Sunday, November 30, 2003
The Unbearable Lightness of being Stephen Roach
Stephen Roach lives up to his uncannily cheerful reputation in this New York Times op-ed, in which he argues the productivity numbers are being measured wrong (especially in services) and that all the economic optimism is misplaced.
For many years, government statisticians have used worker compensation to approximate output in many service industries, which makes little or no intuitive sense. The denominator of the productivity equation — units of work time — is even more spurious. Government data on work schedules are woefully out of touch with reality — especially in America's largest occupational group, the professional and managerial segments, which together account for 35 percent of the total work force.
Courtesy of a profusion of portable information appliances (laptops, cell phones, personal digital assistants, etc.), along with near ubiquitous connectivity (hard-wired and now increasingly wireless), most information workers can toil around the clock. The official data don't come close to capturing this cultural shift.
As a result, we are woefully underestimating the time actually spent on the job. It follows, therefore, that we are equally guilty of overestimating white-collar productivity. Productivity is not about working longer. It's about getting more value from each unit of work time. The official productivity numbers are, in effect, mistaking work time for leisure time.
In the end, America's productivity revival may be nothing more than a transition from one way of doing business to another — a change in operating systems, as it were. Aided by the stock market bubble and the Y2K frenzy, corporate America led the world in spending on new information technology and telecommunications in the latter half of the 1990's.
This resulted in an increase of the portion of gross domestic product that went to capital spending. With the share of capital going up, it follows that the share of labor went down. Thus national output was produced with less labor in relative terms — resulting in a windfall of higher productivity. Once the migration from the old technology to the new starts to peak, this transitional productivity dividend can then be expected to wane.
Roach makes an interesting observation. I am not sure if he is right or wrong, though I tend to believe personally that IT will drive efficiency and productivity (if nothing else from reducing transaction costs), especially as its economy-wide impact becomes clearer in the years to come, though probably not as long as the 20 plus years it took for the productivity gains of electricity to express itself.
In the meanwhile, does Stephen Roach *really* have to point out the touch of grey in every silver lining?
For many years, government statisticians have used worker compensation to approximate output in many service industries, which makes little or no intuitive sense. The denominator of the productivity equation — units of work time — is even more spurious. Government data on work schedules are woefully out of touch with reality — especially in America's largest occupational group, the professional and managerial segments, which together account for 35 percent of the total work force.
Courtesy of a profusion of portable information appliances (laptops, cell phones, personal digital assistants, etc.), along with near ubiquitous connectivity (hard-wired and now increasingly wireless), most information workers can toil around the clock. The official data don't come close to capturing this cultural shift.
As a result, we are woefully underestimating the time actually spent on the job. It follows, therefore, that we are equally guilty of overestimating white-collar productivity. Productivity is not about working longer. It's about getting more value from each unit of work time. The official productivity numbers are, in effect, mistaking work time for leisure time.
In the end, America's productivity revival may be nothing more than a transition from one way of doing business to another — a change in operating systems, as it were. Aided by the stock market bubble and the Y2K frenzy, corporate America led the world in spending on new information technology and telecommunications in the latter half of the 1990's.
This resulted in an increase of the portion of gross domestic product that went to capital spending. With the share of capital going up, it follows that the share of labor went down. Thus national output was produced with less labor in relative terms — resulting in a windfall of higher productivity. Once the migration from the old technology to the new starts to peak, this transitional productivity dividend can then be expected to wane.
Roach makes an interesting observation. I am not sure if he is right or wrong, though I tend to believe personally that IT will drive efficiency and productivity (if nothing else from reducing transaction costs), especially as its economy-wide impact becomes clearer in the years to come, though probably not as long as the 20 plus years it took for the productivity gains of electricity to express itself.
In the meanwhile, does Stephen Roach *really* have to point out the touch of grey in every silver lining?
