I have recently read Bold: How To Go Big, Create Wealth, and Impact The World by Peter H. Diamandis and Steven Kohler, authors of Abundance: The Future Is Better Than You Think. These guys have a keen eye for extraordinary innovations taking place across the landscape and their implications for the future. You cannot read these works without acquiring a sense that we truly do live in an era of unprecedented progress that augurs well for the future.
But then I take note of the real world around me. Notwithstanding impressive gains in job creation and continued strength in key sectors such as autos and housing, our economy continues to sputter. The weakness is reflected in corporate balance sheets. Revenue growth for companies has declined every year for the past five years to about 5 percent, down from 11.2 percent in 2010, according to a recent report by Citigroup. This is one reason why so many companies are buying their own stock and pursuing mergers and acquisitions. In the absence of real growth, they are trying to conjure up the appearance of growth.
The root cause of this discouraging situation is weak productivity. Historically, gains in productivity have always heralded robust economic growth. "The most important factor determining living standards is productivity growth, defined as increases in how much can be produced in an hour of work," said Fed Chairman Janet Yellen in a speech in May. "Over time, sustained increases in productivity are necessary to support rising incomes."
But in the first quarter of this year, our productivity actually declined by 3.1 percent at a seasonally adjusted rate, even as the overall GDP declined 0.7 percent. The productivity number was revised downward from the 1.9 decline reported earlier. During the same period, output declined 1.6 percent while hours worked rose 1.6 percent. Productivity has fallen for two consecutive quarters - the first time that has happened since 2006.
Much of the weakness in productivity is attributable to declines in capital investment and research and development. New company startups, another key factor in productivity, also are declining dramatically from earlier years. It seems unlikely that human creativity has taken a sudden nosedive, but the traditional American boldness about reaching out to grab the future - whether a big company building a more modern factory, a mid-sized company taking a risk on a new product line, or an entrepreneur trying to translate a vision into a viable enterprise -- does appear to be on the wane.
We can and must recognize this challenge and deal with it. The American people have not lost their creative genius or willingness to take risks, but they are being stifled by incoherent public policies, myopic corporate leadership and a general failure to think long term. We need a tax system that rewards risk-taking, a serious commitment to upgrading our infrastructure, a balanced fiscal policy that addresses the long term challenge of entitlement programs and a renewed commitment to R&D, both public and private.
Too many political leaders are focused on the election cycle and too many business leaders on the quarterly returns. We have to set our sights beyond the short term if we are to increase productivity.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. You may quote from this with attribution. Let me know if you would like to speak with Jerry. June 2015
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