What About Productivity?

For years we have been arguing that the "heavy hand" of government, with all its best intentions, has served to stultify economic growth.  This comes in the form of tax rates that are too high and an overly complex tax code, both on corporations (which we would argue should pay no taxes) and individuals, as well as burdensome regulations that serve to limit the ability of businesses to grow.

There has been much talk about why productivity has been so slow in the last decade or so and we think these factors have had a direct impact on that phenomenon.  This has served to create an environment of extreme angst amongst the citizenry and has manifested itself in one of the most vitriolic political environments ever.  While we would argue some of the slower productivity growth is due to poor methods of measurement that don't accurately take into account the impact of technologies such as the smart phone, there is definitely a drag happening and the culprit is clear.

But how do we prove this?

Economists Michael Mandel and Bret Swanson, in their co-authored essay "The Coming Productivity Boom: Transforming The Physical Economy With Information", have hit the nail on the head and have backed up their claims with hard data that explains how we got to the point we are at and how to remedy the problem.

One of the key statements in the piece, from our perspective, and one that explains why lack of productivity growth is troubling, as well as why the tone of the nation is so sour:

     "...if we get stuck in a world of slow productivity growth, we face some tough choices.  With a fixed or slow-growing economic pie, the only way to make one group better off is to make another group worse off.  Politics turns mean and nasty."

Mandel and Swanson point out that traditional "physical industries" (healthcare, manufacturing, energy, transportation, education, agriculture, retail, urban travel services), which make up 75% of private-sector employment and 75% of private-sector GDP, have made up only 30% of investment in information technology.  Meanwhile, the "digital industries" which make up 25% of employment and only 30% of GDP have made up 70% of investment in information technology.  Mandel and Swanson call this "The Information Gap" and suggest the culprit is -- as we have stated for years -- too much taxation and regulation!

The most heavily regulated industries are those defined as "physical." It is not coincidental that the effects of slower productivity growth have been felt the most in those spaces, as the data suggests in Mandel and Swanson's piece.

Michael and Bret make the case that this is all about to change as the physical industries are "freed up" to spend more heavily on the necessary information technology that will allow them to "catch up" in the productivity growth race.  Their piece is crucial reading for those that want to be adequately informed about the issues that drive economic growth, or, conversely, keep the economy weak.

We believe we are well-positioned to benefit as physical industries make this adjustment!

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