Large firms are relatively risk-averse not only because they are bureaucracies, with layers of management required to sign off on any innovation, but also because they are reluctant to back innovations that threaten to render obsolete the products or services that currently account for their profits. In our view, the limits of managerial capitalism explain why, after approaching US levels of per capita income in the late 1980’s, both Western Europe and Japan failed to match America’s information-technology-driven productivity resurgence that began in the 1990s.