Review of Richard Langlois' The Corporation and the Twentieth Century

 Langlois, R. 2023. The Corporation and the Twentieth Century: The history of American business enterprise, Princeton University Press. 

 

An exhaustive, detailed history of US business that continues Richard Langlois long-running dialogue with Alfred Chandler’s work on managerial capitalism. Ranging across all major C20 industries like railways, automobiles, aircraft, electrical appliances and computers, and loosely organised into periods of a couple of decades covering pre WW1, pre WW2, post WW2, stagflation and the final decades, each chapter looks at the political context, the development of key industries and the relevant technological innovations that drove the process: ‘It has been a central theme of the book that the large integrated corporation in the twentieth century owed its rise to prominence in significant part to the eclipse of the market and the growth of state power during the Depression and the World wars’ (p. 478). In the 1980s the wheel turned, market forces began to reassert themselves, new corporate structures emerged, and the boundaries of the firm shifted again. 

 

A focus of the book is the effects of regulation on industry. The early contest between Populists and Progressives that played out in anti-trust cases and Supreme Court decisions often led to regulations ‘misaligned’ with technology and market opportunity. In many cases consumer interest was secondary, with lower prices seen as evidence of anti-competitive behaviour as ‘American regulatory policy worked to segment markets, generally along lines of supply technology not market demand’ (p. 466). 

 

The institutional origins of regulators in key industries and their role in creating and maintaining cartels or oligopolies contradicts the view that the US favoured large corporations. In fact, the large, vertically integrated firm was an outcome of legal constraints on contracting that were intended to favour small businesses but had the opposite effect. Many regulated firms then underinvested in maintenance and innovation, leading to spectacular collapses like Penn State Railroad, Chrysler Corp and Pan Am, and the demise of other once great corporations like IT&T, RCA, Westinghouse and US Steel.

 

The role of technological opportunity, R&D and innovation is emphasised, battles over patents and standards discussed, and how disruptive tech eventually overcame regulatory barriers in industries like transport (containerisation and air freight), radio (AM and FM) and TV (broadcast networks and cable). Disruption in computing (transistors and integrated circuits), manufacturing (consolidation and lean production) and the near death experiences of IBM, Apple and GE are detailed: ‘The most disruptive new entry has often come not in the form of a small start-up but a large firm in a related area’ (p. 549). 

Intellectual contests of ideas and the increasing use of economics in regulation get short, non-technical explanations. Important business leaders and given credit when due and their failures dissected. For those interested in regulation and the role of government agencies, business history, and the interplay of technology and industry, this is a great read. 

Incremental Innovation in Construction

 The example of concrete

 

Construction of the built environment has an interlocking set of economic, political, legal, and social barriers that make innovating difficult. As long as current technology meets the expectations of clients and users for prices and dominant products, there will be significant market imperfections such as network economies, lumpiness, split incentives, requirements for collective action, and transaction costs that inhibit diffusion of more efficient, advanced technologies. There is also an institutional structure that imposes regulatory hurdles or other policy disadvantages, favours existing technology or discourages new entrants, and a financing system based around incumbents. Educational curricula, career paths, and professional standards use existing technology. And because organizations, people and technical standards are embedded within a production system, the tendency is for technologies to develop along defined trajectories unless or until deflected by a powerful external force.

 

Construction of the built environment is a project-based system of production with complex professional, organizational, contractual and working relationships, and is geographically distributed. Moreover, the context is one of wider networks containing many small and medium size firms with a range of organizational and institutional relationships, where external contracting is common. All these factors are seen as inhibiting, although not preventing, innovation and diffusion of new technology. Within such a system incremental innovation improves industry products and processes without affecting the structure of the system. 

 

In construction, many technical advances have come from materials suppliers or component, plant and equipment manufacturers, who have been responsible for the introduction of new products and equipment, such as excavators, cranes, facades and lifts, using incremental innovation directed at improving existing products and processes. Across the construction supply chain firms don’t create new industrial networks to develop or exploit new technologies such as lifts and elevators, glass facades, and interior wall systems, instead these firms become part of the existing network, which is the modern construction production system. As a well-developed industrial system many of its sub-markets are expected to be concentrated and oligopolistic, with a few large, well-established firms exactly like those economic historian Joseph Schumpeter suggested would be most likely to engage in R&D, invention and innovation.

