How do you grow an economy when your businesses are plugging into a Second Industrial Revolution platform that has matured in 1990 and which hasn’t moved since then?- Jeremy Rifkin, "The Third Industrial Revolution and a Zero Marginal Cost Society"
When we think about the term productivity we tend to think in terms of ‘more output per input’ which translates to ‘more capital for better machines and better workers’. According to Rifkin this represents only 40% of what productivity really is. The rest of productivity occurs as a result of aggregate efficiency, i.e. the ratio of potential work to the actual useful work you get out of a conversion. For example: when a lion devours an antilope, only 10% to 20% of its total energy gets converged into energy that is useful for the lion. All the rest gets lost into the conversion.
The second industrial revolution in the US started in 1903 with a 3% aggregate efficiency. This means that for every conversion along the value chain (extracting, storing, transporting, producing, consuming, recycling) about 97% of the energy was lost. By 1990, the US got up to about 13%, Germany got to 18,5% and Japan up to 20% aggregate efficiency. Since then, nothing changed in that ratio. Labor reforms, market reforms, fiscal reforms or new kinds of incentives or even the best technologies will not help that aggregate efficiency to go up as long as we are operating on the platform of the Second Industrial Revolution. We will never get above the ceiling of 20% aggregate efficiency, which makes up the biggest part of productivity.
Anybody who would put 60% of a "productivity" calculation (used to decide where to invest capital) into the hands of government bureaucrats is an IDIOT!