The Productivity Myth

wal-mart dilemmaIf you read economists’ reports, you’ll find the word productivity mentioned a lot. It’s key to competitive advantage and a healthy economy, they say. Ours is dropping, compared to other countries where people work harder and/or work smarter, they say. Automation improved it for factory workers and agriculture, but we need to improve it for office workers, they say.

This is sheer propaganda. Productivity is a euphemism for profit margin. Of course the corporatists obfuscate this fact by defining productivity deliberately obscurely: as the amount of ‘output’ per unit of ‘input’. What this means is the ratio of revenue (that’s how right-wing economists measure ‘output’) to cost (that’s how they measure ‘input’). This is precisely the definition of profit margin. When neocons lament that worker productivity is inadequate, what they are really saying is that their corporate profits are inadequate, and that unless workers make severe and continuous sacrifices to increase these corporations’ profit margins from domestic operations they will take the money they gouged from consumers in this country and invest it all in struggling nations that are so desperate that they will do anything, .

This is the Wal-Mart Dilemma, illustrated above in the red boxes, but taken to the next level. What Wal-Mart is doing to suppliers, forcing them to lower prices every year to keep their contract, until they are bankrupted, is what corporatists are now trying to do to workers, forcing them to accept lower real wages, fewer benefits, and work longer hours, or they’ll find another ‘supplier’ for their labour — China.

More specifically there are six ways you can increase corporate profit margins, oops, I mean productivity:

  1. Increase revenues by charging customers more for the same thing. This is accomplished by forming oligopolies with competitors to reduce customer choice and fix prices, and by false advertising.
  2. Increase revenues by getting the government to pay more for the same thing, or buy more, using taxpayers’ money. This is accomplished by bribing politicians for no-bid contracts, ‘privatization’, and massive corporate welfare subsidies, and by encouraging wars and other activities that entail massive increases in government spending with no benefit to citizens.
  3. Increase margins by charging customers the same price for an inferior product that does less and needs to be replaced more often. This is accomplished by squeezing out or buying out (or suing out, using new insanely broad intellectually property laws) any new and quality producers of products, so the customer simply has no choice left but to buy Chinese-made crap that will break as soon as you open it.
  4. Reduce labour costs. This is accomplished by threatening workers with shut-downs and massive layoffs if they try to organize unions, or if they refuse to work longer hours each year (to compensate for the fact that they’re now effectively doing two or three people’s jobs), for lower real wages and reduced benefits. It is also enabled by cheating on cost-of-living increases for workers by bribing and coercing government officials to deliberately understate (by at least half) the actual annual increase in the cost of living.
  5. Reduce material costs. This is accomplished by using inferior materials, by blackmailing struggling nations and bribing their officials to sell goods at lower and lower prices (in turn requiring even more brutal slave labour in those nations to make this possible), and through bullying governments to sign so-called ‘free trade’ agreements that prohibit countries, through massive, crippling fines, from passing or enforcing laws that provide social or environmental protections to workers that exceed those of the most lax signatory.
  6. Reduce regulatory costs. This is accomplished by bribing politicians to reduce, roll back or simply not enforce social and environmental laws and regulations.

While of course none of these things is sustainable indefinitely (the Robber Barons tried a century ago), when you have corporations and governments conspiring together to do all six of these things, this race to the bottom can continue for years.

That is precisely what is happening now. We now have a situation where year-over-year profit margins of the world’s largest corporations have been increasing by 20% or more every year for a decade, and are expected to continue to do so indefinitely. The average annual profit growth rate predicted by analysts for the S&P 500 stocks is about 23% annually, for at least the next five years, and it is on that basis that stock prices are so wildly overvalued and shareholder expectations are so relentlessly excessive. The return on investment for these companies is now at least three times a reasonable ROI for investments with commensurate risk.

We, the citizens and consumers, are completely funding this windfall for the executives and controlling shareholders of big corporations, and we are expected to continue doing so indefinitely:

