On cost disease, productivity acceleration and the rise of relational capital.
By: Per Imer, CEO, Homerunner
Contains: 634 words
What we are experiencing with AI feels dramatic. It feels like rupture. Like the beginning of something fundamentally new. But economically, it is not a rupture. It is an acceleration of a structural dynamic we have understood for more than sixty years. To see why relationships inevitably move toward the center of value creation, we need to revisit William J. Baumol and understand his insight in full.
In the 1960s, economist William J. Baumol described what later became known as “cost disease.” His observation was simple, but profound. Not all sectors of the economy can increase productivity at the same rate.
He distinguished between progressive sectors and stagnant sectors. Progressive sectors are those where technology and capital dramatically increase output per hour worked, like manufacturing, software, logistics optimization and data analysis fall into this category. Technology compresses time, multiplies output and scales almost infinitely.
Stagnant sectors are different, as they are tied to human time and presence.
Teaching, healthcare, therapy, leadership, care work, artistic performance and relationship based services cannot be accelerated without fundamentally altering their quality. A teacher cannot meaningfully teach three hundred students individually at once without losing the relational dimension. A therapist cannot halve the duration of a session without changing its depth. A string quartet plays Beethoven today in the same tempo as two hundred years ago.
This is not inefficiency, it is essence.
Baumol’s key insight was not merely that some sectors are slower. It was that they become relatively more expensive over time. As progressive sectors increase productivity, wages across the economy rise. First to attract and retain talent, even the stagnant sectors must increase wages, but their output per hour does not increase at the same pace. The result is structural and mathematical.
Human, relational activities become relatively more expensive.
Not because they fail. Not because they resist innovation. But because they cannot be compressed without losing their core value.
This is not ideological. It is structural.
Artificial intelligence represents the most radical productivity accelerator we have seen. AI compresses analysis, coordination, documentation, modeling, administrative workflows and decision support. Tasks that previously required teams and weeks can now be executed in minutes.
AI intensifies the progressive sector dramatically, but it does not change the nature of human time. Trust still requires presence. Conflict still requires dialogue. Judgment in gray zones cannot be fully automated. Psychological safety emerges in relationships, not in code.
AI does not make relationships less important. It makes them more visible.
As structural work becomes cheaper and faster, value shifts toward what cannot be automated. The more efficient systems become, the more differentiation moves to the human layer.
It is crucial to understand that relationships are not soft, they are foundational.
Material value does not arise in isolation.
- A product has value because someone assigns meaning to it.
- A service has value because someone trusts it.
- A contract has value because parties uphold relational commitments.
Trust reduces transaction costs. Credibility reduces the need for control. Long term relationships reduce uncertainty. Relationships are the invisible infrastructure beneath the economy.
Without relational cohesion, even the most efficient systems collapse. Baumol explains why relational sectors become more expensive. AI explains why they become differentiating.
There is also a deeper human truth embedded here. Human beings do not develop in isolation. Identity is formed in relationship. Judgment is refined in dialogue. Maturity is shaped through conflict. Character is strengthened through commitment.
We are not autonomous production units. We are relational beings.
When AI compresses structural labor, the relational domain does not become residual. It becomes developmental. It becomes the zone where meaning, direction and long term coherence are formed.
Organizations that believe technology alone creates future value misunderstand human nature. Technology creates capacity. Relationships create meaning and direction.
If AI continues to accelerate productivity, and there is every indication it will, the Baumol effect will intensify. Technology becomes cheaper, and analysis becomes a commodity - with the result, that automation becomes baseline.
What cannot be automated becomes scarce, and scarcity creates value.
Relational capital will increasingly define differentiation. The ability to take long term responsibility. The ability to remain credible under pressure. The ability to navigate complexity and uncertainty. The ability to exercise judgment when rules do not suffice.
Organizations competing solely on efficiency will be compressed. Organizations investing in relationships will accumulate durable value. Not because they are sentimental. But because economic dynamics favor what cannot be industrialized.
When everything that can be automated is automated, something simple remains. Human beings choosing to take responsibility for one another.
The stronger technology becomes, the more decisive relationships become. Not as emotion. Not as a human resources initiative. But as economic necessity.
This was predictable.
The question is not whether relationships become the core of future value creation. The question is whether we organize ourselves accordingly.
The strongest organizations of the future will not be those with the most software, they will be those with the strongest relational structures.
This is not a trend. It is Baumol, accelerated.
