Nice example of what Carlota Perez describes in her work about Techno-economic revolutions. Managers have not taken advantage of all that technology provides because we are not yet in the Deployment phase of the current revolution.
The service sector is the prime driver of the US economy these days, and its productivity growth is pretty meager. Why? Brad DeLong recommends an article by Michael van Biema and Bruce Greenwald that was written in 1997: “I thought it was coherent and might well be right 20 years ago. I think it is coherent and might possibly be right today.” I agree, though my interpretation is a bit of a hop and a jump from what van Biema and Greenwald actually say:
There are a number of current explanations for why productivity growth has stalled in the service sector. A common one is that the issue is simply a matter of measurement….A second common explanation for the lag in the service sector’s productivity growth is that since the 1970s, manufacturing workers, faced with the threat of losing their jobs to low-wage employees overseas, have learned to work harder and smarter, but service workers, who typically have much less exposure to global competitive pressure, have not….A third and mind-numbingly familiar explanation is that output in the service sector is far below its potential because of a number of macroeconomic factors.
….A radically different view will be presented here. We will contend that the problem is not a lack of resources; rather, it is that service sector companies operate below their potential and increasingly fail to take advantage of the widely available skills, machines, and technologies. The main reason the service sector has not reached its total potential output is management. If managers were focused energetically and intelligently on putting the existing technologies, labor force, and capital stock to work, rapid productivity growth would follow. To be sure, the management challenges are more severe in the service sector than in the manufacturing sector. However, the high productivity levels attained by leading-edge service companies indicate that attention from management can result in vastly improved performance throughout the service economy.
During the Installation phase of a techno-economic revolution, much of the revolutionary technology stays within the industry that developed it. In our case, information technology..
During the Installation phase, risky venture capital produces exponential growth in the organizing industry, leading to income inequality. The novel organizational paradigms that provide success have to force their way against previous paradigms that showed success in earlier eras. (Such as managers being lazy wrt technology).
Government takes a hands off approach because no one really understands how to properly regulate the emerging economies.
These are always Gilded Ages that lead to financial bubbles that produce economic panics, exactly like the one in 2007. This signals the Turning Point as the organizational success of those companies succeeding in the new economies begins to battle with older approaches. The new approaches always win but these times see 10-20 years of economic, political and social turmoil as we shift gears.
But during the following Deployment phase, this disruptive technology, and the organizational changes required to take advantage of it, spread through society, remaking it. What was a novel paradigm now becomes common sense. Financing is done via production of debt with stable but slow-growing markets.
Government, now full of people who fully understand the new common sense, begins to actively regulate these economies to provide an even playing field for all. We enter a Golden Age, where income inequality drops rapidly.
Once we enter the coming Deployment phase, things will get much easier. We will see productivity skyrocket as we begin to effectively utilize all aspect of the techo-economic revolution.
While we wait for the next techno-economic revolution.