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Business dynamism and entrepreneurship have fallen into chronic decline, productivity growth is falling and the best days of innovation are in the rear-view mirrorGetty Images/iStockphoto

The global economy should be enjoying a golden age of dynamism and innovation.

Companies such as Google, Tesla and Uber are exploiting disruptive technologies to challenge traditional businesses. Drones, 3-D printers, artificial intelligence and tiny smart devices are making people vastly more productive and powerful than ever.

Or are they?

A growing body of economic literature suggests a quite different and considerably gloomier narrative. Business dynamism and entrepreneurship have fallen into chronic decline, productivity growth is falling and the best days of innovation are in the rear-view mirror – or the back-up camera, as it were.

If true, the world should brace for a future of slow growth and diminished prosperity.

The bulk of the research is focused on the U.S. experience. But the same trends are evident in many advanced economies, including Canada, where productivity growth has been decelerating for decades.

Among the leading proponents of the innovation hangover theory is Northwestern University economist Robert Gordon. In a provocative new book, The Rise and Fall of American Growth, he argues that the United States has fallen into a funk after a century of unparalleled innovation that ended nearly a half-century ago. The impact of the Internet and mobile devices in the 1990s pales compared with the life-changing and work-altering advances of the previous century, including the combustion engine, electricity, refrigeration, the assembly line, vaccines, the computer and indoor plumbing.

The most significant gains of the digital revolution are now largely behind us, according to Mr. Gordon. "The share of total GDP represented by computers is too small to overcome the great majority of economic activity where the pace of innovation is not accelerating and, indeed, in many aspects is slowing down," he argues.

Except for a blip in the 1990s, labour productivity has been slowing for decades, in spite of the emergence of smartphones, laptops, digital cameras and other now-ubiquitous devices. U.S. productivity growth has averaged 1.6 per cent a year since 1970, compared with 2.8 per cent a year between 1920 and 1970. Canada's deterioration has been even worse.

But it's not just about workers and technology. Companies themselves are stagnating. Research by economists Ian Hathaway of Frontier Economics and Robert Litan of Brookings Institution shows that business dynamism is slowing down. They point to a declining rate of firm formation, which turned negative in 2008 (business failures now exceed startups), coupled with a slowdown in job-hopping among workers.

In Canada, the rate of corporate formation remains positive, but it has been declining steadily since the 1980s. Canada has fewer entrepreneurs and new firms than it did four decades ago, according to a 2015 Bank of Canada discussion paper.

Mr. Gordon's work suggests the innovation slump is inevitable and unstoppable owing to the limits of technology.

There may be other factors at work. Analysts have pointed to a host of possible causes, including misguided tax policies, the aging work force, corporate consolidation, increased regulation of small businesses and a dearth of skilled immigrants.

An increasingly dysfunctional intellectual property regime may also be killing innovation, particularly for small companies, according to Ottawa economist Dan Ciuriak, former deputy chief economist at Global Affairs Canada. In a recent policy brief for the Organization of Economic Co-operation and Development, Mr. Ciuriak blames a proliferation of dubious patents (600,000 claims filed in the U.S. in 2014), wasteful litigation and an intellectual property arms race between big global players.

"An intellectual property bubble has been created," Mr. Ciuriak says. "The proliferation of intellectual property rights generates costs across the whole spectrum of economic activity, the gaming of the system is exacerbating these costs, and the costs are disproportionately heavy for small enterprise. All this damages business dynamism."

Unfortunately, some of the obvious solutions to the innovation conundrum are going nowhere, particularly in the increasingly polarized U.S. political environment. Repeated attempts at patent reform have stalled for 15 years. The same is true of immigration reform, in spite of the obvious benefits. Research shows immigrants are less risk-averse, more likely to start new businesses and often bring valuable skills.

There are things that can be fixed, and many that can't. The spectre of a slow-growth future is a wake-up call to focus on the possible.