Productivity as New Engine of Wealth

That’s according to Cisco CEO John Chambers. NYTimes writes:

“The next big thing in technology is going to change dramatically our standard of living,” Mr. Chambers said in an interview. “If productivity grows 1 percent per year, your standard of living doubles every 72 years. If it grows at 3 percent, which I think is probable, you’re talking every 24 years.”

While economists agree that countries with a more productive labor force grow faster, the drive for productivity is spurring many Western companies to relocate jobs, increasingly white-collar ones, to cheaper markets including India and China.

At Cisco, where Chambers is pushing for productivity gains of 10 to 15 percent a year over the next five years…Cisco’s productivity jumped 9 percent in the last quarter, Mr. Chambers said, contributing to an 87.5 percent increase in profit per share.

Moving jobs to lower-cost countries is part of that, Mr. Chambers said. Cisco, based in San Jose, Calif., has moved jobs to India and China, though he said he did not know the exact number.

“If you’re talking about an engineering job in the U.S., or here in Europe, versus an engineering job in China or India, the price differential is 5 or 10 to 1,” he said. “That’s not going to change.”

Mr. Chambers said, though, that the number of people Cisco employs in advanced economies had not decreased because it trains its displaced workers for new jobs. It is a prescription he offers for countries, as well.

“The jobs over time will go to the best-educated places with the best infrastructure and the most supportive governments,” Mr. Chambers said. “How you create an environment where the jobs stay is going to be a key element.”

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Rajesh Jain

An Entrepreneur based in Mumbai, India.