Michael Mandel, chief economic strategist at the Progressive Policy Institute, joined Alphachat to talk about his report, “The Coming Productivity Boom”, co-authored by Bret Swanson of Entropy Economics.
Mandel argues that the decades-long productivity stagnation will end once companies in the “physical” industries — transportation, construction, manufacturing, healthcare, wholesale and retail trade — start investing in information technology the way that companies in the digital industries have.
From the summary of their paper:
The digital industries, which account for around 25% of U.S. private-sector employment and 30% of private-sector GDP, make 70% of all private-sector investments in information technology. The physical industries, which are 75% of private-sector employment and 70% of private-sector GDP, make just 30% of the investments in information technology.…
Information technologies make existing processes more efficient. More importantly, however, creative deployment of IT empowers entirely new business models and processes, new products, services, and platforms. It promotes more competitive differentiation. The digital industries have embraced and benefited from scalable platforms, such as the Web and the smartphone, which sparked additional entrepreneurial explosions of variety and experimentation. The physical industries, by and large, have not. They have deployed comparatively little IT, and where they have done so, it has been focused on efficiency, not innovation and new scalable platforms. That’s about to change.
Mandel tells me why he believes that productivity pessimists such as Robert Gordon are wrong to extrapolate from current trends, why he isn’t worried by the increasing market concentration in the leading companies in many economic sectors, and how public policy can play a role in facilitating this forthcoming productivity boom. And in a speed round, we also discuss the specific ways in which physical industries can be transformed by more IT investment, plus which technologies hold the most promise.
For the full interview, listen here at Financial Times.