In the 1920s, after a slowdown in productivity growth from roughly 1890 to 1910, the US suddenly experienced another productivity boom. Why did this happen?

This article, from Paul A. David and Gavin Wright, proposes an answer. The US productivity boom of the 1920s was, they say:

“…a phase in the diffusion of a general purpose technology (GPT) that made possible significant fixed-capital savings while simultaneously increasing labor productivity as well.”

The technology they’re referring to is the electric dynamo, which started to see widespread use in manufacturing around this time.

But, David and Wright go on to say, the technology itself wasn’t enough.

“[A] purely technological explanation of the productivity surge is inadequate. It would neglect the concurrence of these developments with important structural changes in US labor markets, and the interrelationships that appear between managerial and organizational innovations and the new dynamo-based factory technology, on the one hand, and between both forms of innovation and the macroeconomic conditions of the 1920s on the other hand.”

In other words, it wasn’t the electric dynamo itself that boosted productivity, it was Ford’s application of the electric dynamo—the way The Ford Motor Company, starting at its Highlands Park factory in Michigan, used electric motors to rethink how factories worked, building their new plant around the concept of the assembly line.

Here’s the chart on US total factor productivity in manufacturing that underlines this point. The electric dynamo had been around for years but it wasn’t until at least 1910 that its effects on productivity started to show. To paraphrase Robert Solow, the electric dynamo was, until this point, “visible everywhere except the productivity statistics”.

Screen Shot 2018-02-13 at 08.09.11

The lesson to draw? One, we should all just calm down—a decade or two of slow productivity growth is common in the course of a technological revolution, so an uptick could well be on its way. Two, that uptick will only come when we answer the following question: what is our equivalent of Fordism? How can organisations in 2018—companies, government departments, charities—fundamentally reimagine themselves around the modern day equivalent of the electric dynamo: the transistor.




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