A recent article in Bloomberg BusinessWeek (Sept. 2013) points out that the underpinnings for another in the never-ending cycle of productivity booms are taking shape. Historically, productivity moves forward in fits and starts. We saw big boosts in overall U.S. productivity as measured by output per labor unit at previous times, like the dawn of the PC era in the early 80s and the internet boom of the mid-90s.
Today’s boom is being fueled by intelligent machines. We’ve written before about the efficiency gains being exploited by the new generation of robots. Today, machines are increasingly communicating with each other. BusinessWeek gives the example of the wind turbines you may have seen in Dwight, Illinois, which monitor their own performance, and each other’s, with sensors. If one fails to meet its output goals, it reaches out to a General Electric office in New York which uses data from 19,000 other windmills to find the most efficient way to help.
At the same time, today’s computers are beginning to crunch not gigabytes but terabytes of data, as the dawn of Big Data era emerges. Time will tell what insights will be gained from these activities, but their results have already been felt in fields from advertising to improved health care diagnostics. Is the stage being set for a new productivity boom?
An econ prof at M.I.T., Erik Brynjolfsson, is optimistic: He sees leaps in productivity that would allow faster growth without generating higher inflation, and companies paying workers more while enjoying better earnings. The rising tax revenues that result would certainly help the U.S. deficit. But so far, the surge “is more forecast than fact.” In the last year, employee output has gained a meager 0.3%. That’s about one-tenth the gain during the Internet boom that began in the mid-90s. Some say U.S. innovation is faltering, and that the U.S. is not making the adjustments needed in high-tech equipment and software to spur it. The supply of such equipment recently grew at about 3%, compared to historical averages above 8% (from 1984-2008).
But no less an authority than the Federal Reserve says otherwise: “Pessimists may be paying too little attention to the strength of the underlying economic and social forces that generate innovation in the modern world. The number of trained scientists and engineers is increasing rapidly,” as are public and private resources for research, according to Fed Chair Ben Bernanke. Other economists note that “we are still near the starting line” and that the next stage in innovation could lift annual productivity gains to about 2.5% compared to 1.6% over the past five years. History has shown that productivity gains come in cycles, and that after innovation breakthroughs (think: electricity, computers, the Internet) that companies and consumers spend years learning to exploit them.
Salespeople… engineers… and even today’s top managers all have access to more and more data all the time. The data allow them to make better, faster, more informed decisions. As one CIO wryly noted, “I can be coaching baseball and doing work on my phone. I’m not saying whether that’s good or not, but I know I’m a hell of a lot more productive than I used to be.”
Cisco Systems, the world’s biggest maker of networking equipment, estimates that productivity gains could hike revenue and lower costs by $14.4 trillion over the next decade, as supply chains are expanded, improved and connected, all of which will drive “an expanded customer experience and revenue.”