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wonderpup

Can Increasing Productivity Really Make Us All Better Off?

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According to various talking heads in both the Government and the Economics establishment we can all improve our economic situations by becoming more productive- which sounds like common sense and in one sense must be true- if we can produce more goods and services with the same or even less work required to produce them, the better off we will all be.

But there is a snag- in a market based society value exchange is the key to material wealth- so the worker exchanges his labour , the manufacturer exchanges his goods and the service provider exchanges his time and expertise. So how much you get is determined by the exchange value you have to offer in return- if your skills are rare, your goods highly desired or your services in demand your rewards will be higher.

So what happens to this exchange value as productivity increases?

Take the extreme example- the fabled Star trek Replicator- a device that can apparently fabricate any desired object from virtually nothing. This surely is the ultimate in productivity- it requires zero labour and hardly any raw material (save perhaps some waste matter it can refashion).

So we can assume that in the Star Trek future everyone has such a device in their home and thus can create just about anything they want or need at will. The end result of this would be great material wealth but almost zero economic value- the products of this incredibly productive process would be worth nothing in terms of value exchange for the precise reason that they were so easily available- so we have a scenario in which material wealth has destroyed economic value.

This is obvious stuff- we all know that economic value-trade value- is about scarcity. This is why air is so worthless as a commodity- it's not that people don't need air, it's that there is so much of it, and so readily available, that no one is going to give you much in exchange for it. Selling bags of fresh air in most places is not a get rich quick strategy ( It might work soon in parts of China)

So the proposition that ever increasing productivity will make us all better off is not as straightforward as it seems. It's true that more productivity will create more material wealth- but at the same time as it does this it will have another affect, it will be reducing the exchange value of both the labour of the producers and of the things they produce. And if exchange value is what determines your access to material wealth then more productivity may not increase your wealth at all- it may even decrease it.

For example- as a worker your exchange value is mostly determined by your scarcity value- you are a commodity. So what would happen to this scarcity value if all workers increased their productivity to the point where the need for labour declined? Labour would become less scarce- and being less scarce would have a lower trade value- and so attract lower rates of pay.

The same could be said of manufacturing- increasing productivity will make your products cheaper to buy- and at first this might be a good thing as more people could afford to buy your product- but at some point your market will become saturated and the exchange value of your product will trend downward shrinking your profit margins as you and your competitors fight for market share.

So is it really the case that we can all get better off as a society by increasing our productivity? I think the answer is that some people can get better off this way- those who are positioned to capture the benefits of the surplus created- so an employer might gain by having cheaper labour- or a manufacturer might gain in the short term by expanding his market via lower prices- at least until his competitors caught up with him.

But since most of us trade on our scarcity value as employees or self employed service providers our ability to increase our own productivity is not inevitably going to lead to more material wealth if the aggregate outcome is to reduce our scarcity value.

The paradox might arise that the more productive we become the less scarcity value we will have. If every plumber in the country were to suddenly double his productivity the going rate for plumbers might actually go down, given that the market for their services is not infinitely expandable and they compete for what demand there is.

Edited to add;

The obvious reply here is to point out that the cheaper goods and services will offset the decline in scarcity value- but this assumes that everything people want or need is equally susceptible to these effects. Where this falls down is if your wages are declining due to a loss of scarcity value but- for example- your energy bills are rising due to an increase in scarcity of energy- or your housing costs are rising due to shortages of housing-so not all commodities are created equal.

Edited by wonderpup

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I don't buy your use of 'exchange value', which is obviously a Marxist concept.

3D printing will have some effect akin to Star Trek replicators. The issue is what happens as the technology is introduced and changes things over time.

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Good post, i'm convinced.

I have worked hard in the past only to have my workload doubled (doing two jobs) and zero reward, however the owner gets a new car for my efforts.

For too many years I have firmly believed that it your working for others then you need to do as little as possible to say comfortable in your job. If that's too much then jump ship.

Edited by Wurzel Of Highbridge

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Everyone can improve their economic situation by working to improve productivity, by doing productive things for themselves that otherwise would have to pay for...productive time well spent is the same as money although no money ever passes hands. ;)

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Obviously increased productivity is the only way we can become better off. Think about it; unless more can be produced for less we only have, at best, the same output.

