Wednesday, February 17, 2010

The Pending Productivity Crisis

For years now we’ve been experiencing a boom in productivity. Much of our economic growth over the past several decades has been a direct result of those gains. While increased productivity seems like a wonderful thing, when we place it in the context of an eighteenth century economic model we discover that our modernization of manufacturing without a concurrent modernization of the consumption side of the equation is the cause of much of our present misery.

Productivity gains occur when fewer people produce more goods in less time. Industrialization, technology and computerization have all contributed to the shift toward higher automation and more rapid product production. The advantages for businesses are clear: machines don’t require wages, get sick or need benefits, and they can be counted on to produce quality standardized items day in and day out.

The advantages to the average human being of increased productivity are less clear. Certainly more goods are available at lower overall prices, which is helpful to consumers. What sometimes gets lost though is the high quality craftsmanship that used to be the hallmark of our human creativity. While cheaper goods seem to offer us better value, in many cases they just cheapen society by creating more landfill and waste. Sure, a two-dollar hammer may be appealing if I’m low on cash, but if the head falls off and I have to buy ten cheap hammers in my lifetime as opposed to one high quality twelve-dollar hammer, who has really profited – other than the company (likely overseas these days) that produced the two-dollar hammers?

Another problem we’re facing is the fact our economic model was constructed around the idea of people working for wages they could then use to buy those things they need. As we eliminate jobs by the hundreds of thousands, either through increased productivity or by exporting them to cheaper labor pools overseas, what gets forgotten is that the local laborers we’ve cut off from wages today are the very consumers we’re hoping will purchase our goods tomorrow. Productivity has overwhelmed jobs creation – not because we’re a nation of slackards – but because our very industriousness and technological savvy has outstripped our need for manual labor at an ever-increasing rate, even as our population rises and our productive life expectancy increases. Our system is failing because to date it has failed to take into account the need to place cash in the hands of all people, including those whose jobs have vanished, those working less than the standard forty-hour week and those who are reaching adulthood only to discover high paying jobs are fast disappearing – no matter the level of education attained.

We can’t modernize half the economy (the production side) without taking into account the effects those choices have on the other half (the consumption side.) Profits are suffering because too many people can’t afford to buy all the goods we’re now capable of producing. For years an increase in service jobs has helped ease the pain of lost manufacturing jobs, however many service jobs aren’t provided by for-profit businesses but by government. Teachers, police officers, firefighters, DMV staffers, social workers and so forth all perform vital community services, yet we’re cutting back on their numbers and salaries because we can’t collect enough income tax revenue to support them. And how could we, when our tax roll base (a function of real wages) continues to precipitously decline?

It’s clear our economy needs an overhaul; one that ensures consumers are able to afford the goods we’re producing. At the very least we need to ensure that all people – particularly those presently disenfranchised from the labor pool – can at least afford to eat, provide a roof over their head, heat or cool their homes and access clean water.

These aren’t easy challenges and may require us to take steps quite different from the way we’ve envisioned our present economic system. To continue to ignore them, however, won’t make them go away. Nor will clinging tenaciously to an eighteenth century economic wage model resolve the problems we face in our twenty-first century high technology world.

(Next column we’ll suggest some potential approaches to address these challenges.)

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