We tend to think of improvement in the productivity of labor and capital like safety; one can't have too much of it. But is that always the case? Is the U.S. in fact experiencing untimely increases in productivity now?
These thoughts were triggered by several disparate and clearly unscientific "data" points. First, the buzz at a seminar of professional service managers in which I was involved last month was the potential for "gain sharing" the benefits of such things as process improvements and the export of increasingly highly-skilled jobs, among others, with clients. The rationale was that the resulting increasingly lower fees would lock out competitors for client relationships and create the opportunity for new business "wins."
As if to suggest that this phenomenon was not limited to the U.S., I read of Ryanair's plan to share the fruits of increased productivity with the passengers on its flights throughout Europe by reducing fares annually over the next several years. And then last week we learned that U.S. unemployment had risen to the highest rate in nine years.
Economists assure us that productivity (the ratio of product and service outputs to labor and capital inputs) improvements are good for all of us, whether we are employed (and thus factored into the statistic) or not (which the statistic ignores). It makes living more affordable for everyone. But can we have too much of it, especially when there is insufficient demand for the resulting output?
Given the economic challenges facing the world's economies, does productivity improvement at a time like this contribute to the downward price spiral so feared by economists from Alan Greenspan on down? Will it add to the ranks of the unemployed with attendant social and psychological costs, costs not factored into productivity calculations? Or does it provide the ultimate answer to foundering economies on which the world pins so many hopes? What do you think?