Wednesday, January 15, 2014

Innovation For Productivity

The Conference Board, Inc. ("Board") is a nonprofit that conducts and publishes broadly-based economic research that provides "trusted insights for business worldwide."  In its 2014 Productivity Brief, the Board raises the alarm about worldwide deficiencies in 2013 total factor productivity ("TFP") growth, which it explains as
the result of a combination of improvements in efficiency (fewer inputs are needed for a given output) as well as technology and innovation (more output is achieved from a given input).
In its Brief, the Board reported a remarkable slowdown in TFP growth:
One dramatic result...is that the growth rate of total factor productivity...is less than zero for the global economy.  This indicates a stalling in the efficiency of optimally allocating and using resources.  This stalling appears to be the result of slowing demand in recent years, which caused a drop in productive use of resources that is possibly related to a combination of market rigidities and stagnating innovation.
Market rigidities can be alleviated through reforms to the legal regulation of capital, labor, and taxation regulations.

The problem of "stagnating innovation" is much more difficult to solve.  Technological innovation is crucial to productivity growth, in large part because of its strong effects on production-possibility frontiers.  Even with current patent systems and government research subsidies, technological innovation appears to be lagging.  Perhaps open and user innovation deserve more attention from policymakers as one antidote to this problem.  In the meantime, worldwide productivity and innovation appear to be impeded.

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