The Digital Economy and the Productivity Paradox

Abstract

Despite the billions of dollars invested in digitalization, productivity growth in developed economies remains sluggish and the promised technological revolution has yet to deliver its full potential. This concise book questions why digitalization is not translating into higher productivity and economic expansion, exploring this paradox through the lens of Schumpeter's creative destruction hypothesis. The book diagnoses and analyses the digital economy as the next stage of socio-economic evolution, with a particular focus on the penetration of digital technologies in the industrial economy. It is geographically limited to the countries of the European Union and the United Kingdom, forming a set of 28 highly developed economies. These countries, characterized by a homogeneous institutional order and varying levels of economic development provide excellent material for testing and verifying economic hypotheses, including Schumpeter's theory of creative destruction. In relation to Schumpeter's theory, there is indeed an observed development of a new sector around a technology that is a radical innovation - the Internet - and the development of technologies based on it, AI, blockchain, cloud computing, etc. However, the rate of technical progress is reaching values close to zero, despite the fact that creative destruction should manifest itself in leaps in productivity. The second point of contention with Schumpeter's theory is the question of oligopolies, which should be the environment most conducive to innovation. However, in the case of the digital economy, productivity growth is most strongly influenced by small and micro-enterprises, which may point to different factors of production than in previous industrial revolutions. This is a practical guide for researchers and advanced students of economics.