 

The process where inventions are developed, tested and extended, and finally put into production is one of incremental innovation. Firms refine specific parts of a production system, usually in response to something changing elsewhere in the system as production and distribution methods evolve over time, step by step. Although this form of innovation is incremental, it should not be dismissed as unimportant. Examples are the increase since 1950 of mining truck loads from 4 to 400 tonnes and the increase in lifting capacity of tower cranes to over 1,000 tonnes. Another example is the development of computer-aided design (CAD) software, which went on for two decades before Autodesk was started in 1982, one year after the first IBM PC. Over the decades Building information models (BIM) have advanced through 2D and 3D versions to the 4D (schedule) and 5D (cost) iterations today. Now software linked to cameras on helmets or drones can provide real time augmented reality (AR) images from a building site linked to the BIM model of the project.

 

Building and construction products and processes are the outcome of a long development path. Many of the industry’s global leaders are well-established, Bechtel for example is over 100 years old, and other firms like Hochtief, Skanska, and AECOM can trace their origin stories back over a similar period. Shimizu is over 200 years old. Most of today’s manufacturers also have their roots in nineteenth century firms. It’s a remarkable fact that construction today is a production system that has been developing for more than 150 years, since the arrival of steam, steel and concrete, using incremental innovation to gradually improve products and processes. 

 

In the industry life cycle, after emergence and the initial growth stage, technology stabilises around standardised products and processes. In many cases industries are oligopolistic, with a few specialized firms in market niches or layers in the supply chain. Consolidation leads to industry concentration with large firms dominating their markets, the car industry is an example. Construction materials like cement, concrete and glass, and components like building management systems, interior walls, plumbing fixtures, lifts and elevators are all oligopolistic industries in an established supply chain.[i]

 

 

Incremental Innovation: The example of concrete 

 

The development of concrete is an example of how effective incremental innovation in construction can be. By the 1880s the increasingly widespread use of concrete had changed its status from hobby to a modern industry, as scientific investigation into its material properties revealed its shear and compressive characteristics. With the development of reinforced concrete there was change in architectural concepts of structures and approaches to building with concrete. The industrial standards of concrete technology influenced ways of thinking based on building systems and standardized building elements. These became identified with what was known as the Hennebique System, a simple to use system of building with reinforced concrete columns and beams patented in 1892. By 1905 Hennebique’s system had spread across Europe and elsewhere and his company employed 380 people in 50 offices with 10,000 workers onsite.[ii]

 

Concrete then set the agenda for the development of construction as a technological system over the next hundred years driven by the modernist movement in architecture, as it explored the possibilities of these material for increasing the height and scale of buildings, and modern construction materials and methods.[iii] For over one hundred years, since Hennebique, there has been ongoing refinement and development of the world’s most widely used construction material, as shown in Table 1.

 

Concrete shows how incremental innovation in materials played a significant role in the reorganization of site production methods as mixers, pumps and chemicals were refined and developed in a long process of interconnected innovations. One of the characteristics of a successful technology are these spillover effects, with advances in one industry leading to complimentary developments in related industries. 

Table 1. Incremental innovation in concrete since 1800

Source: Jahren, P. 2011. Concrete: History and Accounts, Trondheim: Tapir Academic Press.

Innovation is continuing today with 3D concrete printing (3DCP). Research into 3DCP has focused on developing the equipment needed and the materials used, and by 2019[iv] over a dozen experimental prototypes had been built. By 2022 the commercialisation of 3DCP was underway, with two types of systems available. One using a robotic arm to move the print head over a small area, intended to produce structural elements and precast components, the other a gantry system for printing large components, walls and structures. 3DCP combines BIM models, new concrete mixtures and chemicals, and new printing machines. Again, a combination of new materials and new machinery is required for this technology to work.

 

In 2022 the Additive Manufacturing Marketplace had 34 concrete printing machines listed, ranging from desktop printers to large track mounted gantry systems that can print three or four story buildings. Companies making these machines are mainly from the US and Europe, and Table 2 also has details on the type and size of a selection of machines. There are also several companies offering 3DCP as a service at an hourly or daily rate.[v]

 

Concrete printing is only one part of the development of additive manufacturing. In mid-2022 the Additive Manufacturing Marketplace listed 2,372 different 3D printing machines from 1,254 brands. The number of printers and materials used were: 364 metal; 355 photopolymers; 74 ceramic; 61 organic; 34 concrete; 24 clay; 20 silicone; 19 wax; and 19 continuous fibres. Many of these printers could be used to produce fixtures and fittings for buildings. Producing components onsite from bags of mixture avoids the cost of handling and transport, and for large items avoids the load limits on roads and trucks. There are also printing services and additive manufacturing marketplaces being set up. These link designers to producers with the materials science, specialised equipment and print farms capable of large production runs and manufacture on demand. Examples are Dassault Systems 3DExperience, Craft Cloud, Xometry, Shapeways, 3D Metalforge, Stratasys and Materialise.

