The Next Frontier: Where Will Innovation in Services Take Off Next?

Imagine a string quartet playing Beethoven.
In 1825, it took four musicians 30 minutes.
In 2025, it still takes four musicians 30 minutes.

No productivity gains.

You can’t speed up the music without ruining it.

But wages rise over time across the economy, even in sectors with low productivity growth, because:
Workers in low-productivity sectors still need to compete for talent.
So their wages increase, even if output per worker doesn’t.

That creates a cost squeeze.

Compare that to manufacturing:
In a factory, technology and automation boost productivity.

Fewer workers deliver more output.

In services? Not so easy.

This is Baumol’s cost disease and it explains:
Why tuition and healthcare costs outpace inflation.
Why service-heavy economies (like the U.S.) face long-run cost pressures.
Why productivity growth can stall as services dominate GDP.

But recent research suggests Baumol’s disease isn’t destiny.

As services become more innovation-driven (think: AI in healthcare, edtech in classrooms), they’re beginning to break the disease’s grip.

Innovation is finally catching up.

For 150 years, we’ve watched innovation shift:
From agriculture
To manufacturing
Now, to services.

Services were once considered productivity dead ends.
Baumol’s cost disease said they’d slow us down.

But new research shows service innovation could drive the next wave of growth.

Which part of the service economy do you think is poised to lead the next wave of innovation?