According to data on advanced economies from the Organization for Economic Cooperation and Development, the most productive 5% of manufacturers increased their productivity by 33% between 2001 and 2013, while productivity leaders in services boosted theirs by 44%.
Over the same period, all other manufacturers managed to improve productivity by only 7%, while other service providers recorded only a 5% increase.
Think of a firm as consisting of labor, capital, and intangibles. The intangibles include knowledge and business strategy.
When intangibles hardly matter, then capital and labor ought to be about equally productive across all firms. When intangibles matter a lot, then productivity differences will widen.
Having read your Specialization and Trade, I find it hard not to tune out the macro level blather in the quote you selected and instead focus on the specific industry that the article opens with. Doing so, I think, suggests that industry productivity leaders at any given time may just be playing catch-up, and that there can be factors other than labor, capital, and intangibles at play.
Take the industry that the WSJ article opens with. A Swedish company is spotlighted apparently as being an example of a productivity leader. However, automated modular housing construction is a global phenomenon with a lengthy history. Just google the term and you can readily see that it is a thing not only in Sweden, but the US, Japan, the UK, the Netherlands, Germany, Australia etc. Articles from as far back as 2003 describe the difference between the UK and Japanese factory built home industries. And an 11/30/17 Chris Reed piece notes:
“The potential of manufactured homes was grasped long ago by legendary investor Warren Buffett. His company, Berkshire Hathaway, bought Clayton Homes for $1.7 billion in 2003, and the Berkshire subsidiary now controls about 50 percent of the U.S. market — and 70 percent of under-$150,000 home sales. Lately, it has been on a buying spree, snapping up four small, innovative home builders and setting a goal of dominating the market for homes in the “sweet spot” of $150,000 to $200,000. The second-richest person in the world, per Forbes, looks to have yet another a gold mine on his hands — at least if manufactured homes take off.”
Quickly perusing the google hits, one gets the sense that it is Japan who is in fact the innovation leader in this industry, despite what the WSJ graphic ranking national productivity might imply. The WSJ journal article switches from Sweden to the UK where Berkeley Homes is building a major new factory that will use automation to produce homes. But rather than than describe that, the article shifts gears and tries to make the case that experts are needed to induce businesses to use automation.
Going back to the San Diego Tribune piece, one wonders why if the modular housing answer “is hiding in plain sight” hasn’t the market solved the California housing crisis? I think here it becomes clear, that, as the Tribune article suggests, unions, regulation and other government barriers, that are the obstacles. Looking at the macro level leads one to talk about labor, capital, and intangibles, but, when you look at specific industries, one needs to at least check the regulatory reality, and not dismiss it out of hand because its affects might not be easily discernible at the macro-level, as some would have us do.
Think of a firm as consisting of labor, capital, and intangibles. The intangibles include knowledge and business strategy.
Isn’t labor of the organization intangible as well? Why do Hollywood studios dominate the world’s cinema more than ever? Probably good talent always ends up in Hollywood sooner or later. Been watching lots of Hong Kong 1980 – 2000 cinema with my kids and remember many of them worked in Hollywood between 1995 – 2005.(With varying degrees of success.)
One reason why I assume Google and Facebook are not in immediate danger is anybody with good tech experience is going to want to work for them even at a slight
One gets the feeling that the shift in analysis towards intangible production has been slowly gaining steam, and might even be on the brink of becoming the new paradigm in thinking.
It has a slow lag, but there seems like there’s a growing acknowledgement about the role of things like management, o-ring production, and intangible capital in dictating economic outcomes.
It doesn’t hurt that there seems to be a growing consensus that the economies of the developed world have been slowly entering a period of stagnant dysfunction, which increases the appetite for new modes of thought.
Remember the Peter Principle? A person rises to his level of incompetence…
An individual.
What about a successful company? A successful company expands until its level of productivity increase is about average.
There is also bureaucratic bloat in every organization. So a company that gets huge fast usually has much less bloat.
There is some non-linear, and company culture rate of bloat % increase, which affects the larger, more bloaty company.