Blog Post 4 — Decline in Human Productivity (and slowing innovation) in America

DECLINE IN HUMAN PRODUCTIVITY IN AMERICA

Stratfor and Geopolitical Futures (both global intelligence and strategy firms founded by George Friedman) have had a series of features on the next paradigm of technological industrial revolution and the ongoing systemic decline of productivity in America (not to mention Europe).  One of their most profound conclusions is that the ICT revolution is actually the cause of this decline—Humans are spending a lot more time communicating than actually working.  In their place, robots and automation are taking over progressively.  This is not an overnight phenomenon, “The IT revolution remains in its infancy.”

The digital revolution, beginning in the second half of the 20th century, is now having similar effects on the global system. The Internet has redefined the modern economy, enabling the growth of software, global supply chains and modernized manufacturing processes. And the revolution is far from finished. Emerging technologies such as smart grids, additive manufacturing, artificial intelligence and intelligent industrial robots are all poised to make a significant impact in the coming decades. …

…Giant tech conglomerates are now finding that tech innovation and computer science applications can revolutionize industries beyond their own. As a result, many of today’s tech companies are integrating themselves in almost every emerging technology….

…Moreover, the sheer amount of data that these companies possess — not to mention their ability to process the data — is unmatched by Moscow, Beijing or Washington. This enables them to use their data in innovative and unique ways, perhaps the most powerful of which are still unimaginable today.…

… The world is just beginning to adjust to the newfound realities that the tech revolution has introduced. Consequently, countries are just beginning to adapt them to their overall geopolitical imperatives.

Productivity is in the words of Adam Smith and Paul Krugman “almost everything.”  Thus it is worrying that over the last half-decade productivity has been stagnating, and in the last two quarters, actually in decline.  Lil Bayer, for Geopolitical Futures, attributes this to “a slowdown in capital intensity and technological innovation, and the emergence of new challenges in the workplace.”

Productivity is defined as:

Since 1947 (when the government started keeping track), output in growth has led the total increase in hours worked due to technological innovation and changes in the workforce, excepting blips due to recessions when both fall.  However, following the Dot Com Bubble bursting in 2000 and the 2003 recession, the trend has drastically slowed to being downright sluggish (and quarter-to-quarter decline) after 2007 (on the eve of the Financial Crash), even when compared to the stagflation and energy crisis of the 1970s.  In May 2016, the Bureau of Labor Statistics found that labor productivity showed its worst quarter-to-quarter decline since 1993.  Growth in hours worked is outpacing the growth in output.  That does not mean that total output is declining, only that said growth is getting more and more inefficient in terms of human capital.

Lily Bayer and George Friedman define five key reasons for the LONG-TERM decline in productivity:

1.) Slowdown in technological innovation and sluggish growth of capital intensity

In the late 1980s and early 1990s, capital intensity, the availability of semiconductors and increasing ease of computer use for business catalyzed vast growth in productivity and output.  Half of US labor productivity growth came from the ICT sector.  Between 1995 and 2009, the contribution of the ICT sector was 2/3rds.  However, innovation in the 2000s, knowledge-based capital investment and intensity into R&D slowed and the number of new start-ups, as a proportion of the total economic growth fell.

2.) The age of “re-engineering companies” companies is ending

The vast structural overhauls of corporations in the 1980s that made them smaller and more (ruthlessly) efficient compared to the unwieldy leviathans of the post-war era, are now resulting in diminishing returns.

3.) Workers are too employment mobile

The BLS report says that, in May 2016, the average person has had 10 jobs before the age of 40, or 3 years per job (assuming real entry into the workforce at an average age of 20).  This is not nearly enough time to master any one position, particularly as the first year on the job is often negative for a firm before the worker starts producing due to training and acclimation (or is fired).

“By the time you’ve learned your job, you’re looking for your next one.”

4.) Aging of microchip culture

“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 smart phone fused the two sides of microchip into one, and since then there have only been incremental improvements.

… 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.”

5.) Workers are wasting more time, more easily distracted, and emotionally disconnected

As workers of all collars depend on email and the internet for their work, the opportunity to procrastinate and go down the rabbit hole of not work is more and more a reality for businesses.  The percentage of surveyed workers (in a Salary.com study) who admitted to wasting significant time at work rose from 64% in 2012 to a whopping 89% by 2014.  Analysis by McKinsey & Company (the great American consultants) revealed that in 2012, managers and professionals (so-called “interaction workers”/”high-skill knowledge workers) spent 28% of their average workweek going through their email inbox.  I am certainly guilty of this.

Not only has the constant exposure to Google and email led workers astray, so has the “deterioration of private life.”  People always have their smartphones on them and the work never ends.  Furthermore, the preferred communication (and emotive) channels between people have shifted more and more from reality (in person, to the phone, to email, and now texts, tweets, and ephemeral snapchats).   Communication is not a replacement for human productivity nor the

“… richness of 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 quality of relationships declines.”

 

In the long-term, this will gut American productivity, future economic growth, falling demand, and finally the entire global financial market (if it was not convulsed by chaos and sclerotic malaise already.)  The Congressional Budget Office (CBO)’s January 2016 report projected annual growth over the next decade will only be 2% with labor productivity growth ranking even lower, at 1.4% annual.

This ominous trend could be reversed by revolutionary technology or a spike in innovation, but their analysis finds that this more modest rate of innovation may be the norm in the early 21st century, compared to the 20th.

Now, this does not necessarily mean that American (or Western) industry and innovation will be superseded (only by China, and that is still a distant prospect) any time soon.  Yes, the next big three (Mexico, Indonesia, and India) as well as the P16/20, will succeed China as the go-to low/med-end manufacturers, but the current technological geopolitical leaders are simply too far ahead.  Even the next wave may be lucky to only see a fragment of the progress made by the previous generations of tigers.  The gap between the developed world and the industrializing world is widening (not to mention the splits of inequality and productivity within said societies.)  “Developing an advanced industrial base takes additional capital, skills, and time, essentially increasing the number of rungs separating low-end and high-end manufactures on the production value ladder.”

With the fall of the Human worker, more and more work will be put into soul-less robotics, 3D printing, smart factories, automated manufacturing, and AI.  It’s still a bit early to fret and start implementing a “universal working welfare wage due to robots (or immigrants (due to no jobs back home)) taking our jobs” like Switzerland recently tried and failed to do… but the day is coming.  We’ll muddle through the coming crucible.  Humanity is still really good at that.

Bey, M.  (2016, March 29).  “The Tech Revolution Comes to Age.” STRATFOR | Geopolitical Weekly. https://www.stratfor.com/weekly/tech-revolution-comes-age

Friedman, G.  (2016, May 5).  “Productivity in the US Continues to Decline.”  Geopolitical Futures | Reality Check. https://geopoliticalfutures.com/productivity-in-the-us-continues-to-decline/

Bayer, L.  (2016, May 13).  “Examining the Drop in US Productivity.” Geopolitical Futures. https://geopoliticalfutures.com/examining-the-drop-in-us-productivity/

“Weekly Chart:  U.S. Labor Productivity.”  Geopolitical Futures | Weekly Graphics.  https://geopoliticalfutures.com/weekly-chart-us-labor-productivity-subscribe/

Keller, R.  (2016, June 7).  “The Rise of Manufacturing Marks the Fall of Globalization.”  Stratfor | Geopolitical Weekly. https://www.stratfor.com/weekly/rise-manufacturing-marks-fall-globalization

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