Thursday, June 21, 2007

American Productivity

The New York Times has a very interesting article entitled "How the U.S. Has Kept the Productivity Playing Field Tilted to Its Advantage" which is well worth reading in entirety (especially the last paragraph).


"For all the collective hand-wringing, the United States is still home to the most productive workers of all the major economies — more than Japan, more than China, more than Germany, Britain, France or most any other nation on earth.


"The data has mostly backed up the notion of convergence among rich countries for decades. The United States miracle of the 1990s was that our productivity began growing faster than that of other countries, even though we were the richest to start with.

"The popular explanation, of course, pointed to information technology and, specifically, to the fact that the price of semiconductors began falling at an even more rapid rate than they had been, starting in the 1990s.


"The only problem is, the explanation doesn’t work, according to John Van Reenen at the London School of Economics. Professor Van Reenen is a leader of a new generation of economists studying the differences in economic performance across countries and businesses.

"He said that the prices of information technology fell in Europe, too. And Europeans bought information technology. But they had no productivity miracle.

"To explain the experience in the United States, one would have to believe that Americans have some better way of translating the new technology into productivity than other countries. And that is precisely what Professor Van Reenen’s research suggests.


"When Americans take over a business in Britain, the business becomes significantly better at translating technology spending into productivity than a comparable business taken over by someone else. It is as if the invisible hand of the American marketplace were somehow passing along a secret handshake to these firms.


"But that is, of course, the paradox of the American position. We hate experiencing major adjustments and industry transformations that force people to look for new jobs. That experience has made many skeptical about the future of the United States in the world economy. Yet the evidence seems to show that for all our dissatisfaction, we are the most flexible economy around and may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting.

"Perhaps the lesson from the research can be boiled down to something most Americans clearly understand: The world economy may be tough on your industry but look on the bright side: you could be French."


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