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"Measuring Productivity in the 90's: Optimists vs. Skeptics" (NYT 8/2/97 ) by Louis Uchitelle

In his Economic Analysis, Uchitelle hits the nail on the head. The article begins, "To hear Alan Greenspan, chairman of the Federal Reserve, tell it, along with various bulls on Wall Street and assorted chief executives, the United States is entering a period in which the productivity of the American worker is accelerating in ways reminiscent of the best years of the country's economy. And that is why the economy is strong, stock prices are rising and both will continue upward.

"The productivity enthusiasts pushing this view argue that the new electronic technologies have finally been harnessed and exploited in the workplace. Starting in 1994 or so, they say, the nation's workers have been producing more for each hour and each day they work. Most important, this improvement will last, they say.

"Their enthusiasm, however, relies heavily on their own narrow measures of productivity -- measures they consder more accurate -- and on cirsumstantial evidence. The official broad statistics flatly deny that productivity is rising. Quite the contrary, they show it weaker than ever in the 1990's."

So what is going on here? A clue comes a little later in the article. "The stakes of this debate are enormous.... Corporate profits, for example, have been growing lately at more than double the rate of growth of the economy itself. In the absence of rising prices, that can only be happening, the productivity optimists say, if workers are producing more for a given day's work, and the added revenue from their production is going into profits. The rising profits, in turn, have justified rising stock prices. And the expectation that profits will continue to rise, thanks to the growing productivity, keeps the Dow Jones average climbing."

Only Uchitelle gets away with saying such things in the New York Times! But the circularity in this reasoning is not fully brought to light in the article. So we wrote a letter to the editor, which is Not In The News.

NOT IN THE NEWS

New York Times
Letters to the Editor Desk
8/3/97

To the Editor:

Louis Uchitelle's "Measuring Productivity in the 90's" (NYT 8/2/97 ) shows how productivity measures become political tools by confounding productivity and profitability. Here's how.

The economy is said to be healthy when GDP and labor productivity increase. The purest measure of labor productivity -- actual output in number of widgets produced per labor hour -- can't be summed across industries so the dollar value of all final sales is used. If products all had the same dollar value this would be a good proxy, but that's obviously not the case. So by this measure the higher the price of goods, the more productive labor appears. If a Lincoln Continental is produced rather than a Ford Fiesta in the same number of hours, workers are said to be more productive. Not said, is that the profit margin is almost invariably higher.

Who benefits from the higher value? Definitely the factory owners and most likely the stockholders. For the workers to gain they must get the owners to share some of the "productivity gains" by providing higher compensation. Today wages are stagnant because workers have been unable to benefit from this increased productivity.

Alan Greenspan and others go further by first using "corporate productivity" and then neatly leaping to change how labor productivity is measured. As Uchitelle points out, by using income instead of final sales as the numerator, they take advantage of the fact that, contrary to economic theory, income is running ahead of final sales. With "wages, salaries, dividends and profits" in the numerator and wages falling, the economy appears more productive as profits rise.

Corporate America is benefiting from the current economy through higher profits so it is in their interest to show that the overall economy is healthy. Then they don't have to deal with the fact that workers are worse off today than in the past. Greenspan looks at the economy through rose colored glasses by finding a measure of productivity growth that looks positive. By this methodology labor productivity gains are really profitability gains.

Why don't we ever read about capital productivity or natural resource productivity? Just curious.

 
Ruth Caplan
Washington, DC
Director, Economics Working Group, Tides Center

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On July 25th, we told the story of the MAI which was Not in the News. In our action alert we predicted: "We can expect to see a blitz of advertisements favoring fast track right after Labor Day brought to you by the transnational corporations and the White House will be making every effort to get favorable OpEds and editorials placed in papers across the country." Well, folks here it is sooner than we thought. A full page ad by the corporate giant AIG appeared in the Washington Post on August 1st. AIG is the self proclaimed "World Leaders in Insurance and Financial Services." Below a half page photo of a homey-looking grain elevator, are the words:

(We'd like to know who the "our" in "our economy is referring to--certainly not the UPS workers who are striking because the company is refusing to provide full-time employment at liveable wages.)

Here are a few excerpts from the text that follows the headline.

"President Clinton has committed his administration to enhancing free trade between the United States and our trading partners around the world. Free trade contributes to our economic well-being, creates high-paying American jobs and economic wealth, ....

(Again, we wonder who is the "our," certainly not the communities along the Texas border.)

"But right now, no nation is willing to negotiate a major new trade agreement with the U.S. until and unless the U.S. Congress grants the President 'fast track' negotiating authority. ... Without 'fast track,' Congress would be free to add amendments and unilaterally change provisions of trade agreements submitted to it by the President.

(Of course AIG doesn't mention that the Multilateral Agreement on Investment is slated to be included in the fast track legislation which the administration plans to introduce in Congress on September 8th.)

"....The AIG Companies have been supporting U.S. business around the world for over 75 years. We help companies aggressively compete in global markets by reducing their risk exposures in a variety of ways, with product like political risk coverage, export credit insurance and sophisticated global risk management programs."

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