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Friday, August 31, 2018

DeLong: This is the most hopeful take on American productivity growth relative stagnation I have seen. I thought it was coheren... [feedly]

Brad Delong i s always up to date on the latest in trying to solve the riddle of low productivity numbers in recent years, especially in the service sector which now accounts for the overwhelming majority of jobs and businesses. Here the blame is placed on MANAGEMENT. True, in a sense, since services management is 90% management of human, not physical capital. Automating human interactions typical of services is progressing but at a slower pace than manufacturing. Plus there is a problem in the value exchange between service provider and consumer that makes the transaction a weak commodity, a poor store of value, and the consumer does not obtain exclusive use as in purchase of a physical commodity. While the provider fixes a price on a service, the value exchanged (labor performed) is NOT homogeneous. The talents, experience, preparation, personality, appearance and reputation of a provider play a bigger and wider role than in, say, a line worker in a hammer factory.

Anyway -- this is an important question in economic policy any serious effort to restructure US capitalism, or corporate governance, or industrial policy must understand and address. 


This is the most hopeful take on American productivity growth relative stagnation I have seen. I thought it was coheren...

This is the most hopeful take on American productivity growth relative stagnation I have seen. I thought it was coherent and might well be right 20 years ago. I think it is coherent and might possibly be right today. But is that just a vain hope?: Michael van Biema and Bruce Greenwald (1997): Managing Our Way to Higher Service-Sector Productivity: "What electricity, railroads, and gasoline power did for the U.S. economy between roughly 1850 and 1970, computer power is widely expected to do for today's information-based service economy...

...But there is increasing concern because improvements in productivity growth are continuing at low levels despite the expenditure of trillions of dollars on information technology. Whereas productivity grew at an annual rate of 3% in the two decades following World War II, it has grown at an annual rate of only about 1% since the beginning of the 1970s. Had the earlier level of productivity growth been sustained, the gross domestic product would now be approximately $11 trillion instead of about $6.5 trillion. That extra $4.5 trillion per year in economic output—which amounts to roughly an additional $18,000 for every man, woman, and child—would be having a profound impact on a wide range of social and economic problems.

What is preventing a productivity revival in the U.S. economy? Clearly, the manufacturing sector cannot be blamed.... Goods-producing activities (such as manufacturing and construction) employed only 19.1% of the labor force in 1992—down from 26.1% in 1979.... Service-producing activities, on the other hand, employed 70% of all U.S. workers in 1992—up from 62.2% in 1979. By 1994, 71.5% of U.S. workers performed service jobs—whether in manufacturing or service organizations—as managers and professionals, salespeople, or technical support staff. Although the service sector's size has grown in the past 20 years, its productivity growth has declined....

Why hasn't productivity grown as fast in the service sector as in the manufacturing sector? Several incomplete explanations have been offered and have resulted, in our view... blame in two places: the ineffectiveness of many U.S. business managers at improving productivity and the inherent complexity of the service sector itself. A management-based approach to improving the service sector's productivity offers hope for a rapid and significant turnaround of the sector's productivity growth rate.... The problem is not a lack of resources; rather, it is that service sector companies operate below their potential and increasingly fail to take advantage of the widely available skills, machines, and technologies. The main reason the service sector has not reached its total potential output is management. If managers were focused energetically and intelligently on putting the existing technologies, labor force, and capital stock to work, rapid productivity growth would follow. To be sure, the management challenges are more severe in the service sector than in the manufacturing sector. However, the high productivity levels attained by leading-edge service companies indicate that attention from management can result in vastly improved performance throughout the service economy...


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