Staying out of the way

July 1, 1997
The technology revolution -- and its productivity gains -- flourished because the feds did not intervene. The nation's productivity increased at an annual rate of 2.6% in the first quarter of this year, on top of a 1.3% gain at the end of last year. These are impressive gains, and although we hate to start a column with numbers, these are particularly important numbers.In the first place, productivity

The technology revolution -- and its productivity gains -- flourished because the feds did not intervene. The nation's productivity increased at an annual rate of 2.6% in the first quarter of this year, on top of a 1.3% gain at the end of last year. These are impressive gains, and although we hate to start a column with numbers, these are particularly important numbers.

In the first place, productivity improvements determine our ability to raise the standard of living. It's all well and good to raise GDP by working longer hours (although many of us have doubts about this, as we reflect on our lengthened work week), but it's even better to benefit from productivity gains and thereby produce more goods and services with the same capital and labor.

In the second place, productivity gains help prove that the trillions of dollars we've spent on microprocessing technology over the last few years is paying off. If we don't see significant productivity gains, then we may actually be worse off because we could have spent the money on more traditional capital and technology.

As a side issue, it's important to realize that lower costs do not, by themselves, mean productivity improvements. In trucking, productivity increases don't come from lower equipment costs or lower fuel costs. The gains come almost solely from three factors: fewer empty miles (or higher cube utilization for LTL carriers); less waiting time at the dock; and higher payload capacity. Whether you measure the output of the industry by tons hauled, ton-miles, or revenue miles, in order to show a productivity gain you have to show more output with the same quantity of equipment and personnel.

That's why size and weight limits are important to the trucking industry. There's a limit to how much carriers can reduce their empty miles or their idle time. As they expand their networks across the country, many of the larger truckload carriers have dropped empty miles below 6-8% and are close to the point where further gains are not feasible. Unless carriers can count on being able to carry more with each trip, productivity gains will dwindle. So will the carriers' ability to contain rising equipment and labor costs.

The more important aspect of this nationwide improvement in productivity is that its origin, the `revolution,' happened independently of government policies to grow the economy. The U.S. has been successful with its investment in microprocessors, where Japan and Europe have not, because our markets are much more flexible and we tolerate more change in our economy.

In the U.S., the government did its part by not throwing up roadblocks. Indeed, one of the most powerful things that happened in the early '80s was the broad-based tax cut, which helped attract capital to the industry, and just as importantly didn't prevent capital from moving quickly from one opportunity to another. In Europe and Japan, that kind of change is politically and culturally much harder to accept.

President Clinton played host in Denver last month to representatives from the other industrialized nations. The President was certainly justified in showing off the nation's strength and vitality, but he also couldn't resist implying that the Administration's policies were responsible.

The President was wrong on this count, and that's the important part about the productivity gains. The computer revolution could have been hindered by, but not particularly helped by, any administration's policies to promote the industry. Europe's governments have spent billions of dollars in subsidies to build their own competitive computer industry without much success.

This means that when the microprocessor wave is over, it's over. We hope that technological improvements from the computer revolution never end, but there does come a point of diminishing returns, and throwing more private or public dollars at it won't make a difference.

The real question is: What are we doing now for the next wave? When the next technology blossoms, will our policy makers still think they need to `manage' the growth, or realize that they mostly need to stay out of the way?

About the Author

Martin Labbe

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