Table 2. Some companies making 3D concrete printers

Source: Additive Manufacturing Marketplace, 2022. 

 

 

Conclusion

 

Innovating in a complex, long established industrial sector like construction of the built environment can be difficult. The institutional architecture can impose regulatory hurdles or other policy disadvantages on new technologies, and government expenditures often support existing technology. Lenders are risk averse. There are subsidies and price structures that favour incumbents and ignore externalities like the environment and public health. Educational curricula, career paths and professional standards are oriented to existing technology. The dominance of existing technologies is further reinforced by imperfections in the market for technology such as network economies, lumpiness, split incentives and the need for collective action.[vi]

 

The construction industry has become used to incremental innovation and a gradual rate of change since the modern industry emerged over the last few decades of the nineteenth century. At the beginning of the twentieth century there was a great deal of resistance to change: ‘the older assembling industries like engineering were slow to change. Each firm took a proprietary pride in its own work’, and the trades were ‘fearful of technological unemployment and fought all changes in conditions of work.’[vii] Nevertheless, by the 1920s construction had reorganised the system of production around concrete, steel and glass. 

 

We are at a similar point today. The development of digital construction using combinations of BIM, offsite manufacturing, 3DCP, drones and robots, is an emerging new system of production, and the adoption and adaptation of these technologies will depend on incremental innovation continually improving their performance, which can only happen if they are put to use. There is a strong case here for public clients, who will be major beneficiaries of the improved efficiency of digital construction, to sponsor demonstration projects that use these technologies and measure the improvements in waste, carbon, defects, time and cost that are delivered. 

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[i] Syverson, C. 2019. Macroeconomics and Market Power: Context, Implications, and Open Questions, Journal of Economic Perspectives, 33, 3, 23–43. Syverson, C. 2008. Markets: Ready-Mixed Concrete, Journal of Economic Perspectives, 22, 1, 217–233.

[ii] Pfammatter, U. 2008. Building the Future: Building Technology and Cultural History from the Industrial Revolution until Today. Munich: Prestel Verlag.

[iii] Cody, J. 2003. Exporting American Architecture 1870-2000, London: Routledge. 

Huxtable, A. L. 2008. On Architecture: Collected Reflections on a Century of Change, New York: Walker Publishing Company.

[iv] Sanjayan, N. and Nematollahi, B. (eds.) 2019. 3D Concrete Printing Technology: Construction and building applications. Butterworth-Heinemann.

[v] https://www.aniwaa.com

[vi] Bloom, N., Van Reenen, J. and Williams, H. 2019. A toolkit of policies to promote innovation. Journal of Economic Perspectives, 33(3), 163-84.

[vii] Hughes, T. P. 1989: 495. American Genesis: A Century of Invention and Technological Enthusiasm 1870-1970, Chicago: University of Chicago Press. 

Construction and Advanced Technologies

US Survey Data and the Construction Industry 

 

The previous post was on the United States Census Bureau Annual Business Survey (ABS). In 2018 the ABS included a technology module with three questions about the extent of technology use between 2015 and 2017: the availability of information in digital format (digitization), expenditure on cloud computing services, and use of a range of advanced business technologies. The first results were released in a working paper from the National Bureau of Economic Research in January. There were 583.000 responses to the survey, and two thirds of the firms employed under 10 people and were less than 20 years old.

 

The survey links technologies across firm size and age categories, as well as the co-presence patterns for the technologies at the firm level. It also identifies which technologies are in the early stages of diffusion as indicated by the rates of testing versus the rates of actual use of technologies by firms. The survey shows construction is not significantly lagging other industries in the US in digitization and use of cloud services, however it is doing less testing and development of advanced business technologies.

 

The main finding of the survey was “Despite increasingly widespread discussion in the press of machine learning, robotics, automated vehicles, natural language processing, machine vision, voice recognition and other advanced technologies, we find that their adoption rates are relatively low. Furthermore, adoption is quite skewed, with heaviest concentration among a small subset of older and larger firms. We also find that technology adoption exhibits a hierarchical pattern, with the most sophisticated technologies being present most often only when more-basic applications are as well.” 

