In recent years American productivity growth has been anemic, averaging just 0.5% per year from 2010 to 2016. When productivity growth stagnates, so do incomes and living standards. As any economist will tell you, productivity depends critically on innovation—in operations, products, services, and management practices. Historically, innovation has accounted for about half of US productivity growth, the rest coming from enhanced workforce skills and higher capital spending. To a significant degree, then, America's productivity plateau reflects a slow down in innovation.
How could this be, you may ask, in a world where upstarts like Uber, Airbnb, Snapchat, WeWork and Slack are busy upending old industries and creating new ones? These “unicorns”—venture-backed companies with an imputed market value of more than a $1 billion—attract a ton of media attention, yet their actual contribution to the economy is scant. At present America's unicorns are worth about $353 billion—that's less than 2% of the market value of the S&P 500. While Silicon Valley styles itself as the epicenter of innovation, it's mold-breaking companies are, in the bigger scheme of things, largely irrelevant. Despite the fascination of policy-makers and pundits with the Valley's unique capacity for “disruption,” the real challenge isn't creating more entrepreneurial enclaves, but infusing the spirit of innovation in organizations that aren't filled with hipsters commuting everyday from San Francisco to Mountain View.