How can we be more productive?
Photo: Doug Tengdin.
When we think of how to be more productive, we may think of long days and hard labor. When economists look at an entire economy, they consider equipment, technology, and training. And productivity is incredibly important to an economy. One of the simplest equations in economics is how to calculate economic growth:
Labor force growth plus productivity equals economic growth. How many hours we work times how much we do per hour equals the economy. That’s all there is. But that leads to a problem. Demographic trends mean the global labor force isn’t growing very quickly any more. We’re limited to doing more with the workers we have. But productivity growth is slowing down in major economies around the world.
This isn’t just one country or region or tax regime. This is the North America, Europe, and Japan. What’s causing this?
Many politicians – especially during Presidential cycles — say the solution is more infrastructure investment, like a 21st-century interstate highway system: a universal free high-speed wireless internet. But apart from the “free” label, most people already have high-speed connections. Better access to kitten videos and “Game of Thrones” reruns won’t help us get more done. And fixing bridges and potholes is great, but our roads aren’t exactly falling apart or disrupting commerce.
And it’s not high corporate taxes or population growth. This trend is present in countries with low taxes and in countries with high taxes, in countries with slow population growth and countries with high growth and relatively liberal immigration regimes.
One factor to consider is the importance of small businesses and creative destruction. As the economy has matured, more and more people are working for larger and larger companies. Big companies are more bureaucratic and less focused. New business creation has slowed lately, held back by federal, state, and local regulations. In Europe, the EU has multiplied regulations under the guise of harmonizing them. The percentage of workers employed by small businesses has plummeted over the last few years.
Source: St. Louis Fed
Whatever the reason, policy makers had better focus on how to reverse this trend. Because if the only way to increase production is to work more hours, eventually we’re going to run out of hours.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”