A question about economic efficiency

The following is from Retrotopia, an on-line utopian science-fiction novel currently being serialized by John Michael Greer on his web log.

“Mr. Carr,” Melanie Berger said then, “Since the end of the embargo we’ve been approached four times by the World Bank and the IMF.  I’ve been involved in the discussions that followed.  Each time, their economists have made long speeches about how the way we do things is hopelessly inefficient, and how we’ve got to follow their advice and become more efficient.  Each time, I’ve asked them to answer a simple question: ‘more efficient for what output in terms of what input?’  Not one of them has ever been able, or willing, to give me a straight answer.”

Source: The Archdruid Report

Why doesn’t technology make us all better off?

We Americans long enjoyed the world’s highest material standard of living, and we were told that was because of the superior productivity of American industry.  That sounds like common sense.  If you want more, you need to produce more.  Obviously.

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But about 30 or so years ago, this changed.  Our productivity continued to increase, but our wages and salaries didn’t increase along with it.

Why?

Some say that the problem is technology.   Automation means that fewer wage-earners are needed, and our work had less value.   So naturally there are fewer jobs, and employers generally don’t have to pay as much to find people to take these jobs.

Fewer wage earners are needed.  Needed by whom?  Our work has less value.  Value to whom?

They are less needed, and of less value, to the corporate boards and wealthy stockholders who own the technology.  Or, to put it another way:  Capitalists, not workers, own the means of production.

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It’s true that the average factory worker or retail clerk did not personally create the technological innovations that made it possible for them to do more with the same amount of work.  But neither did the average corporate executive or corporate stockholder.

If technology is owned and controlled by a small financial elite, then the applications of technology will be such to benefit that elite.

It is possible that, in acting in their own interest, the elite will do things that are good for society as a whole.  It also is possible that they will do things that are bad for society as a whole.

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When that happens, we the people need to understand that their power and ownership is not based on divine right or impersonal economic laws.   It is the result of corporate structures and legal rights established by law, and laws can be changed.

Some radical thinkers, such as Stanley Aronowitz, David Graeber, Richard D. Wolff and Gar Alperovitz, are reviving the idea of worker ownership and public ownership of the means of production, which is not the same thing as government ownership.

More moderate reformers think it is just necessary to change the balance of power within society.

The important thing, as I see it, is to stop letting priorities be determined by the “job creators,” the ones who own the machinery, the research laboratories and the so-called intellectual property.   The question is not whether they need us.  The question is whether we need them.

LINKS

Of Flying Cars and the Declining Rate of Profit by David Graeber for The Baffler.

Why Wages Won’t Rise by Robert Reich.

The Great Decoupling of the U.S. Economy by Andrew McAfee on his blog.

Global lessons on inclusive growth by Jason Furman for Policy Network.

The Most Important Economic Chart by Atif Mian and Amir Sufi for House of Debt.

The wedges between productivity and median compensation growth by Lawrence Mishel for the Economic Policy Institute.

 

 

Germany on the same path as the USA

Wage and productivity growth in Germany

Via VoxEU

Some years back I wrote a post holding up Germany as a role model for the United States.  I said Germany’s policies showed that a nation can have a strong labor movement and a strong social safety net and yet have a growing economy and success in world markets.

I failed to recognize that Germany was and is following the same path as the United States—high profits, wage stagnation and financialization.  Germans are better off than Americans only because their starting point was higher when they started on the road to decline.

The chart shows that German productivity is increasing, just as in the United States, but German wage-earners aren’t getting the benefit of it.

Just like in the USA.

The work scene: November 3, 2014

Get more done by working shorter hours: Shorter days are more productive by Jeff Sutherland for Slate.

When Jon Katzenbach started out as a consultant at McKinsey & Co., it was customary for everybody to work seven days a week, but, for religious reasons, Katzenbach worked only six days a week.  He noticed he got more done than his peers, and so he cut back to five days a week, and got even more done.  He never quite had the nerve to cut back to three or four days a week.

The reason is why fewer hours equaled better productivity was that he made better decisions when he was alert and rested.  When he was tired, he made mistakes, and fixing the mistakes took up so much time that his productivity declined.  Also, the mistakes you make when you’re tired can be dangerous.

