While skimming the paper of my youth, the Washington Post, I came across the intriguing headline:
Productivity mysteriously goes bust
Writer Robert Samuelson goes on to say this about the apparent worldwide productivity slowdown:
What’s especially baffling is that, superficially, outside forces seem to favor faster productivity growth. Consider: First, the Internet, which promises cheaper ways to deliver goods and services. Next, “activist” investors, who push corporate managers to cut waste and lower costs. Finally, there is globalization, which means that more companies and laboratories — in China, India, Brazil and other “emerging markets” — are adding to scientific and technological knowledge.
But, data doesn’t lie. A new report from the Organization for Economic Cooperation and Development (OECD) compared the annual growth rates for labor productivity in 32 countries for two periods, 1995-2004 and 2004-2013. Every country but one (Spain) had slower productivity growth in the second decade than in the first. In particular, the United States’ productivity decreased from 2.2 percent to 1.0 percent.
Why is this happening? It depends on who you ask
Some say that the slowdown is a permanent phenomenon occurring because innovations that took place in the first half of the 20th century (e.g. electrification) are far more significant than anything that has taken place since then. In other words, the pace of technological progress has decelerated. Others claim the slowdown is the result of the recent financial crisis, which led to decreased investments in advanced manufacturing and other productivity-related innovations.
While OECD doesn’t necessarily agree with these speculations, it does cite a multitude of factors hampering productivity growth including demography, education, inequality, globalization, environment, and debt. It also names a decline in knowledge-based capital accumulation and business start-ups over this period as potential contributors. And the biggest problem of all, suggests OECD, is a slowing of the pace at which innovation spreads through the economy, known as diffusion.
For my ideas on how we fix this, check out the full post at Intuit's Fast Track blog.
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