Ottawa, Canada
June 28-29, 2018

2. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 20172
Why did productivity growth slow?
▪ IT revolution over
▪ Non-technological forces (secular stagnation, demographic
headwinds)
▪ Mismeasurement (within GDP, beyond GDP)
▪ Misunderstanding of history’s lessons, aka “the innovation J-curve”

3. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 20173
• Focus of my remarks:
• Intangibles (beyond R&D), Digitization
• Summary:
• Accounting for intangibles + better measurement of
things digital clear some of the puzzles

4. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 20174
Compared with bubble years, weak US labor productivity
reflects slow growth in both capital deepening and TFP
Source. Elaboration of estimates issued by the BLS.
.6
1.4
.5
.4
.2
.3
.7
1.1
.4
.1
.1
.1
0
0.5
1
1.5
2
2.5
3
1987 to 1997 1997 to 2007 2007 to 2017
R&D Capital Deepening
Capital Deepening excl R&D
Labor composition
TFP
2.9
1.2
Contributions to labor productivity growth, nonfarm business sector
Percentage points
1.7

5. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 20175
5%
7%
9%
11%
13%
15%
17%
19%
1977 1982 1987 1992 1997 2002 2007 2012 2017
Tangible
investment rate
Intangible
investment rate
Investment rates, Private industries, 1977 to 2017
(investment relative to private industry value added)
Total intangible investment provides a more
comprehensive picture of inputs to in innovation
Note: Non-national accounts Intangibles estimates are preliminary and do not include own-account expenditures on brand and customer
development as reported in Corrado and Hao (2013)..

6. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 20176
Does an “intangibles approach” help understand the
productivity slowdown?
▪ If intangible capital has spillovers, then an intangible investment
slowdown suggests a TFP slowdown
✓ Recent research suggests productivity spillovers accrue to nonR&D
intangibles, i.e., beyond the well-documented effects of R&D
✓ The slowdown in nonR&D intangibles could account for as much as
¼ of the slowdown in TFP growth
▪ If investments in artificial intelligence are not fully represented in
intangibles, then
✓ Productivity mismeasurement follows a “J-Curve”, a term of art suggested
in recent paper*
✓ … also an empirical lesson learned from the recognition of IT-related
intangibles in the 1990s
* Brynjolfsson, Rock, and Syverson, “Artificial Intelligence and the Modern Productivity Paradox:
A Clash of Expectations and Statistics,” (December 2017).

7. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 20177
Available indicators suggest a surge of investments in AI
.0%
.2%
.4%
.6%
.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
1987 1992 1997 2002 2007 2012 2017
PercentofGDP
ICT R&D and computer design services
continue a strong upward trend
Computer design services
IT Equip./Software/Data-related R&D
Source: Blog by Dario Amodei and Danny Hernandex,
“AI and Compute”, May 16, 2018, at
https://blog.openai.com/ai-and-compute/
Computing power used in AI training runs

8. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 20178
▪ ICT private investment and ICT business services are mismeasured
✓ Post-2007 ICT equipment investment not as weak as now recorded
✓ Business IT department moving to the cloud is a good thing
✓ … faster price declines good for thinking about future growth
✓ ICT production, investment, and services use could contribute, alone, up
to 1-1/2 percentage points to labor productivity growth
▪ What about the rest of the business economy?
✓ nonICT producing industries’ TFP likely is moving sideways (as has been
true for manufacturing outside of computer and related products for some
time)
✓ Much external spending on ICT services and software products (e.g., for
data analytics) without much sign of payoff (yet)
Recent ICT measurement research deepens paradox of
weak business productivity growth outside of digital sector

9. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 20179
“Free goods” is not a welfare issue
▪ Market orientation of GDP does not dismiss need to account for
changing modes of service
▪ Consumer digital services consumption consists of two components
✓ A flow of capital services from use of content delivery devices within the
home (a rental price times a stock of devices)
✓ Payments for access to digital networks/digital content
▪ Proper accounting packs an enormous punch when quality of
services is taken into account.
✓ New digital services measures add .8 ppts per year to real GDP growth
since 2007 (about 3/4 of which is net of existing GDP)
✓ Swing in post-2007 GDP growth is .4 ppts per year
Source: “Accounting for Innovation Consumer Digital Services: Implications for GDP and Consumer
Welfare” by David Byrne and Carol Corrado, May 2018.

10. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 201710
Summary
▪ Part of the slowdown in productivity may be due to fewer spillovers
from nonR&D intangibles, i.e., a slowdown in diffusion of commercial
knowledge
▪ All things digital suggest optimism for future productivity growth
✓ R&D in ICT/AI/computing is very robust
✓ Payoffs to measured and unmeasured investments in data analytics by
businesses not evident in productivity (yet)
▪ Digital mismeasurement picked up after 2007. Much going on,
including topics not mentioned in these brief remarks.
▪ … but look for topline GDP impacts from
✓ Understated IT investments by cloud and telco service providers
✓ Missed quality change in consumer digital goods and services

11. www.conferenceboard.orgCarol Corrado, The Outlook for the US Economy, Brookings, Mary 31, 201711
Thankyou.
carol.corrado@tcb.org