80% of U.S. Industries Have Yet to Reap Advantages of IT

source: Progressive Policy Institute

Machine-to-machine communications related to “Internet of Things” processes will account for roughly 35 percent to 47 percent of mobile data communications by 2030, argues Michael Mandel, Progressive Policy Institute chief economic strategist and a senior fellow at Wharton’s Mack Institute for Innovation Management.

By 2030, more than 1900 MHz of spectrum in the sub-mmW bands (three times the current availability) and at least 1.2 million cell sites (four times the current level) will be necessary, Mandel argues.

That forecast assumes dramatic increases in application of information technology to the 80 percent of private sector industries that have not yet reaped the gains of IT. 

Though “causation” arguably is difficult to establish, digital industries have had triple the productivity growth of the physical industries in recent years.

For the 14-year period between 2000 and 2014, productivity growth for digital industries has averaged 2.8 percent per year, compared to 0.9 percent for the physical industries.

“Today, tech/telecom spending per worker in the digital industries is almost seven times that of the physical industries,” Mandel says.

The gap matters, Mandel argues, because  physical industries make up roughly 80 percent of the private sector. In other words, only 20 percent of private sector industries have fully taken advantage of information technology.

Much information technology investment over the last several decades has mostly occurred in segments of work that involve “digital” products or output, such as such as professional services, finance, entertainment, or that involve digital buying, even if fulfillment is quite physical, such as retailing or other commerce.

Likewise, parts of life such as education, game playing and communication.

The perhaps-obvious corollary is that the benefits of information technology have yet to transform “physical” industries to the same extent as “digital output” industries.

Slow productivity growth is correlated with the failure of “physical” industries such as manufacturing, healthcare, and construction to make good use of digital technologies, Mandel argues. “Successfully digitizing physical industries will require a vast increase in remote sensors and remote-controlled devices such as cars, drones, and construction equipment,” he argues.

Those sensors and processes will monitor and control construction drones, self-driving snow plows, industrial processes and micro-pumps to precisely control insulin and other hormones in the body, for example.