To get to an alternative solution, we need to make a set of related arguments that are sure to be wildly unpopular because they go against sacrosanct pillars of our modern economy. The arguments are that the benefits of maximum economic efficiency, ever-increasing labor productivity, and rapid economic growth have come to an end.
Labor productivity, as the name implies, is the amount that someone can produce, in physical products or services, per hour. One person may be able to produce, on average, 5 widgets in an hour, another may be able to prepare 17 cappuccinos, and a third may be able to service 21 bank customers at his or her teller window. Needless to say, businesses like to see labor productivity increase. This can happen in a few different ways: through more and/or better tools and equipment (capital), additional training, new technologies and techniques, and employees can be cajoled into working more hours than are reported. Although employees may receive some benefit for their improved productivity, as we’ve said previously, employers look out for number one first and foremost. Therefore, overall, employees lose out. Why? Because if productivity is improved such that, say, 9 people can do a job that used to take 10, with all other things being equal, a person is out of a job. And that’s going in the wrong direction.
A very important side point needs to be made. The person who has lost his or her job due to productivity gains is not only no longer a contributor to our workforce, but is also no longer a robust consumer. And the consumer makes up a large fraction of what drives our economy.
Regarding this, the industrial and technological innovations that have undoubtedly improved the quality of our lives over the years have gone far enough that they now threaten to tear apart the very fabric of our economy by continuing to replace human jobs, but now with no replacement jobs created. When computers replaced large numbers of jobs, for example, there were large numbers of jobs created to program and otherwise develop the computers. When computers can program and otherwise develop themselves, which is not too far off in the future, what’s left for us? As technology continues to outperform human productivity, the days of only 1 person in 10 being out of a job, as above, will become a pleasant memory. As that continues to happen, the answer to the question of who loses out and who benefits from increases in productivity will become unambiguous and undeniable. When there are 0 people left out of 10 producing widgets, the only people left to benefit will be the business owners, as we had suspected all along. The long and short of it is that businesses need to provide two benefits to society: they need to produce products and services, and they need to produce jobs. If they stop doing the second of these, they are no longer of value to us (society).
Economic growth is the increase in the goods and services we produce and is often measured as the rate of increase of the GDP (mentioned above). Labor productivity is one significant driver for economic growth. Other drivers can be the availability of additional resources, if there are any to be found, and additional laborers, if there are any to be had. For several reasons, the government wants economic growth to always be going up (to help pay down the huge debt previously discussed, to try to afford ill-advised tax cuts, for consumer sentiment (going up is perceived as better than going down), etc.). For these same reasons, the government generally wants economic growth to be going up at a more than sustainable rate, which, absent other markets, would nominally be the rate of population growth.
To consider this, let’s pretend that supply and demand are perfectly balanced – just the right amounts of goods and services are being produced to satisfy everyone’s wants and needs. But, then, let’s say a charismatic leader comes on the scene whom everyone loves and would do anything for, and she convinces everyone to work twice as many hours. It’s hard, but they’re willing to do it. As a result, twice as much stuff (goods and services) gets produced, and the GDP doubles. Yay, we’ve experienced truly remarkable economic growth. Everybody pat yourselves on the back. But wait, we just said that just the right amounts of goods and services were already being produced to satisfy everyone’s wants and needs. So now we have twice as much stuff as we need.
Now, of course, we’re never going to have 100% growth all at once. The government often hopes for around 4% per year (although that’s generally optimistic). At that rate, you would have 100% growth (double the GDP) in about 18 years. In the same period, the population would most likely increase by between 15% and 25%, depending on the population growth rate. In either case (the all-at-once case or the more realistic 18-year case), you could try to solve your too-much-stuff problem by trying to convince people that they actually want more stuff (like the fashion industry tries to do with clothes, for instance), or you could try to find other markets for all your extra stuff, although other countries are generally making their own stuff, or at least trying to, and facing the same situation you are. Hopefully you see the problem – the government desires an unsustainable growth rate.
A third related concept, economic efficiency, is a measure of how effectively all aspects of an economic entity (labor, capital, raw materials, technology, etc.) are utilized to maximize the entity’s objective(s) – usually profit for a commercial company – while minimizing waste. For a company, 100% efficiency would mean that all aspects of the company are working and interacting perfectly for maximum profit and with no waste. The problem is that a company working at high efficiency does not take into account the laborers outside the lumber yard a block away hoping for a day’s work or the people another block away sleeping in a store entryway because they have nowhere else to sleep. In other words, efficiency at one level can ignore inefficiency at a broader level. The same can be said for countries and the world, by the way.
A second problem has already partly been mentioned – peak efficiency for an industry would be realized as a single company (a complete monopoly), where all the economies of scale could be utilized, and peak efficiency for the company would mean employing as few human beings as possible and as many machines instead. Machines, after all, have near-perfect performance; they don’t get headaches, take lunch and bathroom breaks, or engage in the occasional high drama. They don’t expect raises once or more times a year. They are easily managed. In order to employ all people who need employing, some aspects of efficiency need to be sacrificed or at least loosened.
In summary, in order to achieve an economy that serves everyone, contrary to the deeply ingrained conventional wisdom of modern economics, we need to be willing to accept – and even sometimes require – decreased efficiency, lower productivity, and growth at a sustainable level.
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