 

 

Size and number of firms in US construction

 

The structure of an industry is the number of firms categorized by size, typically the number of employees. Firms are classified as small, medium or large, with the numbers used varying by country and industry, as the tables below show. Data on firms (often called enterprises in the statistics) is presented using the International Standard Industrial Classification. Section F in ISIC includes the complete construction of buildings (division 41), the complete construction of civil engineering works (division 42), and specialized construction activities or special trades, if carried out only as a part of the construction process (division 43). Also included is repair of buildings and engineering works. Although there are national variants on the Standard Industrial Classification format SIC codes therefore represent industries, and firms are classified (or often self-classify) to industries on the basis of common characteristics in products, services, production processes and logistics.

 

In the US the Census Bureau collects data on industries and enterprises, the latest data for 2012. The website has this notice: “Due to limited resources and competing priorities of critical programs within the Census Bureau, the Enterprise Statistics Program has been suspended.” Reflecting the scale of the American economy, the size range of firms is much greater than the EU and the largest firms much larger. Over 95 percent of US firms are small, in this case with less than 100 employees, and have on average five or six employees. However, there were 212 firms with 1,000 or more employees that had a total 630,000 employees, of which nearly 160,000 were employed by the nine largest firms. 

 

Table 1. US Construction 2012

Enterprise employment size	Number of enterprises	Sales or revenue $1,000,000	Annual payroll $1,000,000	Number of paid employees
All enterprises	581,601	1,349,346	260,606	5,006,131
Less than 100 employees	576,272	812,924	154,461	3,336,286
100 - 499 employees	4,788	226,818	46,899	817,823
500 - 999 employees	na	82,320	14,787	222,481
1,000 - 2,499 employees	141	79,475	14,968	211,141
2,500 - 4,999 employees	45	62,749	10,516	145,875
5,000 - 9,999 employees	17	38,072	7,497	113,133
10,000 employees or more	9	46,988	11,476	159,392

Source: US Census Bureau 2012, table 2; na is not available due to sampling issues. 

 

The data, which emphasises the number of firms, is deceptive because of the very large number of small firms the entire industry is often characterized as unconcentrated. Viewing the construction industry as predominantly made up of small firms supports the view of the industry as fragmented with the characteristics of perfect competition. That description is too broad, some segments are much less fragmented than others. Competition among large contractors and among specialty supplier firms is oligopolistic, while small contractors are closer to perfect competition. There are few significant barriers to entry to the construction industry for small firms, so labour-intensive subcontractors and small contractors can be assumed to operate under perfect competition. There are relatively few contractors capable of managing large projects, and the barriers to entry at this level in the form of prequalification are significant, based on track record, financial capacity and technical capability.

 

 

Technology testing and diffusion

 

The testing-versus-use rates across different technologies are used to assess which technologies are in earlier phase of diffusion, that is, where testing is high relative to use. From the survey data the Construction industry is neither a leader nor a laggard in the availability of information in digital format. Manufacturing, Information and Professional Services are the industries with the highest rate of adoption of digitization, with firm size the primary correlate of adoption. For expenditure on cloud computing services Construction is lagging, with use rates below the average and well behind Professional Services. Overall, cloud services purchases have much lower diffusion rates compared to those for digital information. On these two questions of digitization and cloud usage Construction is comparable to the Agriculture, Retail and Transport industries on the extent of adoption, which is significantly lower than the rate in Information, Professional Services and Health Care industries.

 

Where Construction is well behind is in the testing and use of a range of advanced business technologies. The butterfly chart below shows sectoral diffusion rates for all business technologies considered together. Manufacturing leads with about 15% of firms indicating use of at least one business technology, followed by Health Care (14%), Information (12%), Education (11%) and Professional Services (10%). The lowest diffusion rates for the technologies are in Construction, Agriculture, Mining and Utilities, Management and Administrative, and Finance, Insurance and Real Estate sectors. 

 

 

Figure 1: Extensive and Intensive Margin Measures of Use and Testing Rates for Business Technologies by Sector 

 

Across all AI-related technologies, the aggregate adoption rate for all firms in the economy was 6.6% meaning that approximately 1 in 16 firms in the US were utilizing some form of AI in the workplace. The AI adoption rate varies greatly by firm size. Adoption rates (defined as usage or testing) increase from 5.3% for the group of firms with the smallest number of employees to 62.5% for firms with 10,000+ employees. Scale appears to be a primary correlate of AI usage, and its use by large firms means the employment-weighted adoption rates (estimates of the fraction of workers employed by firms using the technologies for advanced business technologies) are five times higher than the firm rates (i.e. because large firms are using AI the number of employees working with AI is five time greater than the number of firms using AI). There is increasing concentration of both employment and advanced technology adoption in fewer, larger firms.

