The Paradox of "Too Much" Productivity

Is it possible for some firms to be "too" productive? Considering how productivity gains have stalled in developed nations, or what such losses imply for future living standards and long term growth, why the recent focus on making successful endeavour a little less productive? Should enterprises learn to scale up too well, does it become necessary to draw the line?

More specifically, it looks like we've got problems in today's digital marketplace. There are players in this arena who have mastered something that many companies have only dreamed of: the ability to scale to such a level, that a majority of possible gains are in fact being captured. Hence the digital realm oddly appears "too" productive, in an economy which otherwise continues to suffer from a general lack of productivity. In a post for Project Syndicate, Diane Coyle explains the dilemma:

Digital markets often become highly concentrated with one dominant firm, because larger players enjoy significant returns to scale. For example, digital platforms incur large upfront development costs, but benefit from low marginal costs once the software is written. They gain from network effects, whereby the more users a platform has the more all users benefit. And data generation plays a self-reinforcing role: more data improves the service, which brings in more users, which generates more data. To put it bluntly, a digital platform is either large or dead.

Perhaps it would be a good idea to think twice before moving in for "the kill". Why not focus instead on responding to - and improving - markets which not only lack the ability to scale via the same means, but remain short on economic access. After all, today's most prosperous digital firms have created an array of product which provides benefits for millions of users, not just high income consumers. Much of this marketplace is of a discretionary nature, for that matter. If one doesn't care for some forms of digital products, generally it's no loss to simply not use them. Whereas the markets which pose real problems, also suffer from both lack of innovation and marketplace access - even though they tend to be non discretionary in nature. By far the most prominent examples are housing and an array of time based services.

In all of this, there's no such thing as "too much" productivity, just as productivity gains need not mean the ultimate loss of meaningful employment. However, in order to preserve economic dynamism, a different approach to scale may become necessary, than what companies have capitalized on in recent centuries. To some degree, traditional forms of scale may have even reached a temporary zenith, given their present lack of new market possibilities at local levels. How, then, might society proceed further from this vantage point, in ways which also continue to improve standards of living?

Let's renew our focus on the economic activities which are closely linked to place and time. Not only do these include our more personal aspirations, they also don't scale up in the same traditional sense that came to be associated with technology and the Solow growth model. Presently, what's most important in this regard, is that alongside use of the Solow model, vast quantities of productivity gains are simultaneously being lost to requirements for human capital inputs. The reason this matters, is that extensive losses are occurring in what is organized as dependent forms of economic activity. Human capital with an intangible veneer, can reduce total factor productivity to such an extent that standards of living end up reduced as well. There is danger in assuming that "intangibles" need not be measured, especially if no other viable options exist for services generation.

Human capital has the potential to function as a direct source of wealth creation, via the time use standardization of symmetric alignment. Where this process differs from traditional scale, is that human capital becomes central to economic processes, and no longer functions as a production residual. Gains in scale in these instances, come from measurable population gains in applied skills and abilities. Time arbitrage as a formal economic unit, makes possible a continuum in which knowledge and skill accumulate over time, thereby creating new means for the measure of productivity gains.

The good news of course, is that time value in the form of human capital, has actually provided similar productivity gains in the past. Successful societies have formed a continuum many times over, for the shared experience of applied knowledge and skill. Even though many recent aspects of knowledge and skill have inadvertently become rival in nature, it's possible to return the use and preservation of knowledge to all citizens.

Fortunately, productivity is about much more, than just the form of scaling up which requires gradually reducing labour to generate final product. When human capital is integral to final product, everything changes. And time value in a wealth creation context, gives the ability as well, to put long term productivity gains back on a steady course.