THE most striking battle in modern business pits the techno-optimists against the techno-pessimists. The first group argues that the world is in the middle of a technology-driven renaissance. Tech CEOs compete with each other for superlatives. Business professors say that our only problem will be what to do with the people when the machines become super-intelligent. The pessimists retort that this is froth: a few firms may be doing wonderfully but the economy is stuck. Larry Summers of Harvard University talks about secular stagnation. Tyler Cowen, of George Mason University, says that the American economy has eaten all the low-hanging fruits of modern history and got sick.

Until recently the prize for the most gloom-laden book on the modern economy has gone to Robert Gordon of Northwestern University. In “The Rise and Fall of American Growth”, published in January, Mr Gordon argues that the IT revolution is a minor diversion compared with the inventions that accompanied the second industrial one—electricity, motor cars and aeroplanes—which changed lives profoundly. The current information upheaval, by contrast, is merely altering a narrow range of activities.

Now a new book, “The Innovation Illusion” by Fredrik Erixon and Bjorn Weigel, presents a still more pessimistic vision. Messrs Erixon and Weigel write that the very engine of capitalist growth, the creative destruction described by Joseph Schumpeter, is kaput. Aside from a handful of stars such as Google and Amazon, they point out, capitalism is ageing fast. Europe’s 100 most valuable firms were founded more than 40 years ago. Even America, which is more entrepreneurial, is succumbing to middle-aged spread. The proportion of mature firms, or those 11 years old or more, rose from a third of all firms in 1987 to almost half in 2012, and the number of startups fell between 2001 and 2011.

People who extol free markets often blame such stagnation on excessive regulation. That has certainly played its part. But the authors argue that stagnation has most to do with the structure of capitalism itself. Companies are no longer actually owned by adventurous capitalists but by giant institutions such as the Vanguard Group (with more than $3 trillion under management) which constantly buy and sell slivers of ownership for anonymous investors. These institutions are more interested in predictable returns than in enterprise.

It is not all Mark Zuckerbergs at the top, the authors posit. Most big firms are answering the call for predictability by hiring corporate bureaucrats. These people shy away from risky investments in new technology. After rising relentlessly as a share of GDP in 1950-2000, investment in IT began declining in the early 2000s. Instead of shaking up markets, bureaucratic CEOs focus on squeezing the most out of their sunk costs and fight to defend niches. They hoard cash, buy back their firms’ shares and reinforce their positions by merging with former rivals.

The gloomsters’ case is true to some extent but it is overstated. Mr Gordon is right that the second industrial revolution involved never-to-be-repeated changes. But that does not mean that driverless cars count for nothing. Messrs Erixon and Weigel are also right to worry about the West’s dismal recent record in producing new companies. But many old firms are not run by bureaucrats and have reinvented themselves many times over: General Electric must be on at least its ninth life. And the impact of giant new firms born in the past 20 years such as Uber, Google and Facebook should not be underestimated: they have all the Schumpeterian characteristics the authors admire.

On the pessimists’ side the strongest argument relies not on closely watching corporate and investor behaviour but rather on macro-level statistics on productivity. The figures from recent years are truly dismal. Karim Foda, of the Brookings Institution, calculates that labour productivity in the rich world is growing at its slowest rate since 1950. Total factor productivity (which tries to measure innovation) has grown at just 0.1% in advanced economies since 2004, well below its historical average.

Optimists have two retorts. The first is that there must be something wrong with the figures. One possibility is that they fail to count the huge consumer surplus given away free of charge on the internet. But this is unconvincing. The official figures may well be understating the impact of the internet revolution, just as they downplayed the impact of electricity and cars in the past, but they are not understating it enough to explain the recent decline in productivity growth.

Back-seat producers

Another, second line of argument—that the productivity revolution has only just begun—is more persuasive. Over the past decade many IT companies may have focused on things that were more “fun than fundamental” in Paul Krugman’s phrase. But Silicon Valley’s best companies are certainly focusing on things that change the material world. Uber and Airbnb are bringing dramatic improvements to two large industries that have been more or less stuck for decades. Morgan Stanley estimates that driverless cars could result in $507 billion a year of productivity gains in America, mainly from people being able to stare at their laptops instead of at the road.

The real question is not whether the IT revolution has run out of steam or whether creative destruction is grinding to a halt. In fact, the IT revolution is probably gathering pace and Google and Amazon are two of the most innovative firms to emerge in the past 50 years. Rather it is whether the new economy can counteract the forces ranged against it: ageing populations; a political class responding to populism by restricting trade and by over-regulating business; and education systems that in many places are failing. The big danger is that, while optimists and pessimists battle it out, the world becomes ever more divided between islands of high productivity surrounded by a vast ocean of stagnation.