America's productivity paradox

July 11, 2013: 12:52 PM ET

Innovation booms take a while to absorb.

By Jeff Bussgang

FORTUNE -- Think about all of the amazing technology innovation that has impacted businesses over the last three years. Since 2011, we have seen an explosion in cloud computing, in mobile, in technology-enabled business services and in globalization. All of us feel more productive as professionals, and our businesses feel more productive institutionally.

As a nation, the United States must be cranking in productivity. Killing it -- particularly after rebounding from a recession. Right?

Now look at the latest U.S. productivity statistics:

  • Q1 2013:  0.5% (annualized)
  • 2012:  0.7%
  • 2011:  0.6%

In other words, despite three years of amazing innovation and growth, we don't seem to be gaining in productivity.

In 1986, observing a similar phenomenon on the heels of the PC revolution, MIT Economist Robert Solow quipped: "You can see the computer age everywhere but in the productivity statistics."

Those of us that are immersed in the innovation economy may find this hard to believe, but we are not, as a whole, actually more productive when we are in the midst of an innovation cycle boom. New technologies take time to absorb, refine, and make mainstream. Computer software can be reprogrammed quickly. Humans can't.

Forrester captured this phenomenon nicely in a chart it produced a number of years ago predicting "the next big thing" in computing:

Forrester chart

We can't imagine a world without broadband wireless, iPhone 5s, iPads, and the cloud. But we've got a lot of work to do to absorb these amazing technologies before they make us more productive as a whole.

Jeff Bussgang is general partner at venture capital firm Flybridge Capital Partners. You can follow him on Twitter @bussgang

  • Goldman Sachs' New Normal

    Goldman now ranks as the second least profitable firm on Wall Street.

    FORTUNE -- Goldman Sachs used to make making money look easy. Not anymore.

    In the third quarter, profits at Goldman (GS) beat exceptions. It's profitability, though, was still a drag. Those are two different things. And on Wall Street often it's the latter that's more important.

    Most companies make things. They then sell those things to make money. These days increasingly MORE

    - Oct 17, 2012 3:22 PM ET
  • Three headwinds to corporate profit growth

    One of the few bright spots in the economy lately has been the strength of corporate earnings. Signs are pointing to a slowdown.

    FORTUNE – In the months following the Great Recession, America's biggest companies responded to the plunge in consumer demand by slashing costs and cutting workers. Productivity held up and, in tandem, profits soared.

    Despite weaker sales and a tepid recovery, profits have continued rising as companies find ways to MORE

    - Aug 15, 2011 10:22 AM ET
  • The American Dream slips even further out of reach

    Add stagnant wages to a list of woes hitting American families struggling for a life that was better than their parents had.

    FORTUNE -- A key tenet of the American Dream is that each generation will do better than the last. That principle was severely shaken by the Great Recession. Most of the blame rested on the housing crisis, which forced families out of homes they couldn't afford. Now a new MORE

    - Jul 26, 2011 12:26 PM ET
  • Why companies are about to start hiring

    In a nutshell, it's because they don't have much choice.

    The bright spot in a drab employment picture is that workers have been stretched so thin during the past couple years that companies are going to have to (gasp!) hire more.

    You may be understandably suspicious. Corporate America has been raking in massive profits – they flooded in at a record $1.68 trillion annual rate in the fourth quarter of 2010 MORE

    - May 6, 2011 6:32 AM ET
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by VIP.