Big Data May Boost Productivity

In our last post, we noted that productivity’s growth has been stunted. This post looks at what may be the key to reviving it — big data.

Productivity growth is likely not as mysterious as some economists would have us believe. Encourage innovation by removing barriers, such as regulation and high taxes. By fostering innovation, such as the development of new products based on big data, we can make corporate America more productive.

A report cited last week from McKinsey Global Institute echoed that conclusion, sounding hopeful that America and other countries may be emerging from the productivity rut.

“As financial crisis aftereffects continue to dissipate and digital technologies are further integrated into business processes, we expect productivity growth to recover from current lows across sectors and countries,” the report says. “Overall, we estimate that the productivity-boosting opportunities could be at least 2% on average per year over the next 10 years, with 60% coming from digital opportunities. The opportunities we have identified include those that boost operational efficiency, reduce costs, streamline labor requirements, and enhance innovation (for example via automation), as well as those that are reshaping entire business models and industries and changing barriers to entry (for example, via online marketplaces and platforms).”

If this is indeed the information age, driven by information technology, then it’s a logical conclusion that big data will play the leading role, as data is, of course, information.

On his blog, Of Two Minds, Charles Hughes Smith predicted that, “Data will only become more valuable. I don’t think there is an equivalent ‘substance’ in our universe that, no matter what happens, the data holder will be wealthier and wealthier. Data doesn’t expire, rust, need maintenance, go in or out of fashion, need to be fed (or) require medical care … ”

Capitalism, he further wrote, has shifted from producing wealth by manufacturing or providing services to producing wealth by marketing and distributing goods and services.

“In this economy, the essential role is played by big data/data mining,” according to his post, which also appeared on Zero Hedge. “Wal-Mart, Amazon, Facebook, Google et al. have no interest in where the goods and services are made/generated; the big profits are in the distribution/marketing (i.e. exploiting large data sets) and gathering and selling these large data sets.”

As big data becomes bigger and bigger business, the value proposition for many businesses is shifting to data-driven results. Boeing’s value, for example, is increasingly based on how well it meets the needs of its airline customers and how well the airlines analyze data to determine the best passenger routes.

While big data may provide us with productivity salvation, it may also produce a smaller group of successful businesses. Big data companies like Google and Amazon will likely to continue to grow and those with not-as-big data will find it difficult to compete.

Big data may, unfortunately, make long-term success even more difficult than ever for America’s smallest businesses.

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