A phenomenon identified by the economist William Baumol. Many labour-intensive services, he observed, have limited scope for productivity gains. His best example was musicians: if it took four people half an hour to perform a Boccherini string quartet in 1800, it requires the same labour today. And yet services must compete for workers with sectors such as manufacturing, in which productivity has soared.
Owing to productivity improvements, manufacturers can pay higher wages without raising prices. Service industries, on the other hand, have to charge more if they wish to pay more—and they must do so if they want to match rising wages elsewhere in the economy. Baumol once calculated that a hypothetical manufactured good which cost the same as a concert ticket in 1800 would have cost a twentieth as much by the 1980s.
The phenomenon is relevant to China, where services now contribute 57% of GDP. As the country's leaders encourage consumers to spend more on services, cost disease could drag down average growth rates. But as Baumol himself noted, the "disease" is not strictly a malady: rising service prices are driven by rising wages, which reflect dynamism in other industries. In China's case, higher service prices could also narrow the GDP gap with America, since the only reason American GDP remains so much bigger than China's is that American services fetch a higher price.
I didn't know he was dead; I thought he was British.