Making Productivity Productive Again

A century or so ago, the workweek was 60 hours long, or longer.

Through advances in productivity, we reduced that to 40 hours.

The great majority of us consider that progress. Freedom from work allows for self-fulfillment. Most find that a 40-hour work week makes for a better life.

Somehow, though, the workweek length stopped declining when it reached 40 hours or so.

Funny thing is, we never stopped becoming more productive. Productivity increases march on. But, for whatever reason, we made a collective decision that further reduction in workweek length would not be a good thing.

Until 35 or so years ago, productivity increases also gave us two other huge accomplishments: Dramatic increases in wages for the many (the bottom 90% or so) and dramatic decreases in poverty.

As in the case of the length of the workweek, progress on those two fronts stopped and, arguably, went into reverse, even though productivity gains continued apace.

What happened? Put bluntly, we, as a society, allowed the wealthy to hijack productivity gains. The engine that for decades drove the betterment of the many now drives the betterment only of the few. There was a mindset we had in the 1960s, which we lost somewhere along the way.

Think that’s bad? Here’s what’s worse: If we don’t act, future productivity gains could drive a reversal of the fortunes of the many. We may be seeing the beginning of that process today.

Robert F. Kennedy embodied our 1960s mindset when he famously said: There are those who look at things the way they are, and ask why… I dream of things that never were, and ask why not? If ever there were a time for Americans to channel RFK and return to their 1960s mindset, this is it.

So, in the spirit of RFK, where would be today if productivity gains had not been hijacked?

Pondering this through the RFK lens allows us to be hopeful.

Had we continued down the path we once were on, we’d be living in a society virtually free of poverty. The workweek for wage earners would be between 25 and 30 hours. Fridays would be a weekend day. And incomes for the bottom 90% would be 50% higher than they are today.

In 1968, a conservative economist, Milton Friedman made what was then considered a radical proposal: We should replace anti-poverty programs with a “negative income tax.” The idea was that the after-tax income of a person who had no pre-tax income would not be zero, as it is under current tax law, but instead an amount equal to the poverty level. In Friedman’s world, there would be no poverty. Conservatives who lionize Friedman conveniently forget this aspect of Friedman, the same way they forget Ayn Rand’s atheism.

When Friedman developed the concept, America arguably did not have a level of income and wealth to afford it. But we easily do today. Had we retained our 1960’s mindset as a society, the negative income tax would have become a no brainer years ago.

But we may not even have needed to go there. Consider what would have happened had we continued to pare back the work week. The wonderful thing about overtime laws, besides the protection of workers from an excruciating workweek, is that they result in more jobs. If an employer has a choice between 4 employees working 50-hour weeks and five employees working 40-hour weeks at the same hourly rate, the employer will opt for four employees. Why? Because there are fixed costs associated with each employee, so fewer employees means lower costs, everything else being equal. Overtime laws change that equation. If the overtime wages for those four employees exceed the additional fixed cost of hiring a fifth employee, a new job is created.

If you’re with me so far, consider what happens if overtime kicks in when the workweek exceeds 30 hours. Additional jobs are created. But that’s not all. As the demand for workers increases, so do wages.

Consider how the offshoring of work could have been a good thing for workers. Notice that we’re talking about the offshoring of work, not the offshoring of jobs. Why? Because although the offshoring of work has been translated by employers into the offshoring of jobs, it didn’t have to be that way.

Say a company shifted 25% of its work offshore, reducing the wages paid for that work by 75%. In Mitt Romney’s world, the company would fire 25% of its American workers, and the savings would flow entirely to shareholders.

If our society had retained its 1960’s mindset, however, the company would have retained its workers, but reduced their hours by 25% and their hourly wages by 6.25%. Or it might have let go of just 6.25% of its workers and reduced the hours of the remaining workers by 20%, while keeping wages the same. Either way, a good deal for the workers.

Okay, let’s take the RFK glasses off and explore not what could be but rather what will be.

Consider the restaurant industry. We have millions of servers today. Restaurant owners tomorrow could replace their paper menus with Ipads allowing customers to place their orders directly with the kitchen. Under current practice, 75% of those server jobs would vanish, with the function of the remaining server jobs transformed to consist entirely of toting food and drink from kitchen to table. The restaurant owner either would leave prices the same, allowing customers to pocket some savings through avoidance of the cost of tipping, or raise prices to capture the customers’ tip savings, or somewhere in between.

Decades ago, that would not necessarily have been a problem. As those restaurant jobs vanished, new and better jobs in other industries would be created at a faster pace.

But we’ve reached an  inflexion point, or so it seems, where the pace at which old jobs are lost is eclipsing the pace at which new jobs are created. At the same time, the quality of the new jobs is less than that of the jobs that are vanishing.

If we don’t act, those future productivity gains will be counter-productive. The quality of life, for most Americans, will be made worse by those future productivity gains.

But if we go back to the practice of channeling productivity gains to make life better for the many, a much brighter future awaits us (assuming of course the planet doesn’t burn).

America needs to put its RFK glasses on and act. We need to make productivity productive again.

Here’s the challenge: The way to make productivity productive again for the many is to take all the additional wealth and income that the increased productivity is generating for the few and begin redistributing it.

Currently, however, redistribution is a four letter word in political circles.

Inevitably, if we’re to move forward, that needs to change.