One often hears, "To what extent does technology contribute to productivity?" But an equally important question is, "What else may be closely involved?" For instance, when do societal expectations of what comprises quality product, get in the way? Are those expectations creating additional burdens for our already scarce time use options?
If quality product expectations (such as housing and services) keep requiring ever more of our scarce economic time, more citizens will end up excluded from basic market processes in the years ahead. Essentially, this means aggregate productivity is also being lost, despite productivity gains which may still accrue at upper income levels. Markets aren't as beneficial as they seem, if the costs of basic life necessities leave little room for discretionary spending options for millions of people. On the other hand, free markets are a major boon for all concerned, if they offer accessible basic products and services for all income levels - thereby creating a base of sustainability. Should this in fact take place in the near future, some of our production mysteries will also have been solved.
Certain features of our non tradable sector activity have been reducing aggregate productivity gains for quite a while. Nevertheless, there's good news, for we have the ability to simplify some of the current confusion as to potential productivity gains. How so? One of the most basic elements of productivity gains which still holds, is how such gains accrue to our advantage when they give us additional time options, monetary options, or both. Importantly, even though we now inhabit a services dominant economy, this is as true as it ever was.
Productivity gains, when they do occur, tend to take place in more than just a single dimension. An apt 20th century example for productivity benefits at multiple levels, were washing machines which entered our homes around mid century. Not only did we realize wealth gains from increased aggregate output (and output scale created a positive wage benefit), washing machines freed up lots of time for other activities as well.
Only imagine how easily we could realize similar production gains today, by adopting lightweight yet strong materials for a broad range of building functions. Indeed, many building components could combine to create relatively small structures (compared to today's square footage requirements), simple enough in form to require a mere fraction of the maintenance and renovation which is now necessary. These new living/working options would restore millions to a sustenance level of activity at the very least. In other words, far more individuals would remain closely attached to wealth creation processes, than if they were dependent on others for shelter. Any society that forces undue dependence through excessive living costs, will also tend to create less overall output or wealth. Whereas greater independence in living and working arrangements, leads to more personal choice for countless other market options, hence greater output and productivity gains.
Let's reduce the production mysteries in our dialogue, by addressing how arbitrary product definitions and social expectations impact our time commitments and ability to freely choose. We could reasonably ask of products or services: Can they free up our time for activities we might prefer over present activities? If not, then why not? When we don't take this kind of approach, we inadvertently allow "quality" product requirements to reduce the larger possibilities of our lives. Even worse, we allow those arbitrary product definitions to reverse a centuries long process, of the productivity gains which added so much to real wealth and societal progress.
As Diane Coyle notes in a recent Project Syndicate post, we could all benefit from a more nuanced understanding, as to what makes productivity relevant for our lives. She stresses how already in OECD countries, four out of every five dollars "purchases services or intangible goods". Coyle is spot on, in suggesting we need to think in broader terms about productivity measures and how they may affect overall well being. Otherwise, without a better approach to measured services output (and I suggest time arbitrage), it will only become more difficult, to determine whether societies can keep moving forward as before. Let's stop our struggles over how government demand among citizens is apportioned, and pay more attention to the supply side circumstance which matter most for everyone. Many of us have a good chance of thriving, if we can regain our former rights to select for size. Being able to do so, is what economic freedom is really about.
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