The Dangers of Idolising Productivity Growth

Generally within economics, growth in productivity in perceived as being beneficial for a countries long term growth potential. Theoretically in Keynsian schools of thought, shifting out the AS curve and PPF allows for non demand-pull inflationary growth, as well as encouraging an upward shift in the long term growth trend. Many supply side economists glorify productivity growth as the only means of encouraging sustainable growth. However, in a society where huge numbers of jobs are at risk due to mechanisation, should productivity growth be placed on the glorified pedestal that many perceive it to be?

Of course, the fear of mechanisation and productivity growth is nothing new. In 19th century England, the revolutionists Luddites opposed newly developed weaving machinery. They feared that their acquired skills would go to waste as the newly invented spinning wheel would brand their profession useless. The Luddites burnt down spinning wheels and cotton mills as well as attacking employers. This was a clear and natural reaction to productivity growth. If an individual sees that their livelihood is at risk, then it is rational to retaliate, regardless of if it’s at the cost of the nation’s economic growth potential.

19th century Luddism

Indeed, the debate exists as to whether productivity growth should come at the cost of public welfare? Take India as a contemporary example of the suppression of productivity growth in the face of population growth. In order to maintain employment rates, India has to create 10 – 12 million jobs per year, a figure that it has been able to meet according to its Labour Bureau from 2013-2015. However, this has been at the cost of repressing new technologies into the market. According to McKinsey consulting firm, the adoption of current technologies in India could shed 52% of labour, therefore reducing production costs and potentially making India even more productively efficient. However, if India were to transition to current technologies, where would this leave the 52%? After all, it is more socially viable to have an employed workforce rather than an optimally productive one. Here, India must find the balance between maintaining healthy levels of productivity growth to remain export competitive, and maintaining high levels of employment. Unfortunately, one will more than likely come at the trade off of the other.

Therefore, the debate roots back to the essence of economics. What is the duty of the economy? Stiglitz asks “at what point does morality enter into the economic calculus?” If one were to prioritise worker welfare over productivity, then we have not evolved economically since Luddism. If one were to prioritise economic/productivity growth over worker’s social welfare, then they are seen as a greedy capitalist. As with many aspects of economics, there is no clear answer. Ultimately regarding productivity, a government should aim to enhance productivity in terms of labour quality. Supply side investments into labour training programmes to enhance labour mobility and productivity would be preferable to simply replacing the workers with mechanisation. This would allow for increased non-inflationary short term growth, as well as increased global market competitiveness, whilst maintaining an employed but now more highly skilled work force. However, in India there are now than 487 million workers, (second only to China) of which half work in agriculture. Solving the rising unemployment and falling productivity crisis will take more than just a series of training courses…

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