The current status quo means we don’t get productivity growth until these software-driven companies become behemoths. Amazon was founded in 1994, almost thirty years ago. In 2020, it was still less than 10% of total retail sales. Is it any wonder that we haven’t seen robust productivity gains? Amazon is still mapping and digitizing processes at prodigious rates.
Real-world complexity gives us universal software with a low level of capability, like email. It encourages software providers to provide misfit tools for only a portion of our workflow. It is almost impossible for a third-party software provider to reorganize an industry’s core processes. If they did, they would be a first-party company. We want an assembly line, but we get a mallet and file subscription instead. To have an impact on TFP, we need assembly lines.
Management techniques are a technology in a broad sense of the word. Assembly lines are one prominent example. Management techniques are fiendishly difficult to adopt. Improvements in management manifest as differences in company productivity that force most competitors to bankruptcy or merger, if competition allows. Good management and scale are closely linked. Ford reduced costs with assembly lines, increasing sales, which funded more specialized assembly lines and equipment. Thousands of automakers have existed in the United States. Only a few were able to adopt assembly line techniques and compete.
GPTs [general purpose technologies] spread like wildfire on account of their asymmetry. The spread of management technology is a slow, plodding process as the leaders slowly grind down their competitors. Society does not see the benefits of new management techniques until the companies employing them have scaled and absorbed significant market share.
Here is much more from Austin Vernon, quite interesting, and with a cameo from John Collison.