1980 American Productivity in 2011
US productivity is flat. The amount of goods and services an American worker delivers per unit wage cost is not increasing. Bloomberg reported the 2nd quarter 2011 rate at a -0.7 percent decline in fact. Productivity in China over the last 60 years was stagnate for decades, before starting to explode in the 1990s. (Data analyzed by Selin Ozyurt in "Total Factor Productivity Growth in Chinese Industry 1952-2005". )
Two things matter about these numbers:
1. The US is no longer primarily a manufacturing economy, so individual worker productivity will not increase quickly any more. Automation and better manufacturing processes will not make a lawyer or banker more productive. (Building larger and larger banks and law firms helps service productivity grow, but only if the service is a monopoly and growth can go on forever.)
2. Higher Chinese manufacturing productivity means that relative Chinese wages are lower because production is more efficient.
When the US was more of a manufacturing economy in the 1970s and 1980s productivity was increasing rapidly in the US. US services, like financial services, were also growing fast and becoming more productive because of market dominance. Neither is the case for America relative to the rest of the world today.
With increased productivity also comes increased intellectual property generation. It takes new ideas, devices, and products to increase productivity, and the nation with the fastest growing productivity will have the fastest growing IP reserves. Long term decline in new ideas means long term economic stagnation, means lower productivity in the future when key patents are controlled elsewhere.
Some economists whistle past the graveyard that the increases in Chinese productivity mean higher Chinese wages, because more people live better there and will want more "ism's" - feminism, unionism, environmentalism, consumerism, etc. What they are really saying is that Chinese productivity and wealth increases will spur Chinese internal demand and open new markets for US exports. If China had ever been an open, free trade market at any time in its history you might even believe them. Think Roman silk trade with China in 150 CE killing the value of the Roman currency, or British silver for Chinese tea in 1839 spurring the Opium Wars.Continued on the next page