Increasing Productivity:
The Silver Bullet of Our Prosperity
You probably don't pay much attention when you read or hear news stories about productivity. That's not surprising; usually, the stories only make sense to economists and their ilk.
And yet, increasing productivity is critically important to you and me. More than anything else, it determines whether or not we get a raise at work, whether we can afford the the things we need and want, and whether or not we can retire comfortably. It is the silver bullet of the modern economy. Historically, our prosperous standard of living arrived, because of increasing productivity that began about 200 years ago, with the Industrial Revolution.
Here's an example of how productivity works: Suppose a British company discovers how to make steel products just a little bit harder. Then a company in the U.S.A. uses this process to make ball bearings that last an average of 423 days rather than 420 days, when they're used in truck axles.
A Canadian trucking company that hauls washing machines from Mexico City to Boston and Montreal buys trucks with these better bearings. That means it can haul a load of washers for a few dollars less. In turn, this means the cost of each washer goes down by a few cents.
But, what's a few cents less when you're paying hundreds of dollars for a new washer? What's more, you'd probably point out to me that you only need a new washing machine once every fifteen or twenty years.
That's true, but this productivity improvement is just one of literally millions of improvements we've seen since the Industrial Revolution (and some improvements even predate that period). You might object again, saying that productivity has been going up for a long time, so what's the big deal now?
Well, a couple of things. First, increasing productivity has a cumulative effect, which is to say improvements build on each other to multiply the gains. Second, productivity has increased at an unprecedented rate for the past half century.
Taken together, these millions of improvements (mostly tiny improvements), have made us wonderfully rich compared to our ancestors of two hundred years ago and more. Yes, every day you hear stories about how hard it is make ends meet. You may even hear stories about wages stagnating for decades. But, compared with how we lived in the past, we are incredibly wealthy. Even working people making minimum wage in developed countries live better than most princes did a few hundred years ago.
And, without increasing productivity, we would not enjoy what's come to be known as ‘retirement'. This concept of retirement, at least for working class and middle class people, only became possible when productivity increased our collective wealth.
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