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TODAY

03/08/98- Updated 11:40 PM ET

Where productivity can take us

By Lester C. Thurow
America has regained its technological leadership. Both California and Massachusetts have more venture capital invested in new enterprises in a year than any single European country. Listen to the boasting!

Virtual reality and cyberspace are here. Watch the spectacular show and tells!

The World Wide Web, cloning, laptops with the speed of yesterday's mainframes.
The spectacular follows the spectacular. Count the fortunes created!
Even correcting for inflation, more billionaires have been generated in the past 10 years than in any other decade. In fact, the honor of the world's wealthiest man has come back to America in the form of Bill Gates - a knowledge worker. Another honor, Time magazine's "Man of the Year," went to the president of Intel, Andy Grove.
You'd think humankind must be living through its greatest technological decade ever.
Or are we?

If one studies productivity statistics, where technical changes are officially measured, the past 10 years have been the worst decade in American history.
Productivity has grown at 0.8% per year - just one-fourth the rate of the 1960s.
Still, any month with good statistics is greeted as if the Messiah had arrived, as if it were the long-awaited turnaround. But each good month gets followed by a string of bad months. Long-run trends only get worse. Never have improvements in our ability to produce new or better products grown more slowly. And it is happening all around the developed world. The size of the downturns differs, but productivity has slowed dramatically.
So, which is true? The boast and what we feel and see? Or what we measure?
That truth gap has led those who lead with their senses to maintain that something must be wrong with the productivity statistics. They don't know what is wrong, but there must be something wrong. The statistics just could not be right!
Those who lead with their heads want to know where these unspecified and unmeasured productivity improvements are. They want proof that these unmeasured improvements could be large enough to close the gap between what we see and what we measure.
Thus far, no one has been able to give them the proof. Those who try maintain that big improvements in services must go unmeasured. To some extent, they are right. There clearly are unmeasured improvements in services. The benefit of being able to get money out of the bank 24 hours per day and 365 days per year, for example, has never been factored into the productivity statistics.
Our statistical procedures were established when services were a small fraction of total output, not the 70% they are today, and they focus on manufacturing, mining and agriculture. Most improvements in service productivity are measurable, but they cost money and, as a country, we have not been willing to spend money on better statistics.
At one level, the answer is simple. If we want to know where we really are, we are going to have to spend the money to build the right economic global-positioning system. There is no alternative to collecting good statistics. But thus far we would prefer to argue about what is true rather than spend the money to find out what is true.
Partly we don't make the efforts necessary to get better statistics because there is a possibility that we will find a lot of negative productivity growth in the service sector and end up with even lower productivity growth rates.In the last two decades, life expectancy, for example, is up 4% while spending on health care is up more than 500%.Higher productivity in auto manufacturing may be offset by greater congestion on the highways and more time spent getting to work if we measured the services actually delivered by cars.
We are now hiring almost one million private security guards. Most of them did not exist 25 years ago. What is the objective evidence that they cut crime rates? All of those baggage inspectors did not used to exist at our airports. They dramatically raise the hours of work necessary to generate a mile of air travel.
Put simply - and bluntly -it is not obvious that better measures of service productivity would eliminate the productivity slowdown.
In thinking about our paradox, it is well to remember that there is no conflict between creativity and chaos. Think of all of those great Russian writers in the last half of the 19th century - Tolstoy, Turgenev, Dostoyevski, Gogol, Chekov, Pushkin. Their genius flourished even as their society was collapsing. Chaos can be fun and exciting. Chaos can be a spur to invention and creativity. But chaos doesn't lead to productivity growth. All of the security personnel at our airports are a reflection of chaos. Auto congestion is a form of chaos. If a society wants productivity growth, it needs the right mix of order and the room to do new things that chaos creates.
When it comes to that bottom line, which economists like myself love to talk about, there is a genuine mystery.
No one, including this economist, has a solution to the puzzle that commands widespread assent.
Who murdered productivity growth? It is a mystery story whose ending has yet to be written. Lester C. Thurow is a professor of economics and former dean of MIT's Sloan School of Management. He is also a member of USA TODAY's board of contributors.


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