The dynamo and the computer: an engineering perspective on the modern productivity paradox

The purpose of this paper is to provide an engineering perspective on the modern productivity paradox. Specifically, to shed new light on the failure of information and communication technology (ICT) to increase overall factor productivity.

To this end, alternative approaches to modeling material processes are presented and discussed. Empirical evidence is brought to bear on the question of ICT productivity. Finally, the implication of the findings for production and management technology are presented and discussed.

The principal finding is theoretical in nature, namely that, according to classical mechanics and applied physics, ICT is not physically productive. Rather, information is an organizational input.

By identifying the role of ICT in material processes, the paper provides a framework to better understand and evaluate ICT investment, both at the firm and industry level. While ICT does not contribute to increasing physical output, it does nonetheless increase profitability. On a broader level, the paper provides a framework to evaluate ICT‐related public policy measures.

Among the contributions of the paper are the use of basic engineering principles to shed light on the modern productivity paradox; and the conclusion that information, unlike energy, is not physically productive and as such cannot be counted upon to increase output.