Stories
Stories
Wake-Up Call: Farewell to the American Dream?
Topics: Performance-Performance ProductivityEconomics-Economic Slowdown and StagnationJeffrey Madrick (MBA '71) has for many years been an award-winning economics and financial writer and editor in both print (Business Week, Money) and broadcast (NBC, ESPN) journalism. The author of, most recently, The End of Affluence (Random House), he is a visiting scholar at New York University's Wagner School of Public Policy.
In The End of Affluence, you write that since 1870, America's productivity - the output of goods and services per hour of work - grew at an average annual rate of 2.25 percent until 1973. Since then, the productivity growth rate has slumped to 1 percent annually. You cite this decline as a root cause of widespread uneasiness among Americans about their future. What's gone wrong?
One major structural change is that traditional mass production for a huge domestic market - the unique situation that contributed to America's dominance for most of this century - has come to an end. It has been replaced by a system of fragmented markets and relatively unstandardized products that has led to intensified competition, a more unstable economy, and greater business uncertainty. This rising uncertainty, I think, can reduce growth.
But also, American business clung too long to the mass-production model. Unable to halt declining returns and market share, it lost confidence in itself. That confusion contributed to a serious falloff in capital spending that further undermined productivity.
Yet aren't American workers today the most productive in the world? Aren't many American industrial companies racking up record profits?
It's true that, from about 1890 to the present, ours has been the world's most productive economic system, but its rate of increase has slowed down remarkably. In fact, the productivity decline that began in 1973 now represents some $12 trillion in lost wealth that our society would otherwise have benefited from if only productivity had kept to its historic pre-1973 average.
We're still more productive and, indeed, wealthier than other countries. The problem is that, as a nation, we have always been accustomed, in our personal lives and in government, to rapidly rising incomes and tax revenues. We haven't had that for twenty years, and now blue-collar and middle-class people sense those days may be gone forever.
You state that high wages are a key component of a productive economy. By laying off tens of thousands of workers and seeking cheaper labor, at home and abroad, is corporate America shooting itself in the foot?
Never before has America competed on the basis of having a low-paid workforce. American workers' purchasing power is now lower than that of workers in any of the other advanced countries. We would do much better to pay people well, in order to maintain demand for goods and services. Higher wages would induce companies to get serious about improving productivity, instead of thinking that productivity "gains" are best made by cutting workers and forcing those who remain to work harder.
Could the current transition from the industrial era to the information/high-technology frontier presage a new era of prosperity, analogous to our transition from an agricultural to an industrial society?
I don't think it will happen. The productivity gains from mass production will be hard to duplicate in today's flexible, fragmented, and intensely competitive environment. To me, belief in a new frontier of digital prosperity is an act of faith that underscores how much denial exists in America today.
You seem to see competitiveness as a threat to productivity rather than a positive force. Doesn't competition make organizations work smarter and better — in a word, more productively?
Yes, up to a point. But when competition becomes very intense, as it has worldwide today, the constant introduction, widespread duplication, and obsolescence of new products, management techniques, and technologies create more instability and risk. Such a climate can, in turn, reduce the investment — especially in long-term, risk-inherent areas such as R&D; — that is necessary for rapid, long-run growth.
So what, finally, can be done to boost productivity?
There is no simple solution. More capital investment, R&D;, and education are all important, but they still may not bring back the glory days. As I wrote at the conclusion of The End of Affluence, "Throughout our history we believed that we were a chosen people, a belief essentially sustained by our growing affluence. Now, we shall see who we are without it."
Post a Comment
Related Stories
-
- 01 Mar 2023
- HBS Alumni Bulletin
Happy Monday
Re: Galyn Bernard (MBA 2006); Christina Carbonell (MBA 2000); Brian Elliott (MBA 1993); Helen Kupp (MBA 2015); Sheela Subramanian (MBA 2011); By: Jen McFarland Flint -
- 01 Sep 2018
- HBS Alumni Bulletin
Research Brief: Where Top-Down Tops Out
By: Jennifer Myers -
- 01 Dec 2017
- HBS Alumni Bulletin
Ask the Expert: Human Intelligence
Re: Rudina Seseri (MBA 2005); Birce Koca (PLDA 15); Jeremy Valeda (PLDA 15); Francis Tapon (MBA 1997); Ian Grant-Smith (AMP 185); By: April White -
- 01 Jun 2017
- HBS Alumni Bulletin
Research Brief: Profit with Purpose—and Middle Management
Re: Claudine Gartenberg (MBA 2006); George Serafeim (Charles M. Williams Professor of Business Administration); By: Erin Peterson