Focus on Innovation and Productivity

By TAP Staff Blogger

Posted on April 15, 2010


Friday’s Regional Institutions for Innovation and Productivity conference generated a lot of discussions around innovation, IT impact on industries, regions, and economy, and trends in productivity. Of special interest was talk about the growing gap in profit margins between IT-proficient industries and non-proficient industries. Another hot topic was around the growing income gap between the lesser and higher educated segments of the population. The following highlights key take-aways from the speakers’ presentations.

Erik Brynjolfsson’s (MIT ) first chart, showing a scatter chart that demonstrated there was a high correlation between the amount of IT in an industry and the industry’s productivity level, generated a lot of discussion.  IT allows companies to measure, experiment, share and replicate, improving productivity. Eric pointed out that the productivity gap between IT-proficient industries and non-proficient industries was leading to a growing gap in gross profit margins.  Bart Van Ark (The Conference Board) expanded the dialogue to show that a massive shift in global distribution of output in the past two decades sets the stage for innovation and competitiveness to grow in less-developed countries at a much more rapid rate than developed countries. Emerging economies are leading not only in growth but in labor productivity. In order for the U.S. to remain competitive, policymakers must focus not only on high-tech industries, but more generally on innovation processes that support investment and productivity.

Theo Eicher (UW Economic Policy Research Center) then demonstrated that this split between IT and non-IT industries was happening at the Washington State level, showing a growing gap between manufacturing (made by hand) and ‘menti-facturing’ (made by minds), and a corresponding growing income gap between the lesser and higher educated segments of the population. Much of Washington State’s growth has come from the services sector, with the most prominent industry being software. A key take-away for policymakers in the state, which generated much discussion among the audience, was the growing need for a highly-educated population to maintain this growth.

Linden Rhoades (UW Center for Commercialization) spoke of the need to treat the innovation generation of a top-tier research university seriously, and spoke of the model her department had developed to thoughtfully commercialize innovation in the community. Linden also referred to several “best practices” among other top universities, notably the University of Utah, MIT, UCSD, and a consortium in the Bay Area. Dan Wilson (Federal Reserve Bank of San Francisco) warned that the shift in sector productivity was often disruptive in the job market, noting the good (increased productivity was powering the U.S. out of the recession), the bad (technological innovation can be disruptive, leading to short-term job loss), and the ugly (high unemployment is likely to continue, reshuffling employment to the higher-educated).  Lastly, Thomas Strobel (University of Munich) compared recent IT trends in the German and U.S. economy, concluding that the U.S.’s higher productivity growth post-1995 was due to higher IT investment.

The Regional Institutions for Innovation and Productivity conference was video recorded. TAP will provide access to these podcasts once live, so please check back.