Government, management fostered drop in worker output

We have all been deluged with news media comment on the decline of total production in the US economy and in productivity per worker hour. Much of the comment has concentrated on the later type of measurement, the productivity of the worker, with the assumption stated or implied that the decline is the workers' fault.

But this is a rather improper implication. Good workers do not suddenly become poor workers in massive numbers. It is simply a matter of the irony of numbers that averages of large numbers ordinarily move at a glacial place. The other major determinants of changes in output per hour worked are the design of products, the quality of tools, and the organization of the work effort.

Products that can be assembled by snapping parts together, rather than by welding or bolting them together, can be assembled more rapidly and thus directly influence output per labor hour. This is a matter of design which is settled by management, not by labor.

More and better equipment and more up-to-date plants increase output per hour , but US industry has been laggard in recent years in updating plant and equipment. The reasons for this lie in our financial and tax system and its massive failure evidenced in the raging inflation of today. These reasons are the result of human failure on the part of the elected officials, lawmakers, and regulatory officials.

Inflation has discouraged investment in productive assets and has directed funds into speculations and the defensive holding of nonproductive assets such as gold, silver, art, stamps, diamonds, antiques, and "collectibles" of many sorts.

High investors returns have been realized not by bond and stock buyers, who supply funds for research and development and for plant improvements, but by investors in money market funds. A godd deal of the money flow through these funds has financed consumer purchases at ever increasing prices.

As a result of tax laws and regulation the financial community for many years has found greater returns in what Robert Reich of the Federal Trade Commission calls "paper entrepreneurship," that is in arranging mergers and the building of conglomerates, than in financing plant improvements and product development, and in innovations.

This tax-induced nonproductive game has other consequences as well. With interest on bonds allowed as a business expense, while dividends on stock are not, there is a tendency to replace stock of formerly independent companies with bonds issued by organizations merging with these companies. It is obvious that an increasingly bond-financed industry, with contractually required periodic interest payments, leads to a more vulnerable economy than one more heavily based on stock-financed companies. It is subject ot great strain, bankruptcy, and court-supervised reorganizations in the face of a decline in earnings. But even here there are opportunities for more paper entrepreneurship in company collapses although declines in employment, total output, the quality of the product are also of this process.

Other reasons for a decline in total output can be found in the creation of useless jobs such as administrative workers and toll collectors on fuel-washing turnpikes. These could have been financed without all this waste by a mere increase (with no increase in the cost of collection) of the gasoline tax. There are many other examples of the creation of useless jobs in both public and private industry.

The decline in output is the result of bad business, financial, and government management. Defensive and restrictive work practices of unions no doubt contribute to lowering production but change here has been the least important factor in the production mix and thus of the least importance in explaining both the decreases in total output and in output per worker hours.