Is Innovation Leading to a New Age of Productivity in the U.S.?

At the Top Crop farm in Dwight, Ill., 200 wind turbines rise from a sea of corn and soybeans, their blades turning day and night to generate energy. The turbines monitor their own performance and each other’s with sensors.

If one falls behind in meeting goals such as speed and ouput, it reaches out to an office about 850 miles away in Schenectady, N.Y., where General Electric’s (GE) remote operations center uses data from 19,000 windmills worldwide to find the most efficient way to help. Intelligent monitoring of the machines has helped GE fix faults, limit snags, and preempt thousands of failures. So-called intelligent machines increasingly communicate among themselves and with people. Mobile devices allow round-the-clock interconnectivity. Computers crunch terabytes of data. Such innovations have convinced some economists that the stage is set for a wave of productivity gains to rival the one spawned by the 10-year Internet boom that began in 1995. “I’m quite optimistic,” says Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology’s Sloan School of Management. Leaps in productivity would allow faster growth without generating higher inflation. Companies could pay their workers more while still enjoying healthier earnings. Rising tax revenue would make it easier for the U.S. to cut its budget deficit. So far, the surge in efficiency is more forecast than fact. Employee output per hour rose 0.3 percent in the 12 months ended in June, one-tenth of the average 3 percent gain from 1995 to 2004, according to the U.S. Department of Labor. The meager advance buttresses the arguments of such pessimists as Robert Gordon, a professor of economics at Northwestern University who contends that innovation is faltering and that the U.S. is in for a long period of near stagnation. Michael Feroli, chief U.S. economist for JPMorgan Chase (JPM), says companies aren’t making the investments needed to boost efficiency. Adjusted for inflation, the supply of high-technology equipment and software in the economy rose at an annual rate of 3.1 percent from 2009 to 2011, down from 8.5 percent annually from 1984 to 2008.