Monthly articles (English and French) on the theme "Querying economic orthodoxy"
No. 2 - February 2006
Knights of the Productivity Grail
ANGUS SIBLEY
History tells us that productivity is the Holy Grail of economic prosperity. But that was a history that was written for a very different economy - largely a blue-collar, manufacturing economy.
Stephen Roach, Morgan Stanley Global Economic Forum, New York, 20 September 2003Today, however, [in America] high productivity is blending with increased outsourcing so that job growth lags far behind gross domestic product growth.
Robert Kuttner, Good Work, in American Prospect, Boston, 1 April 2004The word productivity has several meanings; the most widely-used is the ratio of the value added by an organization (output minus goods and services bought in) to its number of people employed. This is labour productivity. In this article, except in the second-last paragraph, I use the word in this sense.
In the past, we had to work in order to produce useful things. Today, we have to consume useless things in order to keep ourselves working.
A maligned profession
The public profile of economists lacks panache. Though their patriarch Adam Smith wrote in pellucid style, too many of his successors' prose is turgid; too many of their themes are depressing. Thomas Carlyle famously called economics the dismal science.
Yet the dismal scientists' image is misleading. Careful inspection reveals the profession as a band of gallant knights in romantic pursuit of a Holy Grail. Indeed, the phrase productivity is the Holy Grail is common currency among economists and financial journalists. Its original source is probably untraceable; if Stephen Roach is by any chance that source, I ask his pardon.
Observing closely, you will perceive the Knights of this Grail as sensitive souls, easily outraged by any disrespect for their cherished ideal. Their hearts bleed at the sight of any task being done by ten people when it could conceivably be done by nine.
Once you have grasped this central principle, it is easy to see why may competition be paramount is a favourite motto among economists. For competition is the Knights' prime ally in their sacred quest; indeed, it is Competition that compels us to seek Productivity. Any entrepreneur who fails to extract maximum output from the smallest possible workforce will quickly lose ground to more ruthless competitors.
The obsession with productivity
Here is a paradox. Societies chronically troubled by unemployment are obsessed by the thought that they must continually increase their productivity. They must strive ceaselessly to find ways of generating the same output with fewer hours of work.
If you found yourself in a country where efforts to save water were everywhere in evidence, you would conclude that the country was seriously short of water. Look at the economic or business press in most countries today, and you will find that the need for higher productivity crops up with tedious regularity. Are all these countries seriously short of labour? You have to be joking.
Even in America, the Knights' bastion, unemployment is too high for comfort. When I was a student, back in the early sixties, I learned that the rock-bottom unemployment rate was a touch under 2%; Americans today think their rate of nearly 5% is something to be proud of. It certainly looks better than current European figures. But then, many American jobs are very poorly paid by the standards of a rich economy. That suggests that the supply of labour exceeds the demand for it.
Let us stand back from the plethora of statistics and the chorus of slogans, to ask ourselves why we are so desirous of constantly rising productivity. One can discern several arguments.
The quest for growth
First, and foremost, is the general principle that higher productivity brings higher standards of living. It means that any given quantity of work yields larger quantities of goods or services. Therefore, provided the number of active workers, and their working hours, remain stable, more of everything is produced and available for consumption. If we all want to consume more and more, without working longer and longer hours, then clearly we need rising productivity.
But it is not obvious that the advanced economies have any real need to consume more. Certainly rich countries have their share of poverty-stricken people who ought have more spending power, but they also have their super-rich who spend wastefully. In fact, you do not have to be rich to be inundated with useless or unnecessary products. Do we really want our piles of junk mail, mountains of tourist trash, ever more ridiculous tee-shirts, cocoons of impenetrable packaging, countless ineffective medicines, inordinately complicated gadgets with short lives? But without all this overproduction, many more of us would be unemployed.
In the past, we had to work in order to produce useful things. Today, we have to consume useless things in order to keep ourselves working. And, because productivity is rising, we have to increase our consumption merely to hold our employment level steady, let alone improve it.
It may well be that mature economies, already heavy users of raw materials, cannot grow rapidly without setting off global inflation. Perhaps they ought not to grow rapidly, but should rather restrain their growth to leave room for poorer countries to develop without overstretching the earth's resources. Very probably we need a world of slow overall growth, eventually a world of stable output, to avoid intolerable damage to our environment.
