The Great Productivity Challenge - by Jerry Jasinowski
The latest data on productivity show that it decreased at a 0.5% seasonally adjusted rate in the second quarter as hours worked increased faster than output. It was the third consecutive quarterly decline of productivity. The uptick in hours worked is positive, but if we can't get productivity back on track it will not last long.
Economists are in general agreement that weak productivity lies at the heart of our economic malaise, but there are many opinions about the cause. The respected economist Robert J. Gordon contends the century between 1870 and 1970 was a singular period that witnessed transformational innovations that sparked a long surge in productivity, but that period has passed. He contends also that the digital revolution has had its impact and become part of the economic woodwork.
I disagree with Gordon. I believe the digital revolution is only now being reflected in new technologies that herald another golden age of progress, but there is no way to know how long we will have to wait to see that transformation. In the meantime, we have to identify the impediments to productivity gains and take control of our future. I believe several key elements are clear and beyond reasonable dispute.
•Infrastructure is a continuing drag on productivity and getting worse. All of our economy is dependent on moving raw materials and finished products, as well as service personnel, rapidly and efficiently. Outdated infrastructure is smothering commerce.
•Education and training is not keeping pace with the skill needs of a changing workplace. We have millions of excellent skilled jobs going begging and millions of underemployed people who need skilled jobs. We need a coherent national program to provide people with the skills they need to contribute to our economy.
•Our tax system is an unholy accumulation of special interests that diverts resources away from where they are needed and starves government of the funds it needs to meet its obligations. We need to revive our traditional commitment to R&D which has always been led by government. Congress needs to open the R&D pipeline and private business, especially corporate America, must resurrect its commitment to R&D.
•Business must also get back into capital investment in a big way. Too many companies are cutting back on R&D and capital investment because they either don't see enough demand or they simply have lost the ability to think long term. Strong tax incentives would help, as would outspoken leadership in the executive suite.
•Small business and entrepreneurs are drowning in red tape. We need a comprehensive program to sweep away unnecessary and redundant rules at the federal, state and local level to free up our innovative spirit.
•We need a clever public relations plan to head off the current public shift away from free trade. For our economy to grow, and for our people to prosper, we simply must expand our access to foreign markets. We must stand up to the anti-trade demagoguery.
We have it in our power to jumpstart productivity. We can do it.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. You can quote from this with attribution. Let me know if you would like to speak with Jerry. August 2016