The coming productivity boom

Why is the American economy not as productive as it used to be?

Why is US GDP growth below 2% per annum, well short of the 3.5% it averaged before the Great Recession of 2008?

Bret Swanson, President of Entropy Economics, and Michael Mandel, an economist, believe ‘the long productivity drought is almost over, as the information revolution will transform traditional physical industries’

Current pessimism has it that innovation is over and IT is not being applied well in the whole economy the way electrification was 100 years ago – so we should lower our growth expectations for the next decade or so

Instead, Swanson believes we are on the verge of a new productivity boom because there are many industries (sectors) that have not, so far, shown fast productivity growth comparable to digital industries – and when they do start applying new technology in innovative ways, overall economic growth could easily rise to some 3% per year

So what’s stopping them?

When computers and then the internet came along, their most obvious applications were in information based industries – new, media, finance – all industries which have been transformed over the last 20-30 years

Such industries also provided ‘a platform to unleash unpredictable explosions of further entrepreneurial activity e.g. the web for entrepreneurship and the iPhone for apps’

That leaves huge potential in other industries such as manufacturing, transportation, healthcare, education and energy – they have yet to figure out how best to apply much of what IT offers in innovative ways – but they are also much more highly regulated than the tech world which operates with a relatively free hand

Hence we see lower rates of investment and less disruptive innovation from upstarts in those sectors simply because they’re either not able to or the cost is higher

But such hurdles will inevitably be overcome, and sooner rather than later


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