Digitization Change and Economic Growth

Sweden | 18 April 2016
Reading Time : 4 minutes

New technology drives economic development

Societies are in constant transformation, with "new" ideas challenging ”old" ones. One objective that drives change and development is the desire to improve productivity, because higher productivity is the most important explanation of long-term prosperity.

The concept is that higher productivity leads to higher incomes. Each person produces more goods and services and therefore receives a higher salary. Higher incomes can then be used for increased consumption, more investment, more public services, but it can also mean more leisure.

Since the 1800s, total economic output (GDP) has increased by 100 times in Sweden while the population has almost quadruple. Thus, we have today about 25 times more resources per person. Economic development is thus a prerequisite for everything we take for granted today.

There are several reasons for economic development, but one of the most important is the introduction of new technologies. The steam engine allowed the creation of energy in an efficient and powerful way. Mechanization lead to machines that replaced humans’ hard work. Electrification brought opportunities to all regions. Again, technological changes challenge old structures. Together, the steam engine and mechanization contributed to making obsolete traditional methods of production in many industries. Electrification in turn contributed to out-compete production methods that were derived from the steam engine.

Digitization affects everything

One of the great innovations of our time is the digitization that leads to the emergence of computers, Internet and many applications. Digitization is now a technology that develops and challenges old ways of doing things in many areas. The question is how it will change the way we produce goods and services, consume and live. How will people work, consume and live by 2050? Will it be radically different from the late 1900s?

The digital economy takes over

Overall, one can conclude that societies change and evolve when "the new" challenge "the old". The introduction and adoption of new technology can take time, since many factors must be in place, but the development does not stop. It is also important that laws and other restrictions do not challenge developments. Today, there are many indications that digitization is transforming more and more areas because many factors are in place.

In many industries, digitization is on the acceleration point on the classic S-curve, which is usually used to illustrate how new services, products and technologies are emerging. This means we will see how digitization changes the way goods and services are produced, delivered and consumed in more and more areas.

That is why the first 10-15 years of the 2000s must be seen as when the digital economy fully came to replace the analogue.