Productivity: The New Shell Game

...GNP and whose denominator is "hours worked "As with any fraction, the value of this one can be increased by increasing the numerator (two-thirds is greater than one-third), or by decreasing the denominator (one-half is also greater than one-third) An individual firm can increase its profits ("productivity") even in the face of declining sales, provided it can cut its labor costs still faster, and this is the course surviving firms take in a recession But transfer the same thinking to the economy as a whole and you are saying that the nation's productivity can be improved (or the nation made stronger and wealthier, if that's what you want to talk about) by deliberately—in cold blood—fixing it so that nine or 10 or 11 million potential workers don't do any work Withthedenominatordecreased, the index should go up This is absurd on its face and vicious in its results While recognizing the vicious absurdity of the Productivity Index, you may still want to measure the efficiency of the economy There is a pretty good figure for doing that the GNP per capita This won't show you why the economy is more or less efficient than it used to be (and, as I have suggested, I could tell you a tale about the GNP) Yet at least the term "per capita" includes us all, and we are all, employed and unemployed alike, members of the nation?the "N" in GNP Further, if you look at the GNP per capita you will see what common sense has already told vou that a deliberately induced recession?what we have today—is stupidly and pointlesslv cruel to millions of men, women and children, as w ell as destructive of the national interest The cruelties and absurdities ot the Reaganomic shell game flow from the apparently innocent and objective Productivity Index that well-infentioned economists have devised It has been observed before that the road to hell is paved with good intentions We mav not, I fear, be quite so sure of the intentions ot the bankcis and brokers and politicians who are hot lot Reaganom-ics In that case we might inquire what it is they produce that qualifies them to lecture the test of us on productivity...

...The Dismal Science PRODUCTIVITY THE NEW SHELL GAME BY GEORGE R BROCKWAY WILLIAM SIMON WE HAVE a new economic sport in town OskarMor-genstem's theory of games has been with us for decades Comparatively recently, Lester C Thurow gave us his pretended zero-sum game Now President Reaganhas created a 33-mem-ber National Productivity Advisory Committee headed by former Treasury Secretary William Simon Thecommit-tee has not yet announced the rules for its planned year-long study, but I have no hesitation in telling you that it will result in the additional refinement of a modernized shell game that has been played informally ever since the present inflation started In this extraordinary contest there is a pea under every shell—yet you and I always lose The shells, all identical of course, are made of a statistic devised by eminently respectable economists It is called the Productivity Index, an apparently innocent and objective figure obtained by dividing the Gross National Product of a period (usually three months or a year) by the total number of man-hours worked in the period If I had not prom-ised to try to refrain from grousing about how the GNP is compiled, I'd say the Productivity Index is what you get when you divide a grossly misleading estimate by another that is merely an educated guess Even those who calculate it will admit that its ostensible precision is spurious, and that at best it may sometimes be useful in comparing one period with another As the automobile advertisements put it, "Your mileage results may be different " Indeed The vice of the Productivity Index, though, is not that it is an estimate based on estimates (thus multiplying their unreliability) The vice is that it does not measure—and cannot measure?what its users pretend it measures Let's go back a bit We learned in school—perhaps from one of the academic experts on the President's new committee—that the factors of production are land, labor and capital Some add technology to the list, and others add an array of propensities to do this, that or the other No matter The point is that regardless of how many items you have on your list, labor is only one of them Consequently, dividing the GNP by the number of hours worked to determine productivity is like using the average number of yards gained per first down to decide the winner of a football game You might do that if you were Howard Cosell, but not otherwise If one persists in using only "hours worked" to arrive at the Productivity Index—as we can be pretty sure the President's committee will—one is in effect declaring that the contributions of land and capital are negligible They don't have to be counted, because they count for nothing Any way you look at it, that's going to be pretty funny talk coming from a committee that is as conservative as the President dares make it—and he's a brave man I will tell you straight out that I am something of an old-fashioned entrepreneur, and you'll never catch me saying anything like that In fact, you're not likely to convince me that the interest rate—to name only one other factor—has nothing to do with productivity Well, despite the reservations we may have, that's what the shells in this game are like Now let's examine some of the peas that have been used in the informal games we've seen of late, we'reodds-on to see them again The first pea is an all-purpose variety that always turns up on metropolitan bars and suburban bridge tables No matter where you look, it just seems that people aren't willing to work the way they used to This is what the Productivity Index seems to show, and it certainly seems plausible, remembering how hard you and I used to work when we were young In the old days we didn't have coffee breaks and extended vacations and No doubt you can think of examples as well as I can This part of the game is just a warm-up, to get everyone in the proper mood The next pea is more serious It is the America-has-gone-soft pea We let them beat us in Vietnam (or beat ourselves), investigative journalism got out of hand over Watergate, and now a court has said that creationism isn't science It's hard to tell what the country stands for anymore Moreover, since there's too much money chasing too few goods, it's no wonder that productivity is down and we have to have this recession to get us back on the track (You may think it odd that a recession, which is defined as a fall in Gross National Product, could be a way of increasing productivity But let that pass ) Under the third shell there is the archaic-industry pea The industry in question is usually important in the military-industrial complex, so our role as leader of the free world is said to be at stake The afflicted industry is unhappily mature, obsolete, decrepit, and hence unable to compete with the newer, more modern, more efficient plants that the Germans and Japanese had to build because we blew up their old ones in the War Although this is certainly an iromc state of affairs—that being blown up is good for you—we intellectuals have learned to live with irony and actually find it more to our taste than simplicity (I seem to remember that the British were heavily bombed, too, yet their factories are said to be even worse than ours Nor does bombing seem to have been a great blessing to the French on one side, or to the Italians on the other But let that pass ) At any rate, we've been hearing that U S Steel made a bad mistake in staying with the Bessemer process instead of switching to whatever it was the Germans and Japanese switched to, and that therefore it needs protection from foreign competition (Steel's mistake would seem to have been a mistake on the part of management, though it isn't nice to point I wonder why bankers who deplore that mistake are so eager to underwrite the same management in its takeover of Marathon Oil It is surely a very pretty irony that botching thesleel business fits you lor success in the oil business And it does raise questions about how difficult it can be to run an oil company, and what can possibly justify the $1 million annual salary of Mobil's president But let that pass, too) If you were not born yesterday, you can readily see that the Amenca-has-gone-soft pea can be used to justify not merely the recession but more particularly the recession's effects in nsmg unemployment, lower wages and umon-busting generally The archaic-industry pea can be used to justify fast write-offs for tax purposes and low capital-gams taxes to encourage what is called investment but is actually speculation (I've fussed about that before and no doubt will again) In other words, the winner of the new shell game is always Reagan-omics THERE'S NO WAY you and I can stand a chance here, unless we look again at the so-called Productivity Index As we've noted, it is flawed macroeconomically by its failure to take account of such crucial factors as the interest rate Microeconomi-cally it overlooks the obvious fact that in any particular firm the efficiency of the labor force depends in large part on the skill and luck of the management Where management decides to manufacture a product that turns out to be unsalable (say, a gas-guzzling automobile), the result tells us nothing about the efficiency of the production line Similarly, a badly run production line will yield bad results no matter how hard the individual workers work More fundamentally, the Productivity Index is guilty of the fallacy of composition, which is the assumption that what is true of every member of a class is true of the class itself Thus it is fallaciously said that since every firm is run to make a profit, the nation is run to make a profit (This points, too, to the fundamental fallacy of Marx's theorv of surplus value, but we won't go into that now) In the case of the Productivity Index, the fallacy appears in the use of "hours worked" as its denominator The Productivity Index, let us remember, is a simple I ration, whose numerator is tin...