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Self-imposed corporate regulations control workers but choke productivity by William Mitchell for Billy Blog.

An Australian study indicates that the chief source of red tape in corporations is the corporations themselves.  Senior executives spend nearly nine hours a week filling out reports and otherwise demonstrating compliance, while lower-level staff spend more than six hours.

If compliance work were a separate industry, it would employ more Australians than construction, manufacturing, education or government, and three times as many as mining.

When I reported on Eastman Kodak Co. during the 1980s, I’d ask Kodak executives how they spent their days.  Typically they said they spent most of the regular work day attending meetings, and would come in early and stay late to get their real jobs done.

The purpose of all this, as Mitchell noted, is not efficiency and productivity, but to maintain control from the top—a milder version of the old Soviet system.

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We’re not Denmark.  But we can learn something from that nation about how they pay their workers by Jared Bernstein for The Washington Post.

The base pay for a fast-food worker in Denmark is $20 an hour, and the pay package includes five weeks’ vacation, paid maternity and paternity leave, and a pension plan.  Bernstein said the average fast-food pay in the U.S. is $8.90 an hour, the base pay is closer to $8 and there are few benefits.

A hamburger costs more in Denmark, but a hamburger is still affordable.  Profits of fast-food companies are less, but sufficient to keep Burger King and McDonald’s in business.

The difference between Denmark and the USA is that there is a standard set for all fast-food restaurants, so that no restaurant is at a competitive disadvantage as a result of treating its workers decently.   In Denmark, the standard is set by a powerful labor union.  In the USA, it could be set by a higher minimum wage.

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My takeaway:  There’s nothing inherent in the nature of things, but only in certain ways of thinking about things, that prevents American companies from having well-paid workers, with reasonable hours, who are accountable for results and not for following rules.

When profits and productivity aren’t enough

Losing Sparta by Esther Kaplan on VQR tells the following story.

A Philips lighting fixtures plant in Sparta, Tenn., was named by Industry Week in 2009 as one of the 10 best factories in the USA.

Workers and managers had worked together to increase output on some lines by 60 percent, lower changeover time between small orders by 90 percent, and reduce defective parts by 95 percent.  As a result the plant generated a good profit.

Yet in 2010 an executive showed up from corporate headquarters in the Netherlands and announced that the plant was closing, and its operations moved to Monterey, Mexico.

To people in Sparta, this didn’t make sense.  Local business leaders did a study that showed that any savings on wages (which generally are no more than 10 to 15 percent of manufacturing costs) would be offset by increased transportation costs of Philips’ markets in the Northeast and Midwest.  They were unable to make contact with anyone in Philips who was willing to listen or who had authority to make the decision.

Esther Kaplan thinks that the decision probably was based not on study of the Sparta plant specifically, but on an overall policy of centralizing manufacturing in low-wage countries.

I know from reporting on business years ago that there are fashions in management.  In one era, the fashion was diversification, so that your business is not dependent on any one market; in another, it was divestment and concentration on core competency.  And I know there are managers who think that willingness to cause human suffering is a sign of realism and tough-mindedness.

I also know from my own experience that when managers tell employees it is necessary to do X in order to keep their operation going, they almost always will do everything humanly possible to achieve X—provided that they think the statement is being made in good faith.

Workers in Sparta did everything management asked of them, but to no avail.  Kaplan wrote that this is the story of American workers as a whole.   Americans by many measures are the most productive workers in the world, and U.S. productivity continues to increase, but this does not keep manufacturing jobs in the USA.

The rising tide no longer lifts all boats

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President John F. Kennedy used to say, “The rising tide lifts all boats.”  What he meant was that economic growth benefits everyone.   The chart above shows that this once was true, but is no longer so.  The links below give some possible explanations as to why this is the case.

http://houseofdebt.org/2014/03/18/the-most-important-economic-chart.html

http://www.nakedcapitalism.com/2013/08/productivity-rose-7-7-post-great-recession-workers-have-seen-none-of-it.html

The labor scene: Links and comments 8/30/13

Here are some good articles for reading on Labor Day weekend.

