By George Friedman
The Bureau of Labor Statistics issued a report yesterday saying that labor productivity showed the worst quarter-to-quarter decline since 1993. Productivity as a whole had been in a downtrend every year since it peaked in 2003, after an extended period of growth. Productivity per worker is one of the most important measures of economic health and a significant long-term forecaster. Its rise signals aggregate growth, and its decline signals trouble.
Productivity has been indicating problems since 2003, and the latest numbers reveal that the problem is accelerating. It is a geopolitical problem because economic well-being is a dimension of national power. A long-term decline in productivity is a problem. A short-term decline is less of a problem. In an expanding economy with declining unemployment, productivity tends to fall. Increased hiring out of a smaller pool means fewer skilled and motivated employees are being hired. They tend to be less productive and productivity falls, triggering a recessionary cycle.
This may be happening now, but that doesn’t explain the long-term decline, beginning well before 2008 and indeed going back into the late 1990s. The long-term decline may be compounded by the cyclical decline, but the real concern is the long-term decline. It seems counterintuitive given what most people regard as the growth of technology, but intuition is a poor guide. It is important to at least posit some tentative explanations for this, joining others who are trying to figure it out.
I would speculate on three causes.
First, the period that began in the 1980s of “re-engineering” companies is coming to an end. In the 1970s, the post-war model of the corporation hit its limits. They were inefficient and uncompetitive. During the 1980s, a massive restructuring of existing corporations took place, rendering them more efficient. That increased productivity dramatically and, when added to the emergence of a new generation of smaller and more efficient companies, led to a long-term increase in productivity. In the 2000s, we entered a period in which further restructuring was reaching the point of diminishing returns.
Second, there has been a dramatic increase in job mobility. The Bureau of Labor Statistics reports that the average person has now had 10 jobs before the age of 40. Even jobs with the same name take time to master at different companies. Assuming three of those jobs were after-school jobs and the real entry into the workforce was on average at age 20, that would mean seven jobs in 20 years, or about three years per job. An employee might have a net negative value in their first year at a company, and then slowly produce value after training and acclimation. The high frequency of job change means that an employee never reaches maximum productivity, and is moving back to negative productivity with each new job. The increased frequency of job change has to be affecting productivity. By the time you’ve learned your job, you’re looking for your next one.
Third, there is the aging of the microchip culture. The first computers appeared about 40 years ago. The dramatic increases in productivity were achieved in the first 20 to 30 years and have declined since then. High tech is quite old tech, and today’s innovations are trivial improvements on what was achieved at the high point, when the computer shifted from a data manager to a communication tool. The smartphone fused the two sides of microchip culture into one, and since then there have only been incremental improvements.
There is great excitement whenever Apple introduces a new product, but that reminds me of the great excitement in the 1950s and 1960s when new cars were introduced each September. There was little difference between the new and old versions, but Detroit marketing whipped the country into a frenzy. The auto interest reached its high point about 50 years after the early adopters bought the Model-A. We are now seeing the maturing of the microchip culture, with declining gains in productivity.
In this case, it is not only flattening productivity growth but dealing a massive blow to productivity in general. The microchip has yielded massive communication channels, but it has not increased the amount of information that can be transmitted and absorbed. The worker is human and the massive flow of information and the imperative to communicate in return has significantly diverted hours from work.
Many jobs involve work that is solitary, and the culture of collaboration bred and imposed by new systems of communication has systematically been eating into work time. Collaboration in all its forms has supplanted focused labor and caused a decline in productivity. The multitasking computer confronted humans. Many people think they are good at multitasking, but in fact the quality of their performance is declining. In a culture where everyone is multitasking, the deterioration of the work product is frequently ignored.
By turning the computer into a mobile communication device, two other effects were created. First, and obviously, employees are in constant communication with others during work hours, and some are looking at the web, while others play games. Supervision has weakened as the supervisor has little access to what his staff is doing.
The second and most important effect is the deterioration of private life. This doesn’t appear to be part of productivity but it is. Leisure is an indispensable part of labor. This is partly because the smartphone is always present, and work never ends. But the smartphone is profoundly damaging to human relations essential for a productive life. Communication began with two people talking, with all of the essential non-verbal signals present. It was replaced by the telephone, where physical communication collapsed but tonality in the voice was present. That was replaced by the rebirth of written communication in email. Now email is passé and we text and tweet.
What has happened in both work and leisure is a massive increase in the ways we communicate, but where the thinnest form of communication wins. Conversation, even on the telephone, has declined; email has withered into an unfashionable mode of communication. The increase of communication channels has led to a contraction of information – and emotion – communicated.
This undermines productivity in two ways. First, it distracts dramatically from work, substituting communication for production. Second, it has undermined the richness of private life from which the inspiration and motivation for productivity is drawn. Time for real productivity declines, with communication taking its place. As the number of Facebook friends soars, time to be human contracts and the quality of relationships declines.
It is easy to dismiss this. But we are in a long-term decline in productivity, and it has to have a cause. It is a fact that can’t be dismissed. I am not sure these are the causes, but I strongly suspect they are part of the problem, at the very least.
Understanding geopolitics starts here.