Is the Productivity Drought Actually Almost Over?

Aug 10, 2017
7 Min Read
Is the Productivity Drought Actually Almost Over?

Is the Productivity Drought Actually Almost Over?


There has been a ton of news coverage lately regarding the global productivity drought. But per a new report published by the Progressive Policy Institute, Entropy Economics, and the Technology CEO Council, the 10-year drought is actually almost over.

According to Bret Swanson and Michael Mandel, author of the new white paper The Coming Productivity Boom, the next waves of the information revolution—where we connect the physical world and infuse it with intelligence—are beginning to emerge. And these waves will result in far greater productivity than we’ve seen in many industries so far.

Much has been made of the proliferation of sophisticated IT into the business world. However, this trend carries an important caveat. Digital industries, which account for around 25 percent of U.S. private-sector employment and 30 percent of private-sector GDP, make 70 percent of all private-sector investments in information technology. The physical industries, which are 75 percent of private-sector employment and 70 percent of private-sector GDP, make just 30 percent of the investments in information technology.


In Digital versus Physical Industries, Digital Comes Out Ahead

In order to understand these numbers, we must first acknowledge the difference between digital industries and physical industries. Swanson and Mandel defined digital industries as those private-sector industries where the main output of the industry can be easily provided in digital form and can be readily delivered anywhere in the world via the Internet. This category includes entertainment, publishing, telecom, search, social media, finance and insurance, professional and technical services, and administrative and support services, many of which are IT-based.

Physical industries, on the other hand, are those private-sector industries whose outputs are provided mainly in physical form. This category includes construction, mining, healthcare, most of manufacturing, retailing, food services, education, transportation, and hotels.

In any case, Swanson and Mandel cited this “information gap” in the physical industries as a key source of recent economic stagnation, productivity drag, and the fact that many workers have not personally benefited from technological advances. The manufacturing industry is a prime example of this gap, with many organizations failing to invest in IT at all over the last 15 years. Although some companies have employed limited automation for the purpose of immediate efficiency, they have not taken advantage of the full power of creative IT by implementing new and scalable business models, processes, and platforms. And their productivity has stagnated as a result.

Although many physical industries have yet to reap the full benefits of digital transformation, Swanson and Mandel posited that this is changing. “The diffusion of information technology into the physical industries is poised to revive the economy, create jobs, and boost incomes,” they wrote. “Far from nearing its end, the Information Age may give us its most powerful and widespread economic benefits in the years ahead. Aided by improved public policy focused on innovation, we project a significant acceleration of productivity across a wide array of industries, leading to more broad-based economic growth.”


How the Physical Industries Will Catch Up

Per Swanson and Mandel, healthcare, transportation, and manufacturing in particular are becoming information industries. Smartphones and wearable devices will make healthcare delivery and data collection more effective and personal, while computational bioscience and customized molecular medicine will radically improve drug discovery and effectiveness.

On the transportation side of things, autonomous vehicles and smart traffic systems will improve personal, public, and freight transportation in terms of both efficiency and safety, but they also will create new platforms upon which entirely new economic goods can be created.

Manufacturing is, of course, impacted by developments in robotics and 3D printing. But smart manufacturing, which leverages technology to rethink production and design processes, may create a new set of jobs and allow factories to withstand global, lower-wage competition.

These transformations will not happen by themselves. Rather, leaders within physical industries must take strides to become more entrepreneurial, and the government must be willing to help as well. “We must deploy information technology in new ways and reorganize firms and sectors to exploit the power of IT,” wrote Swanson and Mandel. “Public policy will either retard or accelerate the diffusion of information into the physical industries. Better or worse policy will, in significant part, determine the rate at which more people enjoy the miraculous benefits of rapid innovation, both as workers and consumers.”


Which industries do you predict are in for the next wave of the information revolution?


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