America’s Productivity Paradox
This Blog was originally posted on the Harvard Business Review Online
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With 9% unemployment, a coming election, and financial markets teetering on the brink of disaster, the employment crisis is hard to miss. Unfortunately, even with the crisis at the forefront of today’s discussion, there is little analysis of the actual causes of the problem. A large contingent of us simply assumes it’s a failure of the fat cats on Wall Street. It’s not that simple.
Greed, the housing bubble, and increasing globalization all played their part, but I believe there’s another significant factor at play: the increase of productivity. We all love the shiny new products that make our lives easier — and the new methods of doing business that help us earn more — but those same technological and business innovations come at the expense of jobs. Our very productivity makes it hard to put all of the people who lost their jobs back to work. It’s not fun to talk about, but this is a conversation that needs to take place. Without an honest discussion of the causes of the prolonged recession, we won’t be able to develop lasting solutions.
Consider the Internet. Over the past two decades, the Internet has created massive value for the citizens of the world. It has spawned an entire sector of businesses and created hundreds of thousands of U.S. jobs in the process. The Internet made it possible for Amazon to provide low-cost products throughout the country — and displaced local booksellers and music retailers. The Internet made it possible to do business over the phone with anyone in the world for pennies a minute — and made it possible to hire the fastest, cheapest programmers, whether in Palo Alto or Pakistan. Efficiency is wonderful, but it comes at the expense of jobs.
This trend isn’t just a function of the digital age. If you think back over the generations, we clamored when Xerox machines and laser printers eliminated our need to produce documents with typewriters and carbon paper, displacing tens of thousands of corporate jobs. We swooned over computer spreadsheets that enabled us to change assumptions in financial calculations in seconds instead of hours. With a few keystrokes, we eliminated the need for tens of thousands of financial-service employees. Today, consumers are dying to get their hands on the iPhone 4S’s voice-activated assistant function, Siri. Are we a few years away from similar sorts of automated assistants displacing admins?
Americans care about putting Americans back to work. That much is clear to me. Businessacademics, pundits, and politicians alike are devoting massive amounts of mindshare to solving the employment problem. Unfortunately, capital doesn’t care about putting Americans back to work. American companies are going to continue to allocate funds in ways that they believe will maximize profitability over time, which means research funding will go into technologies that maximize productivity throughout the world and operational funding will go into implementing new, highly productive technologies. In any scenario, companies will need fewer and fewer real people to operate. It’s the beauty and flaw of the free market. As Adam Smith pointed out, the free market is perfectly predictable.
The employment problem that results from the paradox of productivity requires a different solution than lower corporate tax rates and other pro-business legislation. To address the paradox of productivity through market enterprise, we’ll need an ever-increasing rate of innovation by domestic companies. That means we’ll need to find more and more new things people want.
To accomplish that task, we will need legislation that both enables high-potential entrepreneurial endeavors and increases funding to the general sciences. We’ll need to support the type of research and business practices that spawn new sectors in the United States.
But my guess is that’s still not enough. The assumption that we’ll be able to find an infinite number of new things that people need is one I struggle with. It’s easy enough for me to imagine satisfying our need for “things,” and getting to the point where artificial intelligence and capable robots displace millions of workers. While this change is not going to occur tomorrow, who knows where we’ll be years from now. A century ago, when Western Union dominated the U.S. communications market with the telegraph, who would have imagined a world where one person can record and send moving pictures across continents instantaneously? Productivity allows change to occur more and more rapidly.
If we adopt the perspective that productivity will continue to increase exponentially, we should be looking to fix the long-term employment problem through non-traditional avenues. Perhaps that means investing more in the arts, an area very difficult to automate. Perhaps that means providing subsidies for domestic business operations. Perhaps that means increasing wealth transfers. But one thing is certain, if the paradox of productivity holds, we can’t just talk about free-market solutions to the employment problem. It’s a problem that will be with us for a long time to come, and a problem that is going to be increasingly difficult to address.