The competitive imperative
Secondly, every business, and every country, has a practical need to increase its productivity in order to remain competitive with other businesses and countries that are increasing theirs. But if human beings strive competitively to achieve something, that does not prove that their goal is reasonable or desirable. During the Cold War, NATO and the Warsaw Pact strove competitively to develop more efficient ways of destroying each other. Today the Middle Eastern countries do likewise.
This argument for the pursuit of productivity is a direct consequence of the belief that we must have unlimited competition within every country and between all countries. To a large extent, cost-cutting via productivity gains has become an end in itself, whose main purpose is to enable businesses to stay competitive with rival businesses which are likewise slashing their payrolls, inflicting on themselves the same self-mutilation.
In the middle ages, some religious fanatics called for self-flagellation. Today, economic ideologues demand that businesses and public services cut their staffs to pieces in the name of productivity. Would not our economies and societies be healthier without this masochism?
The abolition of nasty work
Thirdly, some kinds of work are so disagreeable that there is a real benefit to society from mechanising them out of existence. Until the middle of the last century, coal mines needed a small army of men at the face, extracting the coal with picks and shovels; it was arduous, dangerous, unhealthy toil. Today, almost all the hard graft in a coal mine is done by machinery.
Likewise, we may rejoice that much of the appallingly tedious work of the assembly line is now done by robots.
But there is no such gain to be had from replacing the office telephonist with the loathsome automaton that gives the caller a succession of orders to press various buttons, while being forced to listen to unpleasant, repetitive music. Here is a form of productivity that would be better abolished.
Now that we have automated most of the nasty, dirty work of industry, productivity gains too often mean getting rid of jobs that workers would like to have, and services that customers would like to enjoy. Or basic unskilled jobs that some people, being unskilled, need. Is it better to pay them to hang around, idle and demoralised?
The demographic argument
Fourthly, it is argued that we need productivity growth for demographic reasons. In most European countries it is expected that the population of working age will continue to decline as a proportion of the total population, partly because birth rates are low, partly because people are living longer. A century ago, the customary retirement age for British men was 70, if they lived that long. At age 60, their average expectation of life was 13 years. In the 1950s, it was 15 years; today it is 20 (1).
The trend towards retiring earlier and living longer is thus long-standing. But today's labour market, where many people cannot find employment once they are over 50, is pushing the trend to perverse and unaffordable extremes. We would do better to get rid of the absurdity of ageism, rather than to strive so obsessively for higher productivity.
Redundancy and share prices
Here we come to the productivity argument that dares not speak its name, but is of particular interest to those who make the decisions. When a publicly-quoted business cuts back its payroll, its shares generally rise, reflecting the expectation that lower costs will enhance profits. This is a very cogent argument for executives who hold shares and options; for obvious reasons, they do not care to talk about it. In reality, the cutbacks may not do much for profits, since all the competitors are doing the same thing. It is the expectation that counts, near-term, in the market.
Fashionable nonsense?
Much of our so-called productivity growth is not, in fact, what it says it is. Real productivity gain means that we get equally good results with less input of human labour. We see this on assembly lines equipped with robots, whose work, free from human error, may indeed be better than that of the workers they have replaced.
But labour-saving techniques, such as the automated switchboard, too often bring deterioration in quality of production or service. French supermarkets distinguish between mass-produced bread - pain industriel - and the real stuff, pain artisanal made by traditional bakers. The only reason for buying the former is that it is cheaper. Sadly, the productivity obsession is forcing too many of us to make this choice.
We have looked at five key reasons for seeking higher productivity; none of them, in today's world, looks strongly convincing, except from the standpoint of biased insiders. The Knights of the Grail may be fine equestrians, but they are somewhat short on horse sense. Should we not be asking serious questions about our fashionable obsession with labour productivity?
There are other productivities. There is energy productivity, achieving the same results with less energy consumption; surely a praiseworthy objective. We might try a kind of machinery productivity, the traditional custom of making equipment that lasts for donkey's years, rather than being ready for the rubbish-dump after five. Even if the "paperless office", that dream of some years ago, is out of reach, we can keep trying to enhance our paper productivity - doing what we want to do with less paper. I am doing my bit by publishing this article electronically.
But as for labour productivity, let us give it a rest.
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References
(1) Institute of Actuaries, English Life Tables, no. 7 (1900-1910), no. 11 (1950-52); Government Actuaries' Dept. interim life tables 2001-2003