Productivity Cannot Be Balanced with ComputersA STUDY BY TOM SCHMITZ SHOWS IT IS MANAGERIAL PRACTICES THAT DETERMINE THE GAP BETWEEN COUNTRIES
If you think that Southern European countries should fill the productivity gap by subsidizing IT adoption, then you’d better think harder. It actually may lower productivity even further. “Unproductive firms that should not adopt IT would be encouraged to do it. It would be a waste of resources. Low IT adoption is a symptom, not the problem”.
Tom Schmitz is Assistant Professor of Economics at the Bocconi University. He addressed the topic in The IT Revolution and Southern Europe’s Two Lost Decades, co-authored with Fabiano Schivardi. They investigated the determinants of Italy, Spain and Portugal’s lower productivity growth compared to Germany and the U.S. “Literature has documented the influence of management practices and technology adoption at the firm level. We adopted a more macroeconomic approach and looked at the growth divergence between Northern and Southern European countries”. The authors used a subset of the World Management Survey on manufacturing firms of intermediate size in the years 1995-2008. They find out that more than one third of the North-South productivity gap is caused by inefficient management practices that limited gains from the IT revolution. They identified three reasons responsible for the divergence.
“The most obvious one is the direct effect of inefficient management practices that lowers firms’ productivity gains from IT. The second one is more indirect: IT increases the importance of management practices, making its inefficiencies even more prominent”. And then, there is immigration: IT-driven wage increases in Northern European countries incentive high-skill emigration from the South. “We can only speculate about which reforms policymakers from Southern Europe could implement to reduce differences in management practices”. Here are a couple of suggestions. Policymakers could promote knowledge spillovers from multinational firms coming from countries with superior management practices. A judicial system that efficiently resolves conflicts between family business owners and non-family executives would put firms in the position of decentralizing and delegating to more efficient managements.
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