“Asymptotically Stagnant Activities”

When I first saw this term, I assumed they were talking about me and all the time I spend on my little blog here. (They probably should have been.) It is all about me, right?

But they were actually talking about a much more interesting phenomenon: the shift in spending from “progressive” to “non-progressive” activities. No, this is not “progressive” in the common ideological sense. Here’s the idea:

Businesses can reap big productivity gains through technological innovation. But as the innovation makes the technology cheaper and cheaper, costs that can’t be automated (mainly people doing things) come to dominate the cost structure. So an ever-larger proportion of expenditures goes to those things. The whole enterprise is an “asymptotically stagnant activity,” always getting closer to zero productivity growth.

As a result, a greater percentage of resources is necessarily directed away from “progressive” sectors that have potential for high productivity growth (primarily manufacturing) and towards “non-progressive” sectors that don’t have that potential (i.e. human services).

This has been termed “Baumol’s Cost Disease.”

“the progressive component is innovating itself out of its cost-dominating position, ultimately the activity assumes all the characteristics of the stagnant services” (Baumol et al., 1985, p. 816).

My thinking: This may help explain why non-progressive activities — like health care and education — end up falling on government. Private enterprise naturally gravitates to progressive sectors where productivity growth holds high promise for future profits. The government is left carrying the load in other sectors — sectors that are necessary for the progressive sectors to flourish.

Does this help explain why government seems to “keep getting bigger”? Ever-increasing productivity drives Baumol’s Disease? (But maybe it’s not a disease, just a natural progression…)

And no: I don’t search for “asymptotic” to find these. I just run across them…