U.S. Productivity: Is there a Crisis?
In a recent blog (“Chinese Manufacturing Productivity”), I wrote about the problems of Chinese productivity, noting that, while growth rates were high, the absolute level of productivity was between 15-30% of OECD averages. This week, we were disappointed, but not surprised, to learn that US output per hour worked fell 0.5% in the second quarter to end up down 0.4% over the last year. Most writers point to the beginning of the Great Recession as the proximate cause of this decline. However, productivity actually began to fall before 2008.
I recalled that, back in the early 2000’s, I invited one of the regional Federal Reserve Bank presidents to speak to MBA students at my university. He proposed that productivity increases spurred by the revolution in information technology had reset the classic relationship between unemployment and inflation. He predicted continuing growth in both productivity and GDP and declines in unemployment without any impact on inflation. But the promise of information technology and unlimited productivity growth faded. And then came 2008!
So where are we? Have we found the 21st Century equivalent of “stagflation” (low growth coupled with high inflation of the late 70’s) in a new equilibrium of anemic growth despite low interest rates? Not necessarily.
The driver that led to what Alan Greenspan and Robert Shiller characterized as “irrational exuberance” was the impact of information technology on the economy. Information technology drove productivity and productivity drove growth. However, despite the expectations of my Fed prognosticator, this cycle came to an end. When you add in the impact of the Great Recession, you get the slow growth recovery that we’re now experiencing. A recent article by Neil Irwin,  one of The Upshot writers at the New York Times, posits three theories for our current situation:
- The Depressing Scenario—technology has done what it can and productivity will not improve;
- The Neutral Scenario—the economy is so dramatically changed that our measures just can’t keep up;
- The Happy Scenario—we’re in a stage of investment in new technologies that will take several years to kick in but will ultimately yield dramatic productivity increases.
Personally, I subscribe to the Happy Scenario. A recent Brookings Report detailed some of the drivers of such a perspective:
- New technologies in energy
- Industrial robotics
- 3D printing and active manufacturing
- Big Data
- The “internet of things”
- Investment in infrastructure
Each of these drivers has significant implications for the logistics industry. While research on driverless vehicles and Big Data may be consuming huge investments today with minimal returns, no one doubts their ultimate impact. Furthermore, the presidential candidates of both political parties have championed investment in rebuilding our network of highways and bridges. The impact of even a modest increase in such spending will have a dramatic impact on GDP and productivity and, particularly, on logistics productivity.
Is this a time to be complacent? No. Do we want to chauvinistically ignore Chinese productivity growth? No. As I argued in my last blog, it’s time to “double down” on innovation and technology not to abandon them.