Are we innovating outside of software and finance?

July 24th, 2012

Dylan Matthews argues against Thiel’s thesis that innovation is only occurring in software and finance:

Generally, an industry is innovating if total factor productivity is going up, since that indicates that technology in that sector is improving.

But software and custom programming have innovated at roughly the same pace as manufacturing, trade and agriculture — the sectors Thiel alleges are banned from innovating. Information services actually wasn’t innovating until about 2000, when companies began to figure out how best to profit off this crazy Internet fad. Since then, it’s been innovating roughly as fast as manufacturing and other non-tech, non-finance sectors.

Good point, but of course this obscures something important. Productivity measures how good we are at converting labor and capital into goods and services, but it says nothing about how well we’re converting our labor and capital into new and better goods and services. Software and Internet services may not be improving productivity much, but I think there’s a very good argument that most of our gains in the last decade with software has been in making much better, much more useful devices, applications and services.

A programmer may only be marginally more productive in 2010 than they were in 2000, but they’re creating things like iOS, Yelp and Facebook. Whether it shows up in the statistics or not, there’s great gains there.