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Technological advancement means innovation in business processes leading to better living standards. Operational efficiencies are expected to enhance with improved business processes, leading to economic growth in a country. In the ordinary course of things, technological advancement does seem to make a difference in people’s lives, businesses and eventually the country’s economy. Over time, many people have realized that technological advancement, innovation, economic growth, and humans’ general well-being are intertwined.
Economists better understand the relationship between technological advancement and economic growth over time. The reason behind the economists’ efforts to establish this relationship is the contrasting argument on this link. This counter-argument suggests technology is something to resist due to several prevailing reasons (Andrea O’Sullivan, 2019). These reasons are important and develop a counter-argument, but the fact behind the relationship between technological advancement and economic growth is different.
Technology – A Dangerous Master:
Technology is not always something that is being appreciated and accepted with open arms. It has been argued that technology encourages antisocial behaviours on an individual level and cultural polarization on a society level. In terms of macroeconomic movement, technology is considered a monster that is taking over millions of jobs, leaving the unemployment rate the highest in decades. Given this argument, it is surprising how businesses are looking forward to automating processes and cultivating innovative ideas.
The critics of technology and innovation argue that technology has robbed us of our humanity as we have become slaves to the learning machine and automation. However, this argument on technology leaves room for an important question: if technology is a dangerous master that we must serve, why are individuals and businesses allowing such a significant shift?
The Link between the Technological Advancement & Economic Growth:
Given this plain view of technology and its increasing use, it is strange to adhere to this traumatic social shift if it is not worth it. There must be something encouraging businesses and individuals to incorporate technological innovation into their personal lives and business processes. Economists have explored the relationship between technological advancement with growth and, eventually, economic growth over decades to understand this relationship between technological advancement and growth.
There are plenty of studies in the past in economics that focuses on assessing the appropriate models and measures of economic growth. In this regard, the work of Robert Solow (1956) is considered significant as the Solow growth model explores the economic growth considering the labour and capital available in a country in correspondence with one technological change variable. According to the Solow Growth Model, the technological change variable is supposed to grow automatically.
The Traditional Tool For Measuring Growth:
The Solow Growth Model became the foundation for predicting the relationship between technological innovation and economic growth (Feldstein and Horioka, 1992). The model predicted the economic growth as it suggests that countries with smaller capital experience faster growth in the short term. At the same time, it is not valid for intensive capital-bearing countries in the short term. However, economic growth is significantly dependent on technological change/innovation in the long term.
The critical question arises under the Solow Growth Model that economic growth significantly depends on technological advancement then; why there is such a negative connotation to the relationship between technological advancement and economic growth, and the reason suggests the use of inefficient measures for economic growth. Traditional measures of economic growth are based on GDP, which has its only limitation when considering the increasing technological advancement (Heshmati, 2001).
GDP – Inadequate Foundation for Measuring Economic Growth:
The role of GDP for economic growth measurement traditionally is vital where the GDP accounts for the goods and services within a particular country. However, the GDP does not account for certain aspects which are hard to measure, like leisure time, the quality of life, the standard of living etc. Looking at these aspects, technological advancement has a lot to do with these aspects. It isn’t easy to account for quality improvements while considering GDP as a foundation for measuring economic growth.
In other words, the GDP can tell us about the number of units of a particular appliance that are sold during the year. Still, it is challenging to incorporate the effectiveness of advanced technology, which has recently been used to manufacture that particular appliance (Kihombo et al., 2021). In addition, so many businesses that individuals have started in the past are primarily online and serve a niche market by following different HRM models and concepts.
Trusting Environment for Innovation and Technological Advancement:
As the GDP is not inclusive of online transfer of services with no monetary price involved, it isn’t easy to incorporate the growth associated with technological advancement. To develop an environment where innovation and technological advancement are encouraged, policymakers should focus on improving systems within the government bodies.
There is a need for regulation on the policy level where the role of innovation is pushed forward. Linking economic growth directly to technological advancement is the only way policymakers can create an environment in which innovation and creativity are encouraged. In this regard, policymakers can improve the existing systems by introducing innovative technology and regulating the use of these innovatively motivated systems (Schneier, 2019).
Thus, it can be concluded that policymakers must eliminate the negative connotation of technological advancement by highlighting the positive impacts. On the microeconomics level, the companies can adopt policies that encourage innovation. Studies have indicated that good institutions are always motivated to foster innovation, while it is a sign of bad institutions which kill it (Hu and Yao, 2021).
By introducing property rights into their institutions, policymakers can shed some light on the positive impact of technology advancement in a country. In this context, fostering an environment on a micro and macro level can help countries reap the most benefits from the relationship between technological advancement and economic growth.
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