All Commentary
Wednesday, October 17, 2012

Is Being Less Productive Good for Humanity?

It is not often that one comes across an article, especially one in arguably the most important newspaper in the country, that is so misguided across the board that one hardly knows where to begin in pointing out its errors. Unfortunately, such an article appears in the May 27 New York Times. Tim Jackson’s “Let’s Be Less Productive” argues that the quest for more and more productivity and efficiency has led us to make any number of mistakes with respect to priorities and policies. Furthermore, he suggests that whatever good that productivity gains have provided in the past, there may be “natural limits” to those gains that will eventually lead to the end of growth. He concludes that we should ease back on the quest for greater productivity as a way to ensure sustainable growth.

Would being less productive really be good for humanity?

Jackson’s problems begin with a profound misunderstanding of what economists mean by productivity and efficiency and the role that “output” plays in a market economy. His opening definition of productivity as “the amount of output delivered per hour of work” is perfectly serviceable. He also notes that it “is often viewed as the engine of progress in modern capitalist economies,” which is also accurate, although it is not the only or necessarily the primary engine. The trouble starts in the next sentence: “Output is everything.” Output for the sake of output is most certainly not what productivity is about. Producing what consumers want at the lowest cost possible is the goal.

Similar errors plague Jackson’s discussion of efficiency. Here too he seems to think the point is to just do things faster, regardless of what the thing is. He tries to show how silly that idea is by pointing to examples where doing things faster is strange, such as playing Beethoven’s Ninth faster and faster each year, or trying to do detailed craftwork faster and faster. These examples, however, knock over a straw man. In the very first weeks of Economics 101 teachers introduce the concept of efficiency by emphasizing that it cannot be understood outside of the end that is being pursued. It cannot be “more efficient” to play Beethoven faster because that is not what people want. The same is true of craft work: People want the care and detail that goes into such work, so it is not more “efficient” to get craft workers to work faster. It is inefficient given that what people want is a carefully produced, detailed piece of work (or to hear Beethoven’s Ninth more or less as he wrote it).

Jackson then points out how crafts, music, and other service industries are desirable because they are not about the “outpouring of material stuff” and therefore might promote sustainability. What Jackson fails to recognize here is one of the fundamental truths of economic history: The reason why cultural products and services are taking up such a large portion of economic activity is that we have become so very productive and efficient at making physical stuff.

Take agriculture. For most of human history, we have had to devote the overwhelming majority of human labor to just feeding ourselves. The incredible productivity growth of the agricultural sector has meant we can do that by employing, in the United States anyway, about 2 percent of the population. At first the labor no longer needed there went into manufacturing to produce the physical stuff we wanted. Of course we then got incredibly productive at making physical stuff. People claim that the U.S. manufacturing sector is stagnating because there has been little job growth, but when you look at what it actually produces, you see that it is stronger than ever—precisely because it is so productive that it doesn’t need more labor to make more stuff.

The combination of productivity gains, which produce higher wages, and declining costs of food and manufactured goods means that people have a great deal more disposable income. Some of it goes to buying more food and physical stuff, but much of it goes to buying services and enjoying culture, which people couldn’t afford before. The nonmaterial portion of “output” grew as we became increasingly productive. We consume more nonphysical stuff because we have continued to allow enough scope for the market that productivity gains are rewarded.

Unintended Consequences

To commit, as Jackson would, to a low-productivity economy would cut this process short with two consequences he probably would not want. First, it would slow, if not stop, the very process that will enable us to have a smaller environmental footprint: more efficient ways of manufacturing things so we can increase the number of cultural and service jobs. Part of industrial efficiency is that producers learn how to turn what starts as “waste” products into productive inputs. The history of industry is full of such examples where efficiency considerations have reduced waste. (See Pierre Desrochers’s Freeman article “Saving the Environment for a Profit, Victorian-Style.”)

Second, restricting productivity growth would perpetuate poverty in the undeveloped world. The combination of markets and productivity growth has been a major engine of economic development across the globe. Jackson’s proposal to restrict productivity growth is but another example of Western eco-imperialism: We’ve got our wealth, but now you’ll have to stay poor longer to save the planet. I assume Jackson does not intend to consign billions to their current levels of poverty for longer than necessary, but that would be one major result of lower productivity; it would reduce exports and raise prices elsewhere in the world.

So why, in the end, does Jackson think productivity is a problem? Early in the essay he suggests there might be limits to our ability to grow. He presents no argument other than pointing to the financial crises, rising oil and other resource prices, and increasing ecological damage. He offers no explanation of why these are caused by, or reflections of, limits to growth. Apparently he assumes his readers will simply nod along.

Of course none of these problems results from growth or any supposed limits thereof. The financial crisis was the predictable result of excess money creation and of housing policies that fueled an artificial boom. Looked at over the long run, the real prices of natural resources are falling, not rising, and we have more proven oil reserves than ever before. Environmental damage has been reduced in the developed world through the very forces of productivity-generated wealth increases that Jackson rejects. None of these reflects “limits to growth.” In fact there are, as Julian Simon was quick to remind us, no limits to growth as long as we allow the human mind, what he called the “ultimate resource,” the necessary freedom to invent and create—and get more productive.

Jackson’s article is a sad reminder of how much work there is to do in communicating the larger story of economic history and the way in which market institutions have made possible a wealthier and cleaner world. Productivity gains are not the enemy of human progress but one of its central causes. To limit productivity is to limit our ability to continue the amazing story of better lives for more human beings.

  • Steven Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he was also Director of the Institute for the Study of Political Economy. He is the author of Austrian Economics: An Introduction.