The problem you're complaining about relates to dysfunctional markets and rentier abuses of State-created monopolies. Absolutely nothing to do with productivity.

Edited by bogbrush

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Yes, that's why we have so much less that we can take for granted, like cars, houses (even when stupidly overpriced because of said monopolies) quality food, clothing, etc. than we had when we had crap productivity.

Edited by bogbrush

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I agree with bogbrush. If productivity goes down, we get worse off. If it stays the same, we stay the same. If it goes up, we get better off.

How the increased wealth is distributed is another issue entirely.

What is the alternative point of view being proposed? That we can become better off by producing less of what people want? Explain how that works? And the end point is we produce nothing and enjoy unimagined luxury?

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Depends how you achieve the increase in productivity, most of the time its through employing fewer people or paying them less.

Somebody has to buy the stuff.

Employing fewer people for the same output is great. The key is what those other people then do, but don't make the mistake of thinking the solution to that matter is low productivity. That's completely the wrong target.

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I'm not really sure of the relevance to most people's lives. Of course id rather be a pauper in the 21st century UK than a king in 17th century UK (aside from a few things - access to maidens, ability to kill people I didn't like with impunity etc :lol: ) so that aspect of productivity doesn't really worry me.

What worries me more is the divergence of GDP and wages. Somehow the UK, until the credit crunch at least, managed to grow wages in line with GDP (cant find the damn graph now), but the US has seen wages stagnate over the last 40 years despite increases in productivity. Obviously the fruits of this productivity are going somewhere. I would say it is stolen by the banksters, but given we have just as many as them as the US, I don't know. Perhaps more wealth is distributed via dividends than wages in the US than the UK, perhaps unproductive retiree's, who knows.

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The OPs argument falls down because when we have inifinite productivity I.e. everyone has a replicator and free unlimited energy then everyone can have whatever they want. There is complete equality and everyone is infinitely wealthy. The key is energy. The reason we're all becoming relatively poorer in the west is because we have a smaller allocation of energy per capita than we used to have back when the US and Europe was the only game in town.

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Productivity in the end equals more consumption , more waste. The more we have the less bang for our buck, the more under utilised stuff we have from clothes to gadgets that get used or worn once.

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The UK's version of increased productivity seems to rely on an ever increasing population and rapidly increasing congestion etc everywhere also aggravating house price problems.

That's not an improvement. Of course real productivity increases are beneficial in the sense that more stuff is produced but not if living standards deteriorate (increasing congestion and unpleasant shift working etc) and the benefits are then unfairly distributed (for example as bail out money and bonuses to the banking/financial sector).

Edited by billybong

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Productivity in the end equals more consumption , more waste. The more we have the less bang for our buck, the more under utilised stuff we have from clothes to gadgets that get used or worn once.

Not true at all. Waste is optional, more things to consume does not mean more waste, it just as easily means consumption of more fulfilling things or greater comfort / utility / quality.

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I don't buy your use of 'exchange value', which is obviously a Marxist concept.

3D printing will have some effect akin to Star Trek replicators. The issue is what happens as the technology is introduced and changes things over time.

Marx made the totally obvious distinction between the utility or 'use value' of a commodity and it's exchange value. As a poster on a site devoted to house price inflation it should be fairly obvious that the utility value of a three bedroom semi remains more or less the same even if it's price- it's exchange value- doubles. Your house might be 'worth' twice as much today as it was ten years ago but it's no bigger in size- so it's entirely possible to make a distinction between material wealth- your house- and exchange value- the price someone would be prepared to pay you for that house.

I'm not arguing that technology will not increase material wealth- I'm arguing that this increase in material wealth may lead to a decrease in the exchange value of things that technology creates.

In the context of houses ask your self what would happen to the exchange value of your house if lots of new houses were to be built nearby- it's likely that it's exchange value-it's price- would go down.

So an increase in material wealth-more houses-leads to a decrease in the exchange value-house prices.

And this must also apply to labour- the more productive a workforce is the less workers you need to create the same output. So it's not a given that making yourself more productive will make your better off- not if your ability to negotiate a wage depends upon the scarcity of your labour. If improvements in productivity lead to more surplus labour then wages may not rise as productivity improves- they may even fall.

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Obviously increased productivity is the only way we can become better off. Think about it; unless more can be produced for less we only have, at best, the same output.

