Sunday, August 21, 2011

What Price Productivity?

There is an article at The Center for American Progress bemoaning the slowing of the growth of productivity in this country and arguing that in order for the economy to recover we need to regain our global lead in productivity growth. I will refer you to my post titled Mexico Story for my opinions on who gains from increased productivity, and I would argue that for our economy to recover we need lower productivity, not higher, because lower productivity would mean more jobs.

The argument for the benefit of productivity has two parts;

Productivity growth is critical to our national economic competitiveness. U.S. products and services are more competitive in the global marketplace when U.S. firms manage to produce more and better things with the same amount of inputs.

The first argument here is not unreasonable, although I could counter it by arguing that greater production should be offset by higher wages and improved working conditions to the point that the final overall cost of the product is not affected. Otherwise the worker is giving more to the employer than the employer is giving to the worker and the contract is therefor unfair to the worker.

The argument that productivity gains made as a result of investment in automated equipment enhance competitiveness is quite valid. That gain has harmful side effects, however, which leads us to the second claim for the benefit of productivity growth,

Productivity growth also boosts our future living standards. Simply put, productivity growth means we can have more goods and services available for a given amount of resources used—hours at work, in particular. Because productivity growth makes our work go further, the average standard of living can rise more quickly. To ensure broadly shared prosperity we still need to address how the gains from productivity growth are distributed between wages and profits, but we can't forget that rising prosperity begins with strong and sustained productivity growth. (emphasis mine)

This claim is true only when there is a shortage of workers, that is to say when there is essentially full employment. To claim that “making more goods and services available” is a good thing when there is insufficient demand to absorb the goods and services that are already available is utterly absurd. To claim that using fewer workers to produce those goods and services is a good thing when there is more than 9% (actually close to 20%) unemployment is equally absurd.

Productivity growth which is the result of investment in automated equipment accomplishes that result by the elimination of jobs; how else would it reduce cost? How, precisely, does the increase in the number of unemployed people “ensure broadly shared prosperity” pray tell?

The author tries to soften the nonsensical aspect of his statement by saying that “we still need to address how the gains from productivity growth are distributed between wages and profits.” Why should any portion of it go to profits, when it is the workers who are making the increased production possible by working harder and/or losing jobs?

To suggest that economic recovery requires productivity growth when we currently have a massive amount of unused production capacity and an unacceptable number of unemployed workers is arrant nonsense.

In my opinion the economy would be enhanced if we forgot about “the great god productivity” altogether and went back to building things by having guys carrying concrete in buckets and paying those guys enough to feed their families. Corporations might not be as profitable, and productivity numbers would be embarrassing, but unemployment would decrease dramatically.

No comments:

Post a Comment