 

The analysis finds “In general, the business technologies explored in the module’s third question are more prevalent in larger and older firms. This skewness in technology prevalence suggests that these technologies may have a disproportionate economic impact despite their generally low adoption rates’ and “This may potentially have far-reaching implications on topics such as inequality, competition and the rise of “superstar” firms, especially if AI is shown to have widespread productivity benefits. If only a select group of firms are able to fully realize the benefits of AI, we can expect further divergence for the “frontier” and most productive set of firms.”

 

From table 1, in the US in 2012 there were 9 construction firms with 10,000 employees and 17 with 5-10,000 employees, employing nearly 280,000 people between them (out of 580,000 firms and 5 million employees). Although there will be small, young firms experimenting with AI and other technologies, the data suggests some of these large firms will be investing in advanced technologies like AI, robotics and augmented reality at a scale the rest of the industry cannot. This has already been seen with the use of BIM, which is spreading to smaller firms in the industry a decade after many larger firms began the process of implementation. Another example is the way some large contractors are already running their own platforms for procurement and project management, which their suppliers and subcontractors have to use. These are closed, internal platforms. However, there are also open platforms developed by digital systems integrators such as Project Frog. 

 

It seems clear that digital platforms providing building design, component and module specification, fabrication, logistics and delivery will become widely used. Platforms provide outsourced business processes, usually cheaply because they are standardized, and are available to large and small firms. Also, platforms use forms of AI to monitor and manage the data they produce, the function of intelligent machines. Examples are Linkedin (matching jobs and people), Skype (simultaneous translation of video calls), AWS and other cloud-computing providers, and marketing, legal and accounting software systems. Such cheap, outsourced, cloud-based business processes can lower fixed costs and thus firm size, because firms can focus on their core competency and purchases services as necessary as they scale, leading to more entry and more innovation. 

 

Table 2. Dimensions of Development

Dimensions	Construction and the fourth industrial revolution: Possible developments
Production of components and materials	Platforms integrate design and production with full visualisation of voice-controlled 3D models of buildings, components and location. Selection of components and modules from online design libraries, both open-source and private.  Developments in digital fabrication, design software and molecular engineering allow a range of new production technologies to spread through the industry. Economies of scale for on-site versus off-site production will determine where and what components are produced and how.
Mechanization and automation of tasks	Site workers have exoskeletons and smart helmets available.  Many on-site tasks can done by teams of robots and/or machinery and equipment, operated remotely with some autonomy. Assemblers can be designed and fabricated to install components and modules, which can be designed to be handled by assemblers.
Organization of projects	Cloud based platforms integrate delivery of the physical project with its digital model, with real-time data and monitoring of activities and tasks.  Standardized, outsourced cloud-based business processes are used, so contractors focus on integration of site work, site production and component assembly.

 

 

In the various forms that advanced technologies take on their way to the construction site, they will become central to many of the tasks and activities involved. In this, building and construction may no different from other industries and activities, however the development path in construction will be distinct and different from the path taken in other industries. This path dependence can vary not just from industry to industry, but from firm to firm as well. Because the construction industry’s technological system of production is so wide and deep this will affect a large number of firms and people, and through them the wider economy and society. Invention and innovation based around BIM, digital twins, cloud computing, digital fabrication and advanced manufacturing technology, will fundamentally affect the production system through economies of scale and scope. 

 

 

Advanced Technologies Adoption And Use By U.S. Firms: Evidence From The Annual Business Survey, by  Nikolas Zolas, Zachary Kroff, Erik Brynjolfsson, Kristina McElheran, David N. Beede, Cathy Buffington, Nathan Goldschlag, Lucia Foster and Emin Dinlersoz. 2020. National Bureau of Economic Research, Cambridge, MA Working Paper 28290 http://www.nber.org/papers/w28290

Digitization and advanced business technologies in industry

Data on the technology frontier at the industry level

 

 

There is a commonly held view that construction is a digital laggard.  A widely cited McKinsey report in 2016 argued: “the construction sector has been slow to adopt process and technology innovations …. The industry has not yet embraced new digital technologies that need up-front investment, even if the long-term benefits are significant. R&D spending in construction runs well behind that of other industries: less than 1 percent of revenues, versus 3.5 to 4.5 percent for the auto and aerospace sectors. This is also true for spending on information technology, which accounts for less than 1 percent of revenues for construction, even though a number of new software solutions have been developed for the industry.”