The problem you're complaining about relates to dysfunctional markets and rentier abuses of State-created monopolies. Absolutely nothing to do with productivity.

No- the markets in my scenario are not dysfunctional- they are doing exactly what they are supposed to do- delivering higher productivity and thus lower prices due to competitive pressure.

My issue is with the 'we' in your quote above- who is this 'we'?

The argument you put seems to be common sense- the more we produce the more we have- and that's true as long as the issue of distribution is ignored. But as you know and surely approve of we do not live in a communist paradise- so the fruits of increased productivity are distributed not on the basis of need, but on the basis of ability to pay.

And if ability to pay in most cases depends on your ability to exchange your labour for money, and if increases in productivity reduce that exchange value by creating more surplus labour then it's just as possible to argue that increasing productivity will make some people poorer instead of richer.

What we seem to see happening today is that while increasingly productive technology is making some people better off, it's also making other people worse off- and this divergence is likely to increase as that technology becomes more advanced and ubiquitous.

This is not due to distortions of the free market by your chosen pantheon of villains but is in fact the entirely normal outcome of market forces. If exchange value= scarcity and productivity = abundance then more productivity must result in lower exchange values for the commodities in question- it's really just supply and demand- a bumper crop and the price of spuds go down- a failed crop and the price goes up. Invent a technology that can increase yeild by 500% and the price of spuds falls through the floor- great news for the spud buyer but not so much for the guy trying to exchange his spuds for cash in order to buy things.

So in my view it's simplistic to make the blanket claim that more productivity means we all gain- it's more nuanced than that. Some will gain and some will lose- and in general those who gain will be those those who already have the most, while those who lose tend to be those who have the least- not in every case but in general.

Edited by wonderpup

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I agree with bogbrush. If productivity goes down, we get worse off. If it stays the same, we stay the same. If it goes up, we get better off.

How the increased wealth is distributed is another issue entirely.

What is the alternative point of view being proposed? That we can become better off by producing less of what people want? Explain how that works? And the end point is we produce nothing and enjoy unimagined luxury?

It's the distributive implications I was really addressing- it's the part that always seems to get left out when the 'experts' claim that the way to raise the living standards of the average worker is to increase their productivity.

If the living standards of these workers is a function of their labour scarcity then making them more productive may drive their wages down as their bargaining power is eroded by the surplus labour made available by that improved productivity.

So instead of the workforce gaining higher wages their boss instead gains higher profits as he now needs less workers to produce the same output- profits he can then deploy to further enhance his remaining workers productivity that might lead to more surplus labour in the future.

I'm not saying that higher productivity is a bad thing- I'm just pointing out that there is no reason to suppose it's benefits are shared in an equitable manner- which is the implicit claim made by those who propose higher productivity as the solution to low living standards.

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The OPs argument falls down because when we have inifinite productivity I.e. everyone has a replicator and free unlimited energy then everyone can have whatever they want. There is complete equality and everyone is infinitely wealthy. The key is energy. The reason we're all becoming relatively poorer in the west is because we have a smaller allocation of energy per capita than we used to have back when the US and Europe was the only game in town.

You are right- if we had infinite productivity then the problem is solved- but this also marks the end of Free Market Capitalism since there is no longer any need for trade.

What this tells us is that trade is a creature of scarcity which means that Capitalism is also a creature of scarcity- that is it's 'natural habitat'. Yet the great virtue often attributed to Capitalism is that it has reduced scarcity and that it will continue to do so in the future- and this is manifestly true.

But this does lead to a possible problem- if we view Capitalism as a machine to 'terraform' an environment of scarcity into one of abundance, then is capitalism not altering it's natural habitat in a way that is toxic to it's own survival? The more it succeeds in creating abundance from scarcity the more unstable and erratic it may become as it becomes increasingly mal adapted to the world in which it finds itself- a world that it has itself created?

Obviously we don't live in a world of abundance- but there are some signs that even in the present the sheer productive capacity of our technology is creating distortions in the workings of the system- deflation is a clear and present danger to our massively indebted economies- yet what is increasing productivity if not a deflationary force?

So the great virtue of free market capitalism- it's ability to create abundance- is itself a threat to the system if that system is designed to operate in an environment of scarcity.

