Picture: 123RF/ISMAGILOV
Picture: 123RF/ISMAGILOV

Hong Kong — The Covid-19 crisis is accelerating a technology boom that has the potential to boost productivity across much of the world, spurring growth even in mature economies such as those of Europe and the US.

Whether in restaurant kitchens, on the factory floor, or at e-commerce fulfilment centres, the pandemic has sped the adoption of robots, artificial intelligence (AI) and other technologies that, in theory, free workers from manual or repetitive tasks to focus on higher-value output.

At the same time, cloud computing and videoconferencing software have enabled the shift to work from home at countless companies around the globe. That has liberated employees from the wasteful time-suck that is the office commute and is said to be yielding dividends for businesses.

Research published by the McKinsey Global Institute at the end of March found that the combination of these trends could raise productivity growth in the US and Western Europe by about one percentage point annually in the years to 2024, more than doubling the pre-pandemic rate of growth.

This could translate into increases in GDP per capita, ranging from about $1,500 in Spain to about $3,500 in the US, according to the report’s authors.

“This acceleration in technology is something that feels real and lasting,” says Jan Mischke, a partner at the McKinsey Global Institute. (Except where noted, the term “productivity” is used here as a shorthand for what is often called labour productivity, which is a measure of output per unit of labour input.)

Goldman Sachs economists are also bullish. They estimate in an April 25 report that three channels of tech disruption—the shift to e-commerce, digitisation of the workplace, and the reallocation of human and investment capital as unprofitable companies shrink or close—will lift US productivity by at least 2% cumulatively by 2022 relative to trend, and potentially by as much as 7%.

These are bold predictions, especially as they run counter to what has been observed historically. Recoveries from recessions and natural disasters are typically followed by years of weak productivity growth, says Gene Kindberg-Hanlon, an economist at the World Bank.

Negative legacies

Previous epidemics, such as Ebola and Sars, left lasting negative legacies on productivity growth largely because they depressed capital spending, meaning businesses weren’t investing in equipment or information technology that might help workers do their jobs more efficiently.

The opposite appears to be happening during this pandemic. Three-quarters of the almost 1,400 executives surveyed by McKinsey in December expected investment in new technologies to pick up in 2020-24, compared with 55% that increased outlays in 2014-19.

A survey by Swiss engineering giant ABB of more than 1,600 businesses globally found that eight out of 10 workplaces will introduce or increase the use of robotics and automation in the next decade, with 85% saying Covid-19 had been a game changer for their business.

In North America, purchases of robots jumped 64% in the fourth quarter of 2020 from a year earlier, according to the Robotic Industries Association. Industries including food processing, consumer-goods manufacturing, and life sciences logged a bigger increase in orders for all of 2020 than did carmakers, which have traditionally been the biggest buyers of robots.

Researchers at Oxford Economics say their 2019 forecast that robotisation would add $5-trillion to global GDP by the end of the current decade may need to be revised upward.

John Ha, founder and CEO of Bear Robotics, a Redwood City, California, start-up that is backed by SoftBank, says his autonomous robots can perform tasks like ferrying food and dirty dishes between a restaurant kitchen and the dining area, allowing human staff to interact more with their customers.

“Robots free up the server’s time,” he says. “They can truly focus on hospitality.”

Bear’s Servi bot has already been deployed at Denny’s restaurants in Japan and at food concessions at Houston’s Toyota Centre arena that are managed by Levy Restaurants.

When Covid-19 work-from-home restrictions made it tough for employees at a government agency in Hong Kong to create the maps and drawings of the city’s buildings that they need for city maintenance and planning, Insight Robotics adapted its AI-powered analytics technology — usually used for wildfire detection — to automate the process.

Analysing

Staff who used to spend hours sketching drawings are freed to spend more time analysing the data they need, says Rex Sham, cofounder of the Hong Kong-based company: “They don’t need to do something that treats them as human robots, and they can use their brain to do something more creative and valuable.”

On the remote-work front, a study published last month by Jose Maria Barrero of the Instituto Tecnológico Autónomo de México, Nicholas Bloom of Stanford, and Steven Davis of the University of Chicago Booth School of Business and the Hoover Institution, found that working from home will lift productivity in the post-pandemic US economy by 5%, mostly because of the reduction in commuting.

The authors polled more than 30,000 US workers and found that a better-than-expected experience, technological innovations and investments, and lingering fears of crowds and contagion will bolster the new working arrangements — though they also noted that those gains will mostly be realised by higher-income earners.

“The obvious thing is there will be lots of adoption of automation,” Bloom says. “But I think less obvious is we are going to see a big change of direction towards making work-from-home remote connectivity much more powerful.”

One point on which there is broad consensus among economists is that not all industries or workers will benefit from these technologies equally — and some may actually lose out. The differentiated impact means productivity improvement realised at the company or industry level may not add up to gains in national gauges.

“The real potential for a revolution is working from home,” says Robert Gordon, a professor at Northwestern University.

Gordon, whose 2016 book The Rise and Fall of American Growth argued that technologies such as the iPhone and the internet have been far less transformative than previous innovations like refrigeration or indoor plumbing, is quick to add a caveat: “But it’s going to take a long time for the economy to adjust in the areas that are being severely damaged by working from home, like public transit and downtown office buildings.”

Similarly, some nations may be more advantaged than others. In the US, the pace of increase in total factor productivity — a measure that explicitly accounts for the effects of technological innovation — climbed from an average of 0.6% from 1990 to 1995 to almost 2% on average from 1996 to 2004, powered largely by computerisation and the internet, says the World Bank’s Kindberg-Hanlon.

Slower adoption

Yet productivity growth in Europe trended down in the same period for reasons that included a slower adoption of new information technology and more restrictive labour markets.

“While many advanced economies are well placed to see productivity improve in some sectors, many emerging and developing economies may struggle to reap these benefits due to skill shortages, lack of infrastructure such as high-speed internet and other facilitators of digital connectivity, and poor access to finance,” he says.

Optimism about a productivity boost may be tempered once we have a better understanding of the scale of economic wreckage left by the pandemic, says John Van Reenen, the Ronald Coase chair in economics at the London School of Economics.

“There will be some productivity benefits,” he says. “Will that be big enough to outweigh all the costs? The jury is still out.” /With Grace Huang and Coco Liu

Bloomberg News.
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