Our Sad, Misunderstood Labor Unions by David Macaray for Counterpunch.

Labor unions are the only organizations whose purpose is to defend the rights of working people.  Why, then, have they gotten such a bad name?

Reversing the Labor Movement’s Free Fall by Stanley Aronowitz in Logos.

Aronowitz argues that labor unions must go beyond collective bargaining and champion the interests of working people across the board.

The AFL-CIO’s New Strategy by Shamus Cooke for Counterpunch.

While the AFL-CIO leadership recognizes the need for new strategy and tactics, it is limited by its commitment to the Democratic Party and the anti-union Obama administration.

Productivity Rose 7.7 Percent Post-Recession; Workers Have Seen None of It by David Dayen for Naked Capitalism.

The decline of labor unions is turning the United States into a low-wage nation.

Workers Greatest Power Over Owners and Bosses? The Ability to Stop Work and Walk Out by James Cersonski for AlterNet.

Largest fast food strike ever: 58 cities will be affected by Joseph Eidelson for Salon.

Workers in the fast-food industry use strikes to protest unfair treatment and low wages rather than waiting until they can negotiate contracts.

Fast Food, Retail Worker Strikes Do Honor to King Legacy by David Dayen for Naked Capitalism.

Martin Luther King’s 1963 speech was given for the March on Washington for Jobs and Freedom, and he was murdered while in Memphis, Tenn., to support a strike by municipal garbage collectors.   If he were alive, he would support union organizers of low-wage workers and strikers against low-wage companies.

Five reasons for optimism about labor unions this Labor Day by John Logan for The Hill.

What’s wrong with the U.S. economy

Hat tip to Making Light.

A 40-hour work week improves productivity

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Nowadays some professional people define a 40-hour work week as “part-time.”   In today’s job market, employees have little choice but to do whatever their employers demand.  But from a business efficiency standpoint, this may be a mistake.  Studies indicate that employee productivity is at its best when they work eight hours a day, five days a week.

That’s why Henry Ford implemented the eight-hour, five-day schedule in his factories.  He wanted his plants to operate 24 hours a day at maximum efficiency, and he found, by experimenting with different work schedules, that this was the best way to do it.

Sara Robinson, writing for AlterNet, cited a white paper by her husband, a software programmer named Evan Robinson, that made the case for the 40-hour week.

[The] paper he wrote for the International Game Developers’ Association in 2005 … contains a wealth of links to studies conducted by businesses, universities, industry associations, and the military that supported early-20th-century leaders as they embraced the short week.

“Throughout the ’30s, ’40s, and ’50s, these studies were apparently conducted by the hundreds,” writes Robinson; “and by the 1960s, the benefits of the 40-hour week were accepted almost beyond question in corporate America. In 1962, the Chamber of Commerce even published a pamphlet extolling the productivity gains of reduced hours.”

What these studies showed, over and over, was that industrial workers have eight good, reliable hours a day in them. On average, you get no more widgets out of a 10-hour day than you do out of an eight-hour day.  Likewise, the overall output for the work week will be exactly the same at the end of six days as it would be after five days. So paying hourly workers to stick around once they’ve put in their weekly 40 is basically nothing more than a stupid and abusive way to burn up profits.  Let ‘em go home, rest up and come back on Monday.  It’s better for everybody.

As time went on and the unions made disability compensation and workplace safety into bigger and bigger issues, another set of concerns further buttressed the wisdom of the short week.  A growing mountain of data was showing that catastrophic accidents — the kind that disable workers, damage capital equipment, shut down the lines, open the company to lawsuits, and upset shareholders — were far more likely to occur when workers were working overtime and overtired.

That sealed the deal: for most businesses, the potential human, capital, legal, and financial risks of going over 40 hours a week simply weren’t worth taking.  By World War II, the consensus was clear and widespread: even (or especially!) under the extreme demands of wartime, overworking employees is counterproductive and dangerous, and no competent workplace should ever attempt to push its people beyond that limit.

Sara Robinson wrote that the same is true of white-collar workers.