How to Grow the Pie
Issuing its first revision to first quarter Gross Domestic Product (GDP) for 2014, the Bureau of Economic Analysis (BEA) has reported that the US economy contracted by one percent in the first three months of the year; the first such contraction since 2011. Despite truly extraordinary efforts by the Federal Reserve since 2008, and more than $1 trillion in spending by the federal government since 2009, the economic recovery that officially began in June 2009 has been halting and anemic, significantly under-performing all post-recession recoveries since WWII.
Is this the “new normal”? Do we face – or more importantly, are we bequeathing to our children – a world of stagnation where individual gains are only derived from redistributing the existing pie?
To answer the question, meet Robert Solow.
An MIT professor, and later, a Nobel Prize winner, Solow published a paper in 1957 that analyzed American labor productivity gains. Those gains are the core component of per capita GDP growth, which directly relates to expanded wealth and improved living standards.
Solow research determined that less than 13 percent of growth in output per worker could be accounted for in increased use of capital (land, equipment, et. al.). The overwhelming majority of the increase, nearly 88 percent, was attributable to “technical change” or innovation.
As Jim Manzi, former CEO of Lotus Development notes in a recent article in National Affairs, “The root of American economic success has not been luck or land or conquest but innovation.”
Despite our subpar economic performance, as a nation we remain in a dynamic era where innovation radically reduces costs, spurring additional innovation, in an almost virtuous cycle, that is a natural wellspring for growth.
Consider the computer revolution. In 1990, one million transistors cost $527.00. Today, a million transistors costs five cents.
Or consider storage capacity. In 1990 it cost $569.00 to store a gigabyte of data. Today, the same data can be stored for two cents.
The birth of ubiquitous IT, which revolutionized the marketplace for business and consumers at the end of the 20th century, has in turn, been the basis of a second, potentially more consequential revolution. The competition and subsequent innovation that triggered the radical drop in marginal costs for hardware and storage has catalyzed a new market of low-cost, specialized analytic tools, which, when combined with low cost data storage, provide unprecedented insight into business operations, promoting efficiency, transparency and accountability in near real-time.
Applied automation is now automatic, analytic and actionable.
But technology tells only one part of the innovation story. Human interaction, in a mutual problem-solving approach, remains indispensable to the sustained innovation process.
“The innovations that have driven the greatest economic value have come…almost without exception, from iterative collaboration with our customers to find new solutions to difficult problems in the course of business,” said Jim Manzi.
We could not agree more.
What was true then remains true today. Combine Manzi’s work paradigm with the revolution in technology and you have a robust kit of processes, practices and tools that enhance employee engagement, nurture performance leadership in executives, while developing a rigorous culture that is dynamic, flexible, responsive, transparent and accountable.
Empowered by people, designed for success.
This is the latent potential in our economy. If we can recognize and harness the rapidly evolving value in the marketplace and apply it to both business and government, a strong and growing economy will be only one of the benefits.