No time hath she to sport and play

The Lady of Shalott lives a strange, isolated life in her tower upriver from Castle Camelot. She spends her days weaving the scenes that flit across a mirror hanging opposite her loom into a tapestry but she is forbidden ever to participate in the life to which she bears witness. Her morale is generally good and she sings "cheerly" as she sews but she yearns occasionally for something more ("I am half sick of shadows..."). One day, Sir Lancelot thoughtlessly burns a trail across her field of vision with his shining armour and burnished charisma and it's all up with LoS ("the curse is come upon me..."). She quietly takes herself off in a skiff, floating downriver to die in proximity to her lodestar, knowing the situation between them is hopeless. Her death goes largely unmarked and barely causes a ripple in polite Camelot society.

Some may think that the Lady of Shalott was Alfred Tennyson's searing commentary on the fate of upper class women in Victorian society--cultured, educated for idleness and forever marginalised by the Victorian Paterfamilias--but we know better. The poem is quite clearly an under-appreciated discourse on the Productivity Paradox in post-industrialised western societies. Of course it is. You just need to reimagine the tapestry as corporate output, LoS as an employer with limited technology experience and Sir Lancelot as a 1980s desktop computer uploading its operating system each day from a 51⁄4" FDD. Simples.

There are various accounts of the Productivity Paradox but, broadly speaking, it's the observation that a step change in technological capacity does not always lead to a step change in productivity. An oft-cited statistic in this regard is that, while the computing capacity of the U.S. increased a hundredfold in the 1970s and 1980s, labor productivity growth slowed from over 3% in the 1960s to roughly 1% in the 1980s.

The most common explanation for the Productivity Paradox is lag, ie: the simple point that no one really knows what to do with new technology when it first arrives--not the developers, not the employers and certainly not the employed users. In other words, there's no real paradox, just a deferral of productivity gains. During the first 50 years of the Industrial Revolution in Britain, labour productivity only grew at an average annual rate of around 0.5 percent, but from the beginning of the nineteenth century it then accelerated to more than 1 percent. This Lag Explanation (LE) is the other side of the "network effects" coin: it takes a whole network of users, co-developers and investors to understand and deploy the full benefits of a new technology, but it take time for that network to build up and do its thing. By 1998, Sanjeev Dewan and Kenneth Kraemer were able to conclude "IT investments are contributing to output and productivity at a rate that is disproportionate to their factor share in production" across 17 developed economies.

The LE is an umbrella theory which covers a multitude of more granular theses about, for example, the potential of new technology to glitch and act as a time sink in the hands of unskilled users. It seems that society may have to wait anything from one to five decades to see the true value, in labour productivity terms, of innovation. The difficulty with this is that the early days of a new technology are still absolutely vital in determining its longevity and efficiency. If a technology is poorly understood, it may be rejected before the real benefits materialise. Worse, it may end up killing off corporate early adopters like a badly programmed self-driving car. Put it another way, if LoS had been a bit more savvy she could have channelled her newfound passion into the manufacture of extremely saleable I Heart You cushion covers. As it was, she went all in from the first. Big mistake.

Today, if, like me, you're reading all the market chatter and trying to sift the wheat from the chaff, you'll probably be wondering what's up with inflation expectations and supply chain bottlenecks. But if you strain a little and try to see past that, you may have discerned some recent good news on the productivity front.

Research published by the McKinsey Global Institute at the end of March found that market trends attributable to the pandemic--which has sped up the adoption of robotics and AI and broadened the appeal of cloud computing and videoconferencing--could raise productivity growth in the U.S. and Western Europe by about 1 percentage point annually in the years to 2024. These technologies are not new--some form of video call has been around since 1964 and Skype was acquired by Microsoft for $8.5bn in 2011--but, it seems, their time has come, heralded by the COVID pandemic.

Part of the story here is the tale of a nasty little virus forcing bosses to make concessions on workers' work-life balance that the employers would probably have made in the long run in any event but were compelled to adopt overnight in response to an unforeseen cataclysm. As it turns out, commuting is a productivity sink and we're better off without it. (Honestly, who would have imagined that standing on your feet in the door-lobby of a train car for an hour with your nose jammed into a stranger's armpit would have any impact on your day? None of us, it seems, anyway.) In this regard, COVID has been like a Super-Regulator, dictating best employment practice and redressing power imbalances without fear or favour. Maybe there are lessons we can extrapolate from this situation about the constraining effects of rules and guidelines.

No one trying to make a buck wants regulation. It comes in like a cold shower and shifts behaviour overnight. It's generally believed to have a chilling effect on innovation and the mission objectives of the regulator, like those of a virus, do not feature productivity targets. But here's the thing: it's the task of the regulator to take the long view, which may require significant short-term adjustments even though the benefits can only be properly assessed after the dust has cleared. The overriding objective of regulation may not be productivity, but it is the broad swathe of public good, and--as I've heard tell--that may be much the same thing.