Ever increasing productivity is a threat to both capital and labour because both are wedded to a value system in which scarcity is the defining metric- capital can only invest in an unsaturated market and labour can only bargain in an unsaturated market- hyper productivity is something neither can easily adapt to.

Edited by wonderpup

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Take the extreme example- the fabled Star trek Replicator- a device that can apparently fabricate any desired object from virtually nothing. This surely is the ultimate in productivity- it requires zero labour and hardly any raw material (save perhaps some waste matter it can refashion).

No not from nothing, from energy! e=mc^2! Of course, if that energy source was abundant, then more or less free.

Back to the main premise. I think this is where modern economics makes poor assumptions and their simple models go somewhat wrong. Take your extreme example of the Replicator. If I had a working one, I would rarely have to trade for anything, if at all, assuming I already had access to free shelter (side note: Replicators in Star Trek can also convert matter back into energy, so no waste). If this was the case then there won't need to work and I could spend my time on more productive uses, like learning Klingon!

In fact, if productivity and automation were so high, labour would only be useful in the highest levels of cutting edge design. I suppose other jobs might include the general technicians, in order to repair the Replicators! Maybe the outcome would be, like in the Star Trek universe, that people wouldn't need to work unless they choose to. As you wouldn't need a medium to facilitate so little trade, money would no longer be necessary.

This is where the current theories of economics don't work, we live in a system under certain rules (if you believe that QE is part of those rules), but if productivity did ever become this exponential then these rules will no longer matter. You wouldn't need to work to live, you wouldn't need money to buy food or pay your rent as your LL wouldn't need your money to buy anything for themselves! Plus, you wouldn't be so restricted with location as you wouldn't have to work!

You can see this happening in the film and music industries. With the improvements in digital technology it has become easier to make exact replications of these mediums. Although there is still a market for CDs and DVDs and people still like music and films. In the future most bands will make a majority of their money from touring. The same as (indeed, I believe it already is the case) most films will make their money in the picture house!

But then if I can get everything from my Replicator almost for free and so can everyone else, then why would I need to sell my hobbies (ie, music and arts)? What would I buy with it? And if there is no money, it would just be a case of trading one skill for another. I think most would just do things for fun and to bring enjoyment to their fellows in the new utopian society we would be living! A concept, I don't believe many people can yet envision :P But with unlimited supply, would this not be possible?

So, I think I agree that there is a bit of a myth of increased production always leading to increased wealth, although there has been a relationship in the past, it could start to break down once production cost/values collapse to a certain level. Maybe we are not there yet but we could be seeing the start of it, hence the persistent deflationary forces, although I've also never understood why people get so attached to branding (the iphone being a prime example, nice but overpriced for the technology included). So maybe exponential production isn't what will finally break the ridiculous labour exchange system, which hasn't really made much sense since most of us stopped ploughing fields!

Edited by renting til I die

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It's the distributive implications I was really addressing- it's the part that always seems to get left out when the 'experts' claim that the way to raise the living standards of the average worker is to increase their productivity.

If the living standards of these workers is a function of their labour scarcity then making them more productive may drive their wages down as their bargaining power is eroded by the surplus labour made available by that improved productivity.

So instead of the workforce gaining higher wages their boss instead gains higher profits as he now needs less workers to produce the same output- profits he can then deploy to further enhance his remaining workers productivity that might lead to more surplus labour in the future.

I'm not saying that higher productivity is a bad thing- I'm just pointing out that there is no reason to suppose it's benefits are shared in an equitable manner- which is the implicit claim made by those who propose higher productivity as the solution to low living standards.

So your post is nothing about productivity, just like everyone is saying. The rest is simplistic.

You'd be better served focussing on why improved productivity doesn't translate into people diverting their labour into other productive ventures.

Edited by bogbrush

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Not this sh*t again...

Humanity achieving more, from less, is a net gain. Period.

What you need to look out for is violence being used to close off competition, which then feeds rentiers. The gains of increased productivity are then siphoned off from the many to the few.

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Not this sh*t again...

Humanity achieving more, from less, is a net gain. Period.

What you need to look out for is violence being used to close off competition, which then feeds rentiers. The gains of increased productivity are then siphoned off from the many to the few.

When I stopped coming to the forum a few years ago these articles were appearing fairly frequently. I've dropped in again now and find they're still happening.

Has there been any break in the service in the meantime?

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