  • We are paying more each year for many products and services, simply because corporate oligopolies are allowed to fix prices and gouge us.
  • We are getting shoddier products each year, produced in countries that don’t give a damn about quality, and our landfills are filling up faster and faster with this junk.
  • More and more of our tax dollars are going to private companies for absurdly overpriced contracts with no competitive bidding and no accountability for what we get for that money.
  • Corporate welfare subsidies, which also come from our tax dollars, are out of control, often deliberately hidden in ‘omnibus’ bills so the hapless media can’t even tell us (even if they were inclined to) how our money is being stolen and used to repay political favours.
  • The commons, public lands and resources that belong to the people, not the government, are being given away to friends of government at fire-sale prices.
  • Our wages are being reduced, in real terms, by eliminating our colleagues’ jobs and forcing us to do two or three jobs, requiring longer work days and weeks for what, after real inflation (which varies from 6% for staples to 20% or more for health and other costs, but is deliberately and radically understated by governments) is actually a cut in salary.
  • Wage benefits are being eliminated, further contributing to the average worker’s double-digit annual cost of living increase.
  • Pensions are being cynically converted from defined benefit to defined contribution plans, which will be essentially worthless in the extent of a severe recession.
  • Struggling nations are being robbed, bankrupted, poisoned with our toxins and our utterly unregulated industrial and extraction activities in those countries, and driven into brutal wage slavery, and not surprisingly they hate us for it and often take it out on innocent citizens.
  • Free trade agreements are gutting social and environmental regulations in countries rich and poor.
  • Deregulation is enabling more and more corporate fraud, abuse of workers and the poisoning of our air, water, soil and food.

The chart above, which proposes a solution for the Wal-Mart dilemma by converting the red ‘vicious cycle’ into the green ‘virtuous cycle’, also suggests the solution for all of these corporate abuses. It would require our intervention, through citizen and consumer action as well as through our elected officials, to do all of the following (take a deep breath):

  • Smash oligopolies, by re-enacting antitrust/anticombines legislation with teeth in it, and imprisoning and confiscating the property of corrupt executives who defy it.
  • Prohibit false advertising and corporate propaganda in the media, and make it a serious criminal offense.
  • Require minimum, no-hassle, no-charge warranties on all products and services.
  • Place a severe tax on products that produce waste and pollution and/or use non-renewable resources.
  • Require suppliers, not customers, to take back and reuse and recycle products at the end of their useful life, and to take back all packaging, at no cost to the customer.
  • Eliminate privatization of government services. Governments must be held accountable to provide essential social services effectively using their own resources, and auditors of government programs should have the authority to report, fine, dismiss and prosecute unethical and incompetent public employees, including elected officials, supported by enabling whistle-blowing legislation.
  • Eliminate all corporate subsidies, except to fledgling small businesses that create substantial new employment.
  • Prohibit the sale or lease of the Commons to private interests, and commence a program to re-expropriate lands already sold or leased, for amounts not exceeding what the government received from their sale.
  • Increase the minimum wage to 150% of the local poverty level.
  • Prohibit work weeks longer than 35 hours for anyone.
  • Revamp the computation of cost of living indices to make them reflect workers’ real annual increases in costs.
  • By global agreement, and subject to trade sanctions for non-complying nations, establish strong minimum standards for social, worker and environmental protection in all countries, including high-quality, universal, free health care and education, a guaranteed minimum annual income (through a negative income tax), and defined-benefit pensions.
  • Teach all students entrepreneurial skills in high school, and support, through government programs, the establishment of local, sustainable entrepreneurial businesses.
  • Establish trade regulations that encourage and favour locally and domestically-made products and services, by prohibiting the offshoring or importing of goods and services that can reasonably (given considerations such as climate and availability of raw materials) be produced domestically.
  • Tax the owners of corporations proportionally on the profits generated by those corporations, regardless of if and how they are distributed, at marginal personal income tax rates. Apply a 100% excess profits tax on personal incomes in excess of, say, 25 times the minimum wage, and a 100% excess wealth tax on accumulated net assets in excess of 25 times the country’s median personal net worth. You want to see ‘a rising tide lift all boats’, that’s the way to do it.
  • Forgive all debts of struggling nations, and return to them 100% ownership of all property, companies and resources located in those countries. Other than invoking the above-noted trade sanctions on countries that fail to comply with high global social and environmental standards, do not intervene otherwise in the economic system of other countries in any way.
  • Likewise, allow a reasonable time in our own countries for 100% ownership of all property, companies and resources to be transferred from those who are not citizens or landed immigrants, and full-time residents of the communities in which these assets are located, back to those who are, or, if these properties are undeveloped, to the Commons for the benefit of all citizens, for a reasonable compensation.

This is all, of course, dreaming in technicolour. All of these actions are perfectly reasonable, and could be put into place quite quickly and inexpensively. But it would entail the most massive redistribution of wealth and power in the history of civilization. Those who have ‘worked the system’ to gain a wildly disproportionate share of each nation’s wealth and power now undoubtedly believe they are entitled to keep it, by force if necessary.