 

Technology use and diffusion is an important dynamic in industry development, but good data is rare. Most surveys are of specific industries or selected firms (typically large ones), and surveys with large samples that would be more representative of firms across the economy by including small and medium size firms are scarce. This particularly affects built environment industries like construction and professional services because of the large number of small firms in those industries. 

 

The United States Census Bureau conducts an Annual Business Survey (ABS), and in 2018 the ABS included a technology module with three questions about the extent of technology use between 2015 and 2017: the availability of information in digital format (digitization), expenditure on cloud computing services, and use of a range of advanced business technologies. The survey was a partnership between the Census Bureau and the National Center for Science and Engineering Statistics, and the first results have been released in a working paper from the National Bureau of Economic Research. The results are summarized below.

 

The survey data is at a high level of generality, to make the questions relevant across the variety of firms and industries included. There are also issues around how the data has been modelled and analysed, and the adjustments for high counts for firms that minimally use or are not using advanced business technologies at all. Importantly, the survey shows construction is not significantly lagging other industries in the US in digitization and use of cloud services, however it is doing less testing and development of advanced business technologies. 

 

The main finding of the survey was “Despite increasingly widespread discussion in the press of machine learning, robotics, automated vehicles, natural language processing, machine vision, voice recognition and other advanced technologies, we find that their adoption rates are relatively low. Furthermore, adoption is quite skewed, with heaviest concentration among a small subset of older and larger firms. We also find that technology adoption exhibits a hierarchical pattern, with the most sophisticated technologies being present most often only when more-basic applications are as well.” 

 

There were 583.000 responses to the survey. Two thirds of the firms employed under 10 people and were less than 20 years old, making this the most comprehensive survey of diffusion of advanced business technologies done so far. The industry breakdown of firms is in Table 1, with the built environment industries of construction, real estate and professional services well represented. This makes the data particularly interesting. 

 

Table 1. Industry breakdown of firms

Sector	Distribution %
Agriculture, Mining, Utilities	2
Construction	10
Education	1
Finance, Insurance, Real Estate	10
Health Care	9
Information	2
Management & Administrative	5
Manufacturing	8
Other (Arts, Food, Other Services)	14
Professional Services	17
Retail Trade	13
Transportation & Warehousing	4
Wholesale Trade	5

 

Following are extracts from the NBER paper on the results of the survey on the three technology questions: the availability of information in digital format, expenditure on cloud computing services, and use of advanced business technologies with a focus on the use of AI. The next post will discuss the survey and its implications for construction. 

 

 

Digital Share of Information by Business Activity 

 

The first question in the 2018 ABS technology module queried firms on the type of information stored digitally. In all sectors, financial and personnel information are the most likely to be digitized, followed by customer feedback and marketing. This is the case for Construction, with financial, personnel and marketing digitized. The lowest rates of adoption are in production and supply chain activities.

 

Figure 2 is a butterfly chart of adoption and use rates for digital information by sector, where the ranking of sectors by adoption and intensity of use rates parallel each other. The right panel of the chart represents, by sector, the adoption rates of digital information across all surveyed information types. The segments within each bar in the chart capture adoption rates by the number of information types in digital format. In all sectors, a large share of adopters report having three or more types of information digitized. 

 

The left panel of Figure 2 represents intense use of digitization. Most firms report digitizing at least two types of information, regardless of sector, the fraction of firms digitizing only one type of information intensively is relatively small in each sector. Overall, digitization appears to be highly prevalent across sectors. Manufacturing, Information and Professional Services are among the highest adopters of digitization, with size being a primary correlate of adoption. 

 

Figure 2: Extensive and Intensive Margin Measures of Digitized Information by Sector

 

Cloud Service Purchases by IT Function 

 

This section describes the adoption patterns for cloud service purchases across size, age and sector. Like digitization, the highest adoption and intensive-use rates are in Information, followed closely by Professional Services and Education. The lowest rates are in Agriculture, Mining, Utilities, Retail Trade, and Transportation and Warehousing, and the Other category. Figure 4 reveals that cloud services purchases have much lower diffusion rates compared to those for digital information in any given sector. 

