Bye Bye American Pie: The Challenge of the Productivity Revolution

Here’s the good news. The economic pie is growing again. Growth in the 4th quarter last year hit 3 percent on an annualized rate. That’s respectable – although still way too slow to get us back on track given how far we plunged.

Here’s the bad news. The share of that growth going to American workers is at a record low.

That’s largely because far fewer Americans are working. Although the nation is now producing more goods and services than it did before the slump began in 2007, we’re doing it with six million fewer people.

Why? Credit technology. Computers, software applications, and the Internet are letting us produce more with fewer people.

In theory, this is a huge plus. We can live better and have more time off.

But as Tonto asked the Lone Ranger, “who’s ‘we,’ kemosabe?”

The challenge at the heart of the productivity revolution – and it is a revolution – is how to distribute the gains. So far, we’ve been failing miserably to meet that challenge.

True, some of the gains are widely spread in the form of lower prices and higher value. My 3-year-old granddaughter gets more out of an i-Phone in five minutes than my 98-year-old father ever got out of reading the daily paper (putting to one side their relative capacities to process the information).

But many of the gains are distributed narrowly in the form of profits to owners, and fat compensation packages to the “talent.”

The share of the gains going to everyone else in the form of wages and salaries has been shrinking. It’s now the smallest since the government began keeping track in 1947.

If the trend continues, inequality will become ever more extreme.

We’ll also face chronically insufficient demand for all the goods and services the productivity revolution can generate. That’s because the rich save more of their earnings than everyone else, while middle and lower-income families – with fewer jobs or lower wages – no longer have the purchasing power to keep the economy going at full tilt. (Before 2008 they kept up their buying by sinking deep into debt. This proved to be an unsustainable strategy.)

Insufficient demand – as everyone but regressive supply-siders now recognize – is a big reason why the current recovery has been so anemic and the pie isn’t growing faster.

So while the productivity revolution is indubitably good, the task ahead is to figure out how to distribute more of its gains to more of our people.

One possibility: higher taxes on the rich that go into wage subsidies for lower-income workers, combined with job sharing.

We also need better schools (from early-childhood through young adulthood, followed by systems of lifelong learning) so everyone has a fair shot at a larger share of the gains.

Finally, the benefits of the productivity revolution should be turned into more abundant public goods – cleaner air and water, better parks and recreation, improved public health, and better public transit.

Regressive right wingers want Americans to believe we’ve been living beyond our means, and can no longer afford it.

The truth is just the reverse. Most Americans’ means haven’t kept up with what the economy could provide – if the fruits of the productivity revolution were more widely shared.

Regressives growl about America’s borrowing and tut-tut about future federal budget deficits. The reality is the world is willing to lend us vast amounts of money because we’re so productive. And the productivity revolution is making us ever more so.

Get it? The pie is growing again but most people aren’t getting much of a slice. That’s bad even for those getting the biggest pieces. They’d do better with smaller slices of a pie that grew much faster.

This post originally appeared at Robert Reich’s Blog and is posted with permission.

4 Responses to "Bye Bye American Pie: The Challenge of the Productivity Revolution"

  1. Hal Horvath   March 7, 2012 at 3:21 pm

    As so often, Reich nails it and says it well at the same time. Mostly. Simple omit the pejorative "regressives" and you have something that should be read widely.

  2. Lynn   March 9, 2012 at 10:20 am

    Part of our genius, as a society, is the making of (relatively) peaceful change through political means. There was bloodshed in the union struggles, and in the civil rights struggles, but not actual class war. Right now, the concentration of wealth and power in the hands of a (very) few in alliance with an increasingly reactionary conservative movement scares me to death!
    I see us marching, banners flying and flags waving, proudly back into the nineteenth century, with NO political will actually to act in the public interest.

  3. Devasa   March 14, 2012 at 6:18 am

    Most importantly they do not matter in real life economy. Bankers have admitted that well being of Google or Facebook does not affect US economy, Job situation. They are in a parallel universe.

    Physical industries, like manufacturing of cellphone instruments creates employment, economic regeneration, not Android. Now it increases employment in china and not the west.

    Small matters when it is physical and not the cloud. Small manufacturing industries can create employment. More importantly they create employment for the "not nerds" population, which forms the majority.

    But small can only exist when big exists. A cell phone manufacturing company or an auto manufacturing company creates and sustains millions of smaller physical industries.

    Millions of these industries with great talent pool, innovate. May be gradual, may be revolutionary.

    There was a show on BBC where Bosses work anonymously, as a worker in their organisations and are pleasantly surprised at the clever, hard working people they discover. These people are real. They are clever. They need jobs. they are willing to work hard. They are the people who can strike out on their own and create more jobs..

    So the innovations will come in China and not the West, if manufacturing is not rediscovered immediately in the West.

    A small percentage of 8 trillions given to the Banks could have sparked an industrial revolution again in the West.

    Chinese factories aren’t really sweatshops anymore — rather they’re some of the most sophisticated high-tech manufacturing plants in history. This is not because their workers assembled more and better cars every year. It is because China’s government, emulating that of Japan and Taiwan and Korea before it, subsidized industries that required rapid, constant change. And by doing that, China created a working class that is no longer so impoverished that it’s also powerless. Economic growth isn’t always pretty, but if you can legitimately make things better than they were for the majority of the population, it’s worth it.

    Unless US invests a few trillion, fraction of the amount given to Wall Street, in creating the infrastructure, this becomes irreversible.