So it won’t happen, at least not in an orderly, reasoned way. But I’m not suggesting ideal, radical solutions here just to be provocative or to make you feel badly about their impossibility. The status quo is unsustainable, and eventually, by one means or another, these changes will occur. The next Great Depression, pandemic disease, global and regional wars, the End of Oil, global warming, and ongoing revolutions of various types will all force us to come to grips with the fatal flaws in our economic system and in the political system that enables it to continue. We will implement all these changes when, and only when, we have no other choices left.

But the next time you hear corporate executives or government officials lamenting our lack of ‘productivity’ and blaming it on lazy or uneducated workers, just ask them why 23% annual growth in corporate profit margins isn’t enough, and by what magical thinking they believe such increases are somehow sustainable forever.

Or better still, ask them to explain to their children why this year’s and next year’s profits are more important than leaving them with a world, an economy or a society that is sustainable, just,or even livable.

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11 Responses to The Productivity Myth

  1. Bil says:

    It’s good to have all the crazy ideas grouped together.Just to pick on one. Who are you to tell ME that I can’t work more than 35 hours if I choose to do so? I’m glad to hear your society will be equalitarian, it just won’t be free. How dare you?

  2. Mike says:

    Bil, enforcing the 35 hour workweek leaves you free time to plan your revolt. Think of it as a little seed allowing for evolution in the system.

  3. Ken Hirsch says:

    Before you title a blog post “The Productivity Myth”, it might help to become slightly acquainted with the concepts involved, at least the definitions. This web page at the Bureau of Labor statistics: is very helpful. You might consider auditing a college Econ class since almost everything you said is wrong. If you see a graph labeled “productivity growth”, it’s invariably output per hour. Of course “unit labor costs” are also measured, but it is not the same thing as productivity.I don’t know whose productivity you had in mine when you say “Ours is dropping” The productivity growth in the United States over the last decade has been astounding. I know Canada hasn’t been as strong, but it’s not so bad, really. I don’t know exactly which corporations you mean when you say “profit margins of the world’s largest corporations have been increasing by 20% or more every year for a decade”. Corporate profits in the U.S. declined (as a percentage of GDP) from 1995 to 2001. They’ve increased sharply since then, but they’re just a bit above 1995 levels. (I can’t find a graph online that includes later years.)If you’re going to advocate seizing the means of production and a dictatorship of the proletariat, you should at least get your basic facts right.

  4. Wissbegieriger says:

    How good it would be to see any answers from you, Dave – particularly to Ken’s refutations.I think it makes it too easy for you to wriggle away without progress, the way comments on your weblog are old-fashioned, subordinated off the page. Perhaps you should change this?

  5. daniel says:

    You did not understand, especially Wissbegieriger, who wants Dave to edit the blog script @ salon LOL!!

  6. Karen M says:

    Dave, you inspired me to set off to google to find the name of a book by Jeremy Rifkin… I’d heard him discussing it and how the last big increase in “productivity” or “efficiency” had NOT been shared with workers… when computers became a part of the work force. It’s not as if we got an extra day off, after all, even though PC’s had a similar effect.Anyway, I couldn’t find the book, but I did find this, and thought if you hadn’t seen it, that you would want to. Maybe what you’re struggling with is that breakthrough to a new consciousness that Rifkin refers to: “…a new philosophy of science based on empathy, relationship, and community…” It seems to me that it’s the whole premise of your blog. (I can only imagine the ripples that already emanate from here.)In my worldview, efficiency is vastly over-rated, and redundancy has been so taken for granted, that in those instances when we really need it… it isn’t there. (e.g., safety nets)

  7. Martin-Eric says:

    Your point about the green strategy being utopia, because the economic powers indirectly have control over legislation and over the police thru their political friends, along with your mention of the Barons, brings to mind a little research project I did recently:Barons are a recuring theme in several books about successfully disconnecting oneself from the system, which prompted me to investigate exactly what is meant by the term “Baron”. One has to go back to the Medieval times to find out. Basically, the principle is that people who own a significantly big enough chunk of land and who are totally self-sufficient, effectively constitute an autonomous State, not subject to the Law of surrounding countries. In other words, all-encompassing ownership and absolute self-sufficience gives someone the right to call the shots on their own domain. This is also why Barons are called “Free Lords” in several languages: free, because they are not subject to any country’s Law and lord, because they effectively are the Law on their own property and thus cannot be subjected to another ruler’s Law.Not surprisingly, these Barons tend to have their own staff of servants maintaining the land and, more relevant to this particular thread, their own militia guarding the property and enforcing the Law of its Baron.How is this relevant here? We already know that most corporations has some vested interest in the paramilitary industry and that they leverage private property laws to justify having security guards with near-police authority. See, for instance, the way security guards at USA shoping malls act like they can effectively trample the Freedom of Speech of people wearing an opiniated T-shirt, claiming that political statements constitute disturbance of peace and that, the mall being private property, its owners can factually enforce any policy they damn well please.This is how corporations leverage the oldBaron priviledges and shamelessly manage to bypass laws and increase their wealth. Now, what if a group of people would buy a large piece of land under the same principles? Wouldn’t this, in effect, constitute a new country that can dictate its own laws and that would no longer be subject to those of surrounding countries? What if this group was a positively-minded intentional community? Wouldn’t that effectively bypass the transnational corporations’ free reign?Those are just ideas. Whatever someone choses to make of them is their own responsability.