 

Billing and Security are the most common IT functions for most sectors, with certain sectors, including Construction, predominantly relying on the cloud to perform collaborative or synchronized tasks. The Data Analysis function has the lowest number of firms reporting some cloud purchase, Billing and Account Management has the highest number of firms, closely followed by Security or Firewall and Collaboration and Synchronization functions. 

 

Although the adoption rates for business IT functions in the cloud is significantly lower than the adoption rates of storing information digitally, this technology is widespread across various applications, with nearly a third of each different type of IT function being performed in the cloud and being used intensively. 

 

Figure 4: Extensive and Intensive Margin Measures of Use Rates for Cloud Service Purchases by Sector - Conditional 

Advanced Business Technologies 

 

In this section we analyze firm responses to the business technologies question. Due to their wide technological scope, we link the responses here with the previous technology adoption questions and perform a deeper set of analyses assessing the range of response categories. Very few firms use the business technologies included in the module, and many answered, “Don’t know”. Based on our tabulation weights, only 10.3% (8.5% non-imputed) of firms adopt at least one of the listed advanced business technologies. 

 

The highest use frequencies are in touchscreens and machine learning. For touchscreens the adoption rate is 6.1% of firms. Machine learning comes second but the rate is low at 2.9%. Voice Recognition and Machine Vision, which are can be considered examples of Machine Learning applications, have the next two highest use rates. 

 

The overall diffusion of robotics is very low across firms in the U.S. The use rate is only 1.3%, concentrated in large, manufacturing firms. The distribution of robots among firms is highly skewed toward larger firms. The least-used technologies are RFID (1.1%), Augmented Reality (0.8%), and Automated Vehicles (0.8%). 

 

Looking at the most common types of business technologies adopted by sector in Table 2 there is substantial variation. All sectors (except Manufacturing adopt Touchscreens followed by Machine Learning or Voice Recognition. Manufacturing is most likely to adopt Machine Learning followed by Touchscreens and Robotics. RFID technology is most commonly used in the Retail, Wholesale, and Transportation and Warehousing sectors, consistent with these industries tracking physical goods through supply chains. 

 

 Table 2. Top Use Sub-Categories for Business Technologies by Sector (p. 60).                                     

Sector	1st	2nd	3rd
Agriculture, Mining, Utilities	Touchscreens	Machine Learning	Automated vehicles
Construction	Touchscreens	Machine Learning	Voice Recognition
Education	Touchscreens	Machine Learning	Voice Recognition
Finance, Insurance, Real Estate	Touchscreens	Voice Recognition	Machine Learning
Health Care	Touchscreens	Voice Recognition	Machine Learning
Information	Touchscreens	Machine Learning	Voice Recognition
Management & Administrative	Touchscreens	Machine Learning	Voice Recognition
Manufacturing	Machine Learning	Robotics	Touchscreens
Other Arts, Food, Other Services	Touchscreens	Machine Learning	Machine Vision
Professional Services	Touchscreens	Voice Recognition	Machine Learning
Retail Trade	Touchscreens	Machine Learning	RFID
Transportation & Warehousing	Touchscreens	Machine Learning	RFID
Wholesale Trade	Touchscreens	Machine Learning	RFID

 

The testing-versus-use rates across different technologies are used to assess which technologies are in earlier phase of diffusion, that is, where testing is high relative to use. In Figure 6, the vertical axis represents the ratio of the fraction of firms testing to the fraction of firms using. The technologies are represented by the circles. The size of each circle corresponds to the use rate for that technology with larger circles representing higher rates of use. Technologies are ordered in the figure by usage rate, low to high. 

As shown in panel a, the technology with the highest testing-to-use ratio is Augmented Reality, where nearly half as many firms as those using the technology report testing it. The next highest ratios are observed in RFID and Natural Language Processing and the lowest ratios are in technologies that are relatively more diffused (and hence, used), such as Touchscreens, Machine Learning and Machine Vision. For Touchscreens, for instance, only about 15 firms report testing the technology for every 100 that use it. It is notable that most testing-to-use ratios are below 0.3, indicating that there are fewer than 30 firms testing the technology for every 100 using it. 

The remaining panels of Figure 6 plot the testing-to-use ratio for technologies by firm size, age, and manufacturing status. Panel b displays ratios by firm size, where small firms are defined as those with 1-9 employees and large firms are those with at least 250 employees. The blue circles capture usage among large firms and the orange circles represent usage among small firms. The sizes of the circles are smaller for small firms for each technology, consistent with the earlier finding that larger firms tend to use the business technologies at a higher rate, in general. 

