The productivity of American workers declined 1% in the first quarter—the fourth decline in the last six quarters. That’s a continuation of a decade of poor productivity growth that has had profound effects on American society, fueling flat wages, stagnant living standards, and the rise of Donald Trump and Bernie Sanders. Trump blames workers’ problems on bad trade deals; Sanders attributes them to rising inequality. But a return to the productivity growth of the decade before 2005—not to mention the period from 1920 to 1970—would do far more to improve workers’ fortunes than any change in trade balances or redistribution of income.
What makes the dreary data especially mystifying are the stories I hear almost daily from CEOs and others who believe technology—particularly ubiquitous data and rising computer intelligence – is remaking the business landscape. I’m in Utah this morning to report on one such story for our Fortune 500 issue. Earlier this week, I was at the Consensus 2016 Bitcoin and Blockchain conference, where participants were predicting massive productivity gains in the world of finance as distributed ledger technology takes inefficiencies out of the current system of credit card, foreign exchange, securities, real estate, and other transactions.
Robert Gordon’s book The Rise and Fall of American Growth has become the new bible on productivity. The full tome requires a serious time commitment, but Chapter 17 gives Gordon’s take on the role of innovation in productivity growth. He surveys the evidence and concludes there’s no reason to expect a return to the productivity growth highs of 1994-2004, much less 1920-1970. I lack his economics pedigree, but can’t help but disagree. Something big is afoot in the world of business, and—eventually—the productivity numbers should show its effects. Former Treasury Secretary Lawrence Summers, whom I interviewed at Consensus, said he is inclined to agree.