  8. Martin-Eric says:

    PS: this strategy of maximum ownership not only guarantees that the pwoers that be pocket big, it also effectively keeps the proles in line. This is precisely why, at a time when Internet should allow for real democracy by informed voters, corporates and governments alike are doing everything they can to enpoverish the masses: the day someone no longer is self-sufficient, they effectively lose all power to make their own choices and to vote with their money, simultaneously losing any democratic leverage and living at the mercy of the powers that be.The reason for this is simple: true democracy can only succeed among people who truly are equal. Someone with a huge property and a fortune behind it can and in fact does have the luxury of participating in the decision-making processes of business and policy as a full-standing citizen. Proles simply do not have that sort of economic leverage, being at the mercy of the system and too busy making ends meet, and this is why democracy as practiced nowadays simply doesn’t work. What few people like to be reminded of is that Ancient Greece had slaves doing all the work (equivalent to today’s working class), while people who were full-standing Greek citizens had the luxury (and obligation) of participating in the democratic process, voicing their opinion over what needs to be done and who among them shall be empowered to do it.The true reason why the green solution won’t happen is because we are not talking among equals. For as long as the green agenda is less profitable than the red one, it won’t happen. Thus, at best, we can invent immensely profitable business models that fit the green agenda, but few of us can factually claim to be among the Barons with the power to implement them. Still, the exercise of finding ecologically sane models and of promoting them is a good one that, if adopted by any Baron, can have tremendously positive consequences. Let’s do it!

  9. Martin-Eric says:

    And yet one more: it ought to be remembered that Canada and USA happened when Europeans got fed up with their country’s absurdities and set sail to build a better land. True enough, they stole land ownership from natives, but the point is that until a State was founded there, it mostly was a question of people claiming a piece of land just large enough to build a farm and be happy with their family and friends, outside the reach of British, French and Spanish lawmakers, cohabiting with the natives (one might recall how several pioneers of American conquest were lone adventurers who took a local as their wife).There’s huge agricultural lands in the former Soviet empire that stand there abandoned, including whole villages of somewhat derelict but usable housing and facilities, ready to be taken back into active duty. Granted, Russia and the former stans are not exactly politically easy, but word has it that the farther you live from the capital, the less chances you stand of being bothered by civilization.There’s probably other places worth investigating as well.

  10. Great thinking, love it, Dave.I like to to imagine things along the lines of if we were really serious about…. then we would …If we were really serious about reducing material content of our commercial systems we would require people to pay for goods first when they threw them away. (no-one would discard anything)If we were serious about employment for everyone, sales tax would be lowest on high (in nation) employment goods (all goods would miraculously become high labour, and even unemployable people would find themselves approached to be on someone’s payroll)If we were serious about oil dependance, every house would have a transport vulnerabltiy index on it based on e.g closeness to public transport, heating needs, facilities within “walkshed”. But we’re not, are we, serious, if we were it would show mor, wouldn’t it?

  11. Dave Pollard says:

    Friends, thanks for the comments, embellishments and additional references.As for the critics, so quick to take my words out of context — the idea of limiting work to a 35 hour week is to redistribute wealth and to prevent labour exploitation. I would not presume to tell anyone what they can do after they clock off ‘paid’ time. If they want to work themselves to an early grave, more power to them. If they want to take up a hobby and broaden themselves, that’s fine too. If they want to numb themselves with drugs, alcohol and/or sex, bravo. All I’m saying is that they can’t have more than 25x more of the pie than anyone else, no matter how hard they work. And if that offends your libertarian sensibilities, then so be it. I said it was dreaming in technicolour. But sometimes it’s useful to imagine what a sensible world would be like.

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