To Break Out of National
Productivity Rut.
Against the backdrop of a stubbornly bleak productivity picture
across Europe, the Information Technology and Innovation
Foundation (ITIF), a leading technology policy think tank,
released a new e-book (also available as PDF) arguing for a sea
change in thinking that would make productivity growth the
principal goal of economic policy.
Bucking the received wisdom of conventional economics, the book
explains why policymakers in European countries and other
advanced nations should adopt comprehensive productivity
strategies, and it provides a detailed roadmap for them to
accelerate productivity by 1 percent or more. The book notes
that while the United Kingdom is one of the few countries in the
world with a national strategy already in place, it needs to be
significantly broadened to have real impact, and other countries
should follow suit.
“Economists all agree that productivity is the key to improving
people’s living standards,” said ITIF President Robert D.
Atkinson, the book’s author. “But few believe governments can do
much about it. They are wrong to be so skeptical. Policymakers
can and must craft national strategies that accelerate
productivity. In fact, this should be the principal goal of
economic policy. European countries are in a deep productivity
rut. It is past time that policymakers focus on getting out of
it.”
Atkinson’s book upends a heated series of debates among
economists about the future prospects for productivity growth
and about its relative benefits or harms for workers. The book
rejects the views of both productivity pessimists such as
Northwestern University’s Robert Gordon and productivity
Pollyannas such as MIT’s Erik Brynjolfsson, arguing instead that
European countries could enjoy a significant pickup in
productivity growth—but only if they adopt coherent national
productivity strategies. The book also marshals data to refute
the notion that such progress would come at workers’ expense.
“All too often, productivity is portrayed as a boogeyman that
kills jobs, undermines incomes, and exacerbates inequality,”
said Atkinson. “These views are not just utterly wrong, but also
dangerous, because they can undermine political support for
putting the productivity pedal to the metal.”
The book explains that a core reason productivity has lagged in
European nations is that industries have failed to adopt the
best new tools in the best possible ways. Neoclassical economic
theory holds that organizations have plenty of incentives to
boost productivity on their own, and government should not
proactively encourage greater productivity because it would only
distort the marketplace. But Atkinson refutes this notion.
Rather than conceiving of economies as large markets in which
self-interested actors respond to price signals, Atkinson argues
it is more accurate to think of economies as large, integrated
enterprises that work best when countries enact comprehensive
productivity strategies that, among other things, support
activities that individual enterprises cannot or will not
undertake effectively on their own.
Atkinson writes that, to boost productivity, nations need to get
beyond the passive, conventional advice that governments should
merely establish the right market frameworks and instead embrace
an array of policies that promote greater productivity in all
organizations. He outlines a detailed framework to guide
policymakers as they craft national productivity strategies. It
includes the following elements:
-
Making higher productivity
the principal goal of economic policy;
-
Eliminating preferences
for small firms over larger firms, because small businesses
are generally less productive;
-
Increasing capital
investment by raising the price of labor (with higher
minimum wages, less low-skill immigration, etc.) and
lowering the price of capital equipment (with investment tax
credits, etc.);
-
Reforming corporate
governance to provide better incentives for investing in
long-term capital projects;
-
Expanding science and
technology research targeted specifically toward the
development of productivity-enhancing and labor-displacing
technologies;
-
Analyzing opportunities
and constraints facing every major industry, and developing
sector-specific productivity policies; an
-
Developing dedicated
productivity agencies to develop and coordinate
sophisticated productivity agendas.
"Without productivity growth, sustained
income growth is impossible,” Atkinson concluded. “We have to go
beyond the standard counsel from conventional economists that it
is enough for policymakers simply to get market conditions and
factor inputs right. It is not. Nations need smart,
analysis-based productivity strategies, and they must find the
political will and bureaucratic means to implement them
effectively. If European countries do this right, then they
could benefit from a much-needed acceleration in productivity
growth and boost in living standards for their residents.”