Jobs and Productivity

NYTimes has a nice tutorial to explain the paradox what is happening in the US – the economy is growing, but jobs are not. The reason: a more productive workforce, thanks to the investments in technology. But the question is: will the growth continue without the addition of jobs?

The United States economy has not experienced anything like this since World War II. Normally, a spike in productivity is accompanied by an even greater spike in demand. Simply put, productivity rises when workers produce more and sell more each year, and do so without putting in extra hours. The production part is working just fine. The demand, however, is lacking.

That, in turn, is having nasty repercussions for jobs and incomes. The increase in productivity has allowed many employers to cut payrolls or workers’ hours. Why pay six people to assemble 90 toaster ovens an hour when only four workers are needed to assemble the 60 ovens that can be sold? Better yet, why not speed up the line and cut the four workers to three, each one forced to work faster? But that leaves three workers unemployed, without income and unlikely to buy toaster ovens or much else until they get work again. Gradually, the demand for toaster ovens falls to 50, then 40, and another worker is laid off, or everyone’s hours and pay are cut. And demand falls even more, producing its own negative dynamic.

Consider what happens when demand outstrips productivity. The toaster oven company installs a computer-controlled system that delivers parts for the ovens directly to the assembly line, simplifying the work of the six assemblers enough for them to raise production to 100 ovens an hour. That generates more sales revenue to distribute in wages, not to mention profits. The raises encourage spending, and as the demand for toaster ovens inches up to 110, a seventh person is hired.

Some economists are optimistically making the case that years of investment in information technology are finally paying off in what seems to be a permanently higher productivity growth rate one that will endure even after employers stop squeezing their workers.

Rarely in the past has productivity held up in the absence of robust business investment, which is certainly absent now. What saves the day are the delayed productivity gains from constantly devising new ways to use the huge earlier investment in technology, says Erik Brynjolfsson, an economist at the Sloan School of Management at the Massachusetts Institute of Technology.

“It is as if thousands of invisible factories were built all over America, not made of bricks and mortar but of business processes,” he said. “Now these factories are being pressed into action.

Innovating in a Connected World

I recently read Bhaskar Chakravorti’s book “The Slow Pace of Fast Change: Bringing Innovations to Market in a Connected World.” There is an interview with him in Ubiquity [link via Viswanath Gondi]. A few quotes:

Fast change is any new idea, technology, innovation or product that makes a fundamental difference in our social, political or commercial lives. My argument is that the process by which technology has an impact is actually quite slow even if the intrinsic benefit of the innovation is enormous. It’s a point that seems to have been lost on many people in the last few years.

If you have a problem you must understand who the relevant actors are in that problem, what is the nature of the status quo, and what are the choices that explain the current gridlock. One actor may be doing things that constrain anybody else from adopting an innovation.

The current status quo is in a gridlock equilibrium because all the players are interconnected with each other. They are part of a network and they cannot act alone.

In order to get from here to there, you break down the problem into the choices of individual players: what their current choices are and what you want those choices to be. You also have to think about what is driving those choices. You create a map of potential barriers or motivating factors for specific players that you as a strategist might be able to influence.

An interesting aspect of the interview is Bhaskar’s comments about the network computer (or the thin client):

I don’t think that a network computer in its pure form, as articulated by Oracle CEO Larry Ellison several years back, will happen. However, many aspects of that original idea are already happening. It’s the classic example of fast change in innovation taking a long time. When the innovation appears, it does so in a form that is embodied in a completely different incarnation.

At the time when Ellison was talking about the network computer, people were getting interested in something totally different. It was a little device called a Palm Pilot, which took off like a rocket. The Palm Pilot had very few applications but some aspects of it had the same value proposition as the network computer. It was a so-called “thin client,” as it didn’t have a whole lot of intelligence sitting on it. However, if you stuck it into a pocket, it could synchronize with a central server, which was the user’s personal computer, and you could match up the data on your Palm Pilot with the stuff on the PC and vice versa. You could use it for a limited number of purposes and then come back and dock it into the server. That’s not very different from a much broader set of applications that the NC was designed around.

On the related concept of grid computing, he says: “That vision is not very different from a notion of network computing where the intelligence is somewhere in a server inside the enterprise. However, the ultimate penetration of a utility computing concept will also have to reckon with an inter-connected network of participants and a coordination of their choices. This is similar to the challenges that the network computer had to confront.”

Urban Informatics

Howard Rheingoldquotes Anthony Townsend about how new technology may change the way cities are structured:

Two hundred years ago, that meant most urban workers had to live within a half-hour’s walk or horseback ride of the city center. The railroad and automobile made it possible to extend the distance covered in an hour, making suburbs and sprawl possible. “While urban planners continue to assume commuting time is non-productive, mobile telephones, voice-mail, text messaging have changed the basis of that assumption.”

As a result of the extra telephone-enabled work accomplished while commuting or moving from place to place within a city, Townsend believes the pace of urban life is quickening. “As every person completes more tasks, communicates with more people, coordinates activities among more social networks in the same amount of time, the aggregate effect is an acceleration of the urban metabolism.” If Townsend is right, today’s New York minute will seem too leisurely for tomorrow’s crowds of hypercoordinated and autoscheduled city-dwellers. One key challenge to civic leaders and urban planners is to create more public spaces that attract transient communities of wireless urban nomads who serve as creativity and conviviality magnets, attracting vitality to the social heart of the city.

In Townsend’s view, the effects of this metabolic speedup are complex and sometimes contradictory: “Mobile communications technologies reinforce the competitive advantage of central city business districts by making them more efficient, yet at the same time make automobile-based urban sprawl manageable and livable.” People get more done in the city core. At the same time that the urban core is heating up and attracting the young, fast-moving, youth thumb-tribes and unwired mobile knowledge workers, it becomes possible to extend sprawl even further. People will be doing email via speech-to-text/text-to-speech intermediaries while crawling through traffic from their suburban homes. “Just as the telegraph and the railroad were symbiotic partners in creating cities of previous centuries, the automobile and the mobile telephone are partnering to create cities of the twenty first century.”