MORE GOOD NEWS ON PRODUCTIVITY
In the last year or so, I've devoted a lot of space to the subject of productivity; we've discussed it on our weekly call-in radio show and in our seminars. The reason is simple. Productivity, that is, output-per-worker-hour, is one of the major factors that determine whether an economy is operating efficiently or not. As we increasingly discover, high productivity makes almost anything possible, while declining productivity simply stifles everything.
I've used this illustration before because it is simple and it clearly makes productivity's point; if you are my employee and I give you a 4% pay raise, that's okay, as long as you become 4 or 5 % more productive. But, if I give you a 1% pay increase, and you are no more productive than before, it leads to trouble-- at the corporate level, and projecting into the bigger and broader picture, at the national level.
Economists now are debating whether productivity at its current level can continue and advance, or whether it is just a blip and we'll ultimately return to lower levels. Some weeks ago I quoted the Fed Chairman in this space, discussing the fact that he felt the productivity advances from 1995 to the present have become ingrained in our society due to advanced technology, and are not a temporary phenomenon. If that is so, then that is good news.
Recently, David Runkle, Research Officer at the Federal Reserve Bank of Minneapolis, took a look at productivity and came away with some encouraging news. Mr. Runkle says that since so many U.S. Corporations have yet to adopt the best practices of top performing firms, it seems safe to assume that the economy still has a lot of headroom for more productivity growth.
In an article entitled "Old Ideas at Work in the New Economy," Runkle questions what is "new" about the new economy, or whether the productivity gains that the nation has seen could have happened before the advent of new technologies. Mr. Runkle sees the new technologies as driving productivity by creating quicker, more efficient corporate systems, and by reducing the cost of inventories because of companies' abilities now to measure their inventories against sales on an almost instantaneous basis. Runkle says that new technologies have allowed corporate opportunities that weren't there previously. In terms of the overall economy, most companies are not operating anywhere near peak efficiency, and there still is a great deal of productivity growth and expansion available to our society. He says our economy could be at the beginning, not the end, of a long-term, low-inflation trend in productivity growth.
Runkle concedes that this, of course, almost sounds too good to be true. Hence, there are pessimists who reflexively don't believe it. The pessimists say the labor market seems so scarce, the unemployment rate so low, and the economy can't keep growing at its recent rapid pace without renewing inflation-- but history suggests otherwise.
Runkle then gives an example that we've all lived through and may well live through again, if gas prices don't soon moderate. He notes that in the mid-seventies, when oil prices quadrupled, the economy went into a tailspin; but over the next decade, the nation doubled the fuel efficiency of its cars, blew insulation into its attics, retrofitted its power plants and jet engines, and explored new sources of energy. Within ten years, says Runkle, our country had adapted to high energy prices and OPEC had lost its power.
Currently, Runkle says there are many entrepreneurs who saw the labor shortage in this country coming, and made their fortune developing new technologies such as the Internet and wireless communications that conserve labor. Runkle believes we are selling the flexibility of our economy short if we don't believe that entrepreneurs will take the opportunity to develop new technologies that continue to meet the nation's needs. He concludes by saying that if our firms could provide workers with incentives to learn and to adopt the right technologies, and take advantage of specialization, our country can experience a new era of global comparative advantage that will bring about productivity growth for many years to come.
Well, there you have it. The Research Officer of the Federal Reserve Bank of Minneapolis, and someone whose writings certainly have caught Mr. Greenspan's eye, assuring us that we still have along way to go on what is already the longest economic expansion in history.
(Tom Butenhoff is a First Vice President with J. E.
Liss & Company in Milwaukee. The views are his and not necessarily
those of Liss Financial Services or the Job Connection/Hiring
Network.)