Productivity growth has all but disappeared at a time when increased output per man-hour is more necessary than ever if American workers are to catch up with inflation. What is dubious, however, is that government is the primary cause of the problem. In fact, some government programs played an important role in past productivity growth.
Today's highly productive aircraft industry is a spinoff of technology developed out of defense programs. Similarly, much of the computer industry's early growth came from federal spending for defense projects and the space effort. The development of nuclear and communication technology required cooperation between government and industry. Even the remarkable productivity of the U.S. farm sector is not without government assistance. New hybrids were not developed by farmers working in the back of their barns; they were developed through government-financed research.
The country is at a crossroads in economic policy. We can try to solve our inflation problem by restricting economic growth to avoid demand pressures. Or we can be bold and look to expand and develop high-technology industries. In this way, government action can help regain the golden age of U.S. productivity growth, the years between 1948 and 1965.
Productivity growth in that period was extraordinary compared with any other time in this century. Output per man-hour increased by 3.2 percent annually. Productivity growth in this period surpassed that of the pre-World War II years while, incidentally, the size of the government and the burden of taxes and regulation increased.
One of the things that was happening in the golden period was a shift of labor from lower to higher productivity sectors of the economy.
Most observers attribute the shift out of farming to the growing productivity in the farm sector that "released" workers to move more productive enterprise. But that is to look at the process backward. Workers do not wait to be released before they find a better job. It is, instead, the existence of new, high-wage opportunities that encouraged low-wage or unpaid family workers to leave the farm for higher-productivity jobs in manufacturing. f
When a textile worker in New England shifts to a high-technology, high-wage job in electronics, average productivity increases; when a low-wage worker in Seattle begins making Boeing 727s, productivity (and wages) improve.
The golden age has clearly ended. Productivity growth in the 1973-78 period was only about a third as great as that during the 1948-65 period. Part of this slowdown is attributable to the slower birth rate of high-productivity industries. The disappearance of productivity-increasing labor shifts is a more important reason for the overall slowdown than is the deterioration of productivity growth within the manufacturing sector.
Another readily apparent slowdown is the virtual end of the "supermarket revolution." Productivity growth there has nearly disappeared, concurrent with the end of the shift from small "Mom and Pop" stores to supermarkets.
The recent poor productivity performance is hardly a result of the "erosion" of the work ethic. Supermarket workers do not work harder than Mom and Pop did in the grocery store. Those who left the farm did not work harder when they obtained manufacturing jobs. Productivity did not grow so rapidly in the golden age because workers worked harder, but because superior organization and equipment gave these worker the opportunity to "work smarter" and to be more productive. Analogously, the slow productivity growth that we see today is not the result of any reduction of work effort, but of the lack of new opportunities to "work smarter." (Neither do the data on absenteeism or labor market participation suggest any deterioration of the work ethic.)
Some observers blame government regulations for the productivity slowdown. But consider, for example, the mining sector, where productivity increased at an annual rate of 4.2 percent in the period 1948-65 and fell 4.0 percent per year in the period 1973-78. Regulation could possibly have been responsible for some of the decline in the coal mining industry, but only 15 percent of the total productivity slowdown in the mining sector came from the coal industry.
Eighty-three percent of it came from the poor performance of the oil and gas extraction industry, in which regulation was not an important factor. That slowdown is as likely to be the result of the increased price of oil and natural gas as of any other factor. The increased price made it profitable to develop "less productive" wells that require more man-hours per barrel of oil.
If government regulation were such a big factor in the productivity decline, then we should expect the manufacturing sector, where the burden of regulation falls heavily, to be particularly hard hit. However, it is the manufacturing sector, with its 1.7 percent per year productivity growth rate in 1973-78, that is holding up the national average. Annual productivity growth in the non-farm, non-manufacturing sector was .3 percent in the slowdown period, only one-sixth as great as its growth rate in the golden age.
If the country wants high productivity growth, it will have to turn to economic growth, rather than recessions, as its major inflation-fighting device. It will also have to encourage high-productivity industries. President Carter's synthetic fuels program is likely to be just such a development. There are other opportunities in the energy field and in high-technology industries such as computers and communications. Cooperation between government and business on research and development or financing would help foster growth that could simultaneously increase jobs and productivity.