 

Figure 6: Testing-to-Use Ratios 

a. Testing-to-Use Ratios for all Business Technologies (All Firms) 

 

b. Testing-to-Use Ratios for all Business Technologies (By Size) 

 

c. Testing-to-Use Ratios for all Business Technologies (By Age) 

 

d. Testing-to-Use Ratios for all Business Technologies (By Manufacturing Status)

 

The butterfly chart in Figure 7 provides sectoral diffusion rates for all business technologies considered together. Manufacturing leads with about 15% of firms indicating use of at least one business technology, followed by Health Care (14%), Information (12%), Education (11%) and Professional Services (10%). The lowest diffusion rates for the technologies are in Construction, Agriculture, Mining and Utilities, Management and Administrative, and Finance, Insurance and Real Estate sectors. 

 

Figure 7: Extensive and Intensive Margin Measures of Use and Testing Rates for Business Technologies by Sector 

 

The third question asked directly about the use of advanced “business technologies,” including those typically categorized as “AI.” These technologies include automated guided vehicles, machine learning, machine vision, natural language processing, and voice recognition software. Respondents are presented with a list that covers robotics (i.e., “automatically controlled, reprogrammable, and multipurpose machines”), various cognitive technologies (i.e., applications that help machines to “perceive, analyze, determine response and act appropriately in [their] environment”, a standard definition of AI), radio frequency identification, touchscreens/kiosks for customer interface, automated storage and retrieval systems, and automated guided vehicles. 

 

Across all AI-related technologies, the aggregate adoption rate for all firms in the economy is 6.6% meaning that approximately 1 in 16 firms in the US are utilizing some form of AI in the workplace. This adoption rate is significantly lower than the adoption rate highlighted in the AI survey by the European Commission and other private surveys by McKinsey, Deloitte, and PwC. However, it is important to consider the sampling methods of those surveys. None of the other surveys claim to be nationally representative and tend to focus on larger, publicly traded companies. In contrast, the ABS sample includes many small firms where AI adoption is very low. This is important because AI adoption rate varies greatly by firm size. Adoption rates (defined as usage or testing) increase from 5.3% for the group of firms with the smallest number of employees to 62.5% for firms with 10,000+ employees. 

 

In other words, scale appears to be a primary correlate of AI usage, likely due to both the large quantities of data and computing power required to fully realize the most popular types of AI currently available. This may potentially have far-reaching implications on topics such as inequality, competition and the rise of “superstar” firms, especially if AI is shown to have widespread productivity benefits. If only a select group of firms are able to fully realize the benefits of AI, we can expect further divergence for the “frontier” and most productive set of firms. 

 

Our data and explanatory variables are simply too crude to provide a reliable predictor for the precise types of firms that adopt certain technologies and those that do not. While we can claim that size is a reliable predictor of adoption, even amongst large firms, we see heterogeneous patterns of adoption depending on the technology type. In other words, there are simply too many unknown factors that cannot be measured by traditional metrics (such as firm size, age and industry) that appear to drive technology adoption. 

 

 

Conclusion 

 

We have provided an introduction to the technology module in the 2018 ABS and placed it in the larger context of related work at the Census Bureau to collect comprehensive data on technology adoption and use by U.S. firms in order to provide a more accurate picture of the state of advanced technology use in the U.S. economy. Because of the large pool of respondents (about 850,000 firms) in the 2018 ABS, the module represents a unique opportunity to offer insights on technology adoption and use across all sectors of the economy and across a variety of key firm characteristics. The same technology module is expected to be a part of the 2021 Annual Business Survey.

 

A primary contribution for the paper is to develop a nationally representative set of technology adoption and use measures based on the survey results, which in public use tabulations report aggregate response counts for each technology question (see public use tabulations at: https://www.census.gov/data/tables/2018/econ/abs/2018-abs-digital-technology-module.html ). 

 

Advanced Technologies Adoption And Use By U.S. Firms: Evidence From The Annual Business Survey, by  Nikolas Zolas, Zachary Kroff, Erik Brynjolfsson, Kristina McElheran, David N. Beede, Cathy Buffington, Nathan Goldschlag, Lucia Foster and Emin Dinlersoz. 2020. National Bureau of Economic Research, Cambridge, MA Working Paper 28290 http://www.nber.org/papers/w28290