A new study of US productivity shows that it is lack of competition that has diminished American economic productivity, according to an article by Martin Bailey and Matthew Slaughter in The Wall Street Journal ("What's Behind the Recent Productivity Slowdown", Saturday, December 13, 2008). What is lack of competition? Lack of competition means that companies are removed from direct price competition with other companies. The authors say the study points to protectionism as responsible for the decline in competitive markets; but protectionism is a complicated issue. Companies are removed from competition (or markets made less competitive) by more than government tariffs that raise the price of imported competitive goods. Companies are sequestered (which is a more informative term than "sheltered") by government laws regulating labor, manufacturing, management, pricing, and sales. Companies are also sequestered by governmental mandates requiring them to produce certain products.
The result of these regulations is so severe, according to one theorist, that it has destroyed all the productivity gains generated by computerization and robot-automatic manufacturing in the thirty years. All massive investment in computerization has made possible is more complex regulatory rules and rules for meeting the regulations (this is theproductivity paradox). The growth of regulation is slowly fossilizing the American economy in the same way that Medicare regulation has fossilized American medicine and health care.
I have argued that the decline of manufacturing physical objects, as the major component of the economy, and the shift to performing services is also involved in the decline of productivity. Conventional economic productivity models do not take into consideration the kind of product and the kind of mental and physical activity involved in production, only the abstracted factors, such as inputs and outputs. Ten workers making a airplane wing for Boeing is the same, in this abstract formulation, as ten typists filling in Medicare claims forms; but this equivalence beggers common sense. One doesn't have to be a Marxist to realize that building an airplane wing adds more value to the American economy than ten typists filling in Medicare forms. When we understand this situation, we will recognize that much of Obama's plans for the economy will take the national economy further into the world of diminishing returns.
Update. December 17, 2008. Michael Barone of US News and World Report provides, as an example of what is dysfunctional about American manufacturing, the impact of Taylorism on auto assembly. Empowered by the Wagner Act, the auto union's response was to negotiate control over the work rules on the assembly line, thereby effectively denying auto companies the flexibility needed to respond to competition. And, as Barone concludes, freezing auto workers into a numbing, repetitive work environment in which they were denying cooperative authority with management for production. We have moved away from Taylorism with team-based flexible assembly, but we still haven't envisioned a healthy, productive career-course for manufacturing labor that leads to a lifetime of progress in skill and intellectual development and increasing capability for increased productivity.
Updated. February 24, 2009.
Update. June 25, 2009. Philip Howard discusses the enormous costs imposed on productivity by the enormous legal structure of regulation that the federal and state governments have passed over the last 100 years, none of which seem ever to be repealed. Philip K. Howard, "Spring Cleaning in Washington," The Atlantic, June 25, 2009.
------------------------------
A Primer on America's Economic Crisis
Recent Comments