In the past 30 years, productivity has skyrocketed in plenty of economies around the globe due to an increase in implementation of the commercial computer, a real technological shock to the world market. Robert Solow studied the rise of computer technology and its impact on productivity in economies. When computers were first introduced to the global market as a commercial product, Solow proclaimed that there was not much increase in actual productivity in the economy. Considering a rise in technology is a real-shock to an economy, this is expected. However, as the demand rose for the computer, there was a strong direct increase in production of computer hardware, thus strongly increasing total productivity of economies. Solow claims that the majority of productivity behind technology lies not with actual output per person, which he does still gives credit to in the wholesale and retail industries, rather the productivity comes from the actual production of computer hardware. As we transition into a technological age focused on software production, will production numbers significantly crumble?
It is true that we have picked the low-hanging fruit of the hardware production tree; in a 30 year period hardware production has increased significantly from all the different pieces of technological hardware people buy. Whether they are buying laptops, desktops, cell phones, or any item with software capabilities, the low hanging fruit of hardware production has been picked as most people have one of each item. At the same point this hardware production tree has been picked, harvest has begun for the software production tree. There are some interesting differences between hardware and software production that will give a long term advantage to the entire technology market.
Hardware production will slow down over time as people become more inclined to keep their devices and download software updates. For every hardware device, there are multiple software updates that are released and thus up to the choice of the user to download and use which increases utility and productivity over time. As software is being released, these patches and updates are providing different capabilities to the users thus increasing the potential for productivity in their devices. Another perspective is that hardware will now last longer due to patches that fix any software issues within devices. Similar to the broken window scenario, one might consider that production will increase if people will purchase another device due to the previous one breaking. However, as Bastiat pointed out, this money could be allocated elsewhere to increase overall productivity and in turn creating a higher net productivity. Lastly, software can be transferred instantly. In the instance of a hardware recall, users would enter a lengthy process in order to fix their devices, thus diminishing productivity for extended periods of time. Through instantaneous software updates, increased long term capabilities per hardware device, and the propensity to retain a device given consistent updates (broken window), long term productivity will increase as software becomes more popular.
One must consider the opportunity costs in the net production of producing hardware as opposed to software, as well as the long term utility and depreciation of the two. In the instance of hardware, there are plenty of variables that come into play during initial production. There are many pieces that go into producing a device such as a phone or computer. There are lots of labor throughout the world that is used to produce a device, which does boost production, but at great barriers such as time, wages, health, certifications, degrees, and so on. Software consists of computer code, at the cost of wages, less time, and very low barriers for entry as almost anyone can produce computer code with some minor education. As software continues to increase, many people can use the same device and consistently download the updates. For example, I continue to use my iPhone 4, which is four years old, yet still has the capability to download IOS 8 which is designed for iPhone 6. So instead of constantly having to repurchase hardware devices, companies can release software updates and customers can choose to spend their money elsewhere, thus increasing total production as a whole. Lastly, consider the Solow Growth Model where depreciation is a large factor. Hardware depreciates and loses utility over time, whereas software merely loses utility.
Technology production expands into two trees, one of hardware and one of software. What Solow says is true about hardware, the low hanging fruit have been picked and total production has been accumulated already. However, he fails to mention the everlasting tree of production that lies in software. I am not calling for hardware production to halt, as software reaches a limit based off of the technological capabilities of hardware. It is important to mention that as software progresses, hardware will be required to progress as well, but at a slower rate in order to reach optimality. In other words, a device only has so much potential for software before the next step in software would require an upgrade in hardware. It is also important to recognize that hardware is also a necessary step in producing software.
Technological production will continue to increase at significant levels, and there is plenty of low hanging fruit left. In order to pick the fruit, there needs to be an optimal approach to produce software to the most productive level based off of the hardware at the current time.