A Practitioner’s Perspective on the Productivity Slowdown

The corporate world changed significantly during the 1980s and 1990s in ways that drove productivity growth. So from my perspective as a businessperson, the slowdown in productivity growth over the past decade is surprising. In my view, a major factor is business underinvestment over the past 15 years, driven by industry leaders and productivity leaders not investing in growth the way they once did. Another factor might be declining startup rates. Successful entrants drive innovation, which drives productivity. But the data show a massive reduction in entry rates in all states and all sectors. In addition, the dispersion of productivity within industries has increased. When we talk to firms at the frontier, productivity gains seem robust. But aggregate productivity is potentially being held back by less-productive firms. A stronger economy may give both entrepreneurs and existing firms more confidence to invest in their businesses and grow their markets. Policymakers can help by promoting a healthy environment for business investment and entrepreneurship.