Finding 'the next big thing'
As productivity slows, experts ask if an era of innovation is over. Has the digital revolution lost its juice? Optimists say invention only drives more invention.
In a new book, MIT professor Erik Brynjolfsson and his colleague Andrew McAfee take a swing in a lively debate about whether the world has reached a Great Slowdown in innovation. Economic productivity appears to be slowing, with different reasons thrown about. But not to worry, contend the authors of “The Second Machine Age,” because every time something is invented, it becomes easier to invent new things.
This theory of knock-on inventiveness – or “standing on the shoulders of giants” – relies on a long history of progress in science, technology, and other fields. Past predictions of an end to innovation have proved wrong.
Yet the last big spurt in productivity, which started in the mid-1990s and was driven by information technology, has fizzled since the early 2000s. The drop-off began even before the Great Recession.
Is the digital revolution losing its juice? John Fernald, a researcher at the Federal Reserve Bank of San Francisco, frames up the debate this way: “Pessimists argue that IT is less important than great innovations of the past that dramatically boosted productivity, such as electricity or the internal combustion engine. Optimists point to the possibilities offered by robots and machine learning.”
In case anyone wants to know how this debate turns out, Mr. Fernald offers this spoiler alert: “History suggests that it is hard to know until after the fact how revolutionary any particular innovation will turn out to be.”
Rising productivity (the average output per person) is essential to growth. Yet one pessimist, Northwestern University economist Robert Gordon, sees a big decline. In the United States, he says, productivity grew around 2 percent a year from 1920 through 1970 but has dropped to 0.7 percent a year ever since then.
A view in the middle comes from a new report by McKinsey & Company titled “Can productivity save the day in an aging world.” With a slowdown in population growth, humanity will need more than ever to rely on rising productivity – by about 80 percent above its historical rate, or about 3.3 percent a year. The reports states:
“The past 50 years have been ones of extraordinary economic expansion around the world. But now one of the twin engines of growth – rapid labor-pool growth – has lost power. The world economy must forge ahead with just one remaining engine, productivity, firing at full throttle. Boosting productivity growth is now the only way to drive growth.”
McKinsey is optimistic to a degree because it looked at five sectors – agriculture, food processing, automotive, retail, and health – and predicts that productivity could be as high as 4 percent. It also suggests that leaders in business and government increase the level of competition, education, transparency, and integration of the world economy.
The next revolution in creative ideas, says Mr. Brynjolfsson, may be in areas that machines cannot touch: the caring and nurturing professions, or the motivating professions, such as sales. Technology still drives change, but change first starts in intelligence and other qualities of thought. Measuring those is not as easy as measuring economic productivity. And yet they matter more.