Sunday, September 11, 2016

Total Factor Productivity as a Growth Component

What might be done, when existing patterns of organizational arbitrage don't generate sufficient economic access across the income spectrum? The good news, is not all organized resource capacity has to operate solely from a supply side axis. In other words, institutions could contribute to the growth of aggregate demand on real economy terms, by expanding the definition of aggregate supply. One might say that the guidelines of a single institution could make Say's Law possible, for time value. In order to do so, local resource factors can be reconsidered, which previously haven't been taken into account for institutional definition and organization.

Digital platforms are already making it possible, to coordinate a broader array of resource sets than have sometimes been utilized in the marketplace. Ultimately, these processes could also generate new productivity, through redefining the reach of total factor productivity at local levels. Of course, total factor productivity exists in a relative sense, given the fact it's neither possible or desirable to internally align all resources in any given environment, as an aspect of local resource outcome.

Until recently, corporations have mostly influenced resource outcomes, through resource alignments along a supply side axis. This pattern is only just beginning to change, as digital platforms begin their experimentation with supply and demand sets - some of which also include time based product.

However: thus far, digital platforms of this nature are open ended and mostly dependent (at least from what I've observed) on already existing economic complexity. What is presently needed, are digital platforms which can contribute to new patterns of productive economic complexity, which provide a complete internal decentralized structure. While some existing digital platforms presently contribute to output, the real potential in this regard, is to coordinate for local supply and demand of time based product. By aligning local land use patterns with these efforts, relatively small groups would be able to generate wealth agglomeration benefits which are normally associated with a population of millions.

By considering total factor productivity via local combined supply and demand efforts, non tradable sectors would finally have means to capture good deflation, much as tradable sectors have been able to do by organizing (mostly) on the supply axis. Consider why this matters. Tradable sectors have generated good deflation even as they created more overall output, which also meant higher profits even with lower product costs. Non tradable sectors need to take more demand factors into account along the entire production axis, in order to achieve greater output. Likewise, there is greater potential for good deflation - particularly in terms of a local group perspective.

How so? In part by folding personal time management factors, into better integrated workplace and marketplace settings. One negotiates time preferences according to personal schedule considerations, instead of assigning this negotiation responsibility to others. Also, local government provision as a part of time based coordination, would mean participating communities would no longer need to raise taxes for government services. Total factor productivity considerations are simply an additional step, in what have already been standard organizational processes for centuries.

Yet note that the above description is only a partial definition of productivity coordination, as it describes potential productivity gains. A parallel alignment in terms of local land use, would particularly make high density knowledge use agglomeration possible for lower income levels. This form of agglomeration would greatly benefit from land use which utilizes walkable core settings, for those who are currently engaged in daily routines for time based services.

Why is it important to broaden productivity potential? For one, there is less certainty regarding components of specific factor productivity. For instance, consider some central elements of growth economic theory, which are utilized for theoretical constructs. In a recent post Dietrich Vollrath writes:
Perhaps the main organizing principle in growth economics over the last sixty years has been the "balanced growth path" or BGP. BGP is really just a name for a set of conditions related to several major pieces of economic data:
1) The growth rate of output per worker is constant over time.
2) The rate of return on capital is constant over time.
3) The share of output paid to capital is constant over time. 
If only these precepts could still be taken for granted! Vollrath was also concerned, whether their present day validity might be changing. That's not to say these concepts haven't been quite useful. After all, these conditions were able to maintain reasonable constants to an extent, that production and consumption roles could be safely guided by governments and private interests, without substantial input from citizens for the production processes involved.

Today, however, the tasks of aligning supply and demand are becoming too important, to be left completely in the care of nations, states and established interests, without broad input from citizens as well. With a little luck, local economies will finally get their turn, to contribute to the organizational processes which could reclaim future long term growth.

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