Publications / Policy Memo

Science-based Regulation and Innovation: The Silicone Example

By and / 5.29.2018

In recent years, innovation has become synonymous with digital companies such as Apple, Google and Amazon. The Internet, the smartphone, and the cloud have transformed daily life and the way we do business, and artificial intelligence and machine learning will continue the process.

Nevertheless, overall productivity growth remains sluggish. The reason is simple: The digital sector of the economy, where innovation today is focused, is still far smaller than the physical sector. Even today, we spend much more time interacting with the physical world than with the digital world. The chairs we sit on, the food we eat, the cars we ride in, are all made of physical materials, not intangible bits and bytes. According to recent research, digital industries such as communications, entertainment, and finance comprise only 30 percent of the economy, while physical industries such as manufacturing and construction comprise 70 percent.

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