The Coming Productivity Boom with Bret Swanson

High Tech Forum Podcast

In this edition of the HTF podcast, we talk with Entropy Economics founder Bret Swanson about his recent paper (with Michael Mandel), The Coming Productivity Boom. Swanson sees high productivity growth in the industries powered by information and communication technologies (ICT), 2.7% over the past decade. This is a sharp contrast to the physical industries growing at 1 – 2% that make up 70% of the economy.

Swanson and Mandel see an opportunity for a strong uptick in economic growth:

Economic output is the product of two factors: total hours worked times productivity of the workforce. Growth occurs when these factors increase, yet over the past decades both have slowed. To reignite economic growth, we need to accelerate either the size of our workforce or its productivity. And since simple demographics limits the growth of our workforce, the great American economic imperative is to accelerate productivity.

There is good news. With the arrival of powerful new technologies, we stand on the verge of a productivity boom. Just as networking computers accelerated productivity and growth in the 1990s, innovations in mobility, sensors, analytics, and artificial intelligence promise to quicken the pace of growth and create myriad new opportunities for innovators, entrepreneurs, and consumers.

In the podcast, we discuss how productivity is measured, factors that influence it, and the dramatic effects of Moore’s Law in creating platforms for innovation. Public policy has a role to play – good regulations are more helpful than bad ones, obviously – but a great deal of innovation dynamics comes down to raw ingenuity.

Highlights

• Productivity is hard to measure because electronics get cheaper: a journalist in Buffalo estimated that today’s iPhone takes the place of $3000 worth of gadgets in 1991. But the price of a computer with the capability of an iPhone 5 – flash memory, CPU power, networking, and memory – would have been closer to $3 million in 1991.
• The iPhone 7 is four times more powerful than the iPhone 5. This is a Moore’s Law rate of improvement over a three year period.
• It’s hard for humans to wrap our heads around the impact of exponential change.
• 1996 Telecom Act barely anticipated the Internet…but the policy turned out to be pretty darn successful for 20 years. We didn’t know what networking standard was going to win out but it didn’t matter.
• Measuring productivity: Headline numbers have fallen over the last decade, from 3% to 2% or less. While there is some mismeasurement – both underestimation and overestimation – productivity has definitely declined.
• Dividing the economy into a digital sector and a physical goods sector, we see a 2.7% increase in digital productivity. Retail has fallen to 0.7% and the physical sector hasn’t kept pace.
• People are not all feeling economic growth making a difference in their own lives.
• If we could make the slow-growing sectors grow at the digital rate, it could make a big overall difference in income and jobs. The physical industries are 70% of the economy, but they only make 30% of investments in IT.
• If we can apply Moore’s Law to the rest of the economy, imagine what can happen to the growth and income.
• We build platforms that unleash unpredictable innovations in content and apps. Instead of simply focusing on efficiency, we can reimagine entire industries. This is the secret sauce of Uber.
• “The Coming Exaflood” was close to correct in its 2007 Internet traffic predictions.
• The volume of comments filed with the FCC in the latest net neutrality inquiry shows that people care deeply about the Internet. Decisions of national importance shouldn’t be made by a group of five appointed officials; they’re appropriately a legislative topic.

Enjoy.

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