Maybe We have been thinking about productivity all wrong

I’ve been on a mini vacation and soccer season is heating up—early. I foresee a very busy eight weeks ahead.

My focus has been manufacturing technology for most of my career—and certainly my writing career over the past 20 years. One purpose of technology pretty much for as long as there have been humans has been to increase productivity. We answer the question, how can one human produce more goods and services economically.

Perhaps it was just an early plow that enabled the first farmers to grow more crops so that the community could eat better which today enables just a few farmers to feed a nation.

Eliminating jobs is the other side of the equation. We need productivity in order for the economy to grow. We need jobs for everyone so that everyone can eat—and also find some self-worth. 19th Century philosophers bemoaned the mechanical manufacturing age because they thought that it took the soul out of a craftsman’s work. Work is part of the formula for making us human.

Does automation simply take away jobs in aggregate? I wrote about this a few months ago after interviewing some people from A3, the automation association (robots, vision, motion control trade association). The answer is no.

Productivity has not been growing in the US for quite some time. Economists are wondering why. Recently an article appeared in The New York Times publicizing a recent paper that looks at the current state of productivity growth in the US from a different angle.

I have excerpted parts of the article below.

American businesses are doing a terrible job at making their workers more productive.

Productivity growth is the weakest it has been since the early 1980s — only 0.8 percent a year over the last half a decade, compared with 2.3 percent on average from 1947 to 2007. This is the root cause of slow growth in both G.D.P. and worker pay.

At least, that is the standard way of thinking about productivity and its relationship to the economy. In a mainstream view, productivity is a kind of magic force that helps explain rising output. New labor-saving inventions come along or new management practices are taken up that miraculously allow companies to produce more output with fewer hours of work.

The authors ask, can we think about this differently.

It’s a chicken or egg problem: Does low productivity cause slow growth, or does slow growth cause low productivity?

The second possibility is the provocative argument of a new paper published Tuesday by the Roosevelt Institute, a liberal think tank. The paper argues that the United States economy is not actually closing in on its full economic potential and has plenty of room for continued growth — so long as the Federal Reserve doesn’t put on the brakes of the expansion prematurely.

J. W. Mason, the author of the report, argues that soft productivity growth reflects not some unlucky dearth of new innovations, but rather is a consequence of depressed demand for goods and services and a slack labor market that has depressed wages.

Maybe if the labor market were tighter and wages were rising faster, it would induce companies to invest more heavily in new labor-saving innovations.

What’s particularly interesting is that this diagnosis — though decidedly not the policy prescriptions — has some overlap with the arguments of influential conservative economists.

A recent paper published by the Hoover Institution and American Enterprise Institute argued that the productivity drought was caused by insufficient investment in capital equipment and software, and was poised to rebound.

But capital spending has been weak over all, and particularly weak for those more transformative innovations.

If you look at long-term patterns of productivity growth, they roughly fit this idea, that a booming job market tends to be followed by a productivity boom, and that deep recessions are followed by productivity slumps.

The strongest productivity growth in post-World War II America came in the late 1960s and early 2000s. The two periods of greatest weakness were the early 1980s and the last decade since the global financial crisis. 

In this way of thinking about productivity, inventors and business innovators are always cooking up better ways to do things, but it takes a labor shortage and high wages to coax firms to deploy the investment it takes to actually put those innovations into widespread use.

In other words, instead of worrying so much about robots taking away jobs, maybe we should worry more about wages being too low for the robots to even get a chance.

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