Productivity: So Many Small Things

by Robert F. Abbott

Published on this site: August 19th, 2005 - See more articles from this month

We rarely see stories or articles about productivity in the newspaper or on TV. When we do, it's usually just another story on the economy that defies understanding.

Which is too bad. Our prosperous standard of living arrived, in large part, because of the ability of companies and organizations everywhere, and for the past several hundred years, to increase productivity.

Productivity simply refers to how much labor or money it takes to create a product or service. If a carpenter can build one house in one month, then the carpenter's productivity is one house per month. If the carpenter gets new tools or new ideas and does the job more quickly, his productivity goes up.

Every time productivity goes up, the carpenter's standard of living goes up, too (generally speaking). Here's another example of how productivity works:

Suppose a British company discovers how to make steel products just a tiny, tiny bit harder. Then a company in the U.S.A. uses this process to make ball bearings that last an average of 423 days rather than 420 days, when they're used in truck axles.

A trucking company that hauls washing machines from Mexico City to Montreal, Canada buys trucks with these better bearings. That means it can haul a load for a few dollars less. In turn, this means the cost of each washer goes down by a few cents.

But, what's a few cents less when you're paying hundreds of dollars for a new washer? What's more, you'd probably observe that you only need a new washing machine once every fifteen or twenty years.

That's true, but this productivity improvement is just one of the many millions of small improvements we've seen since the Industrial Revolution (and some improvements even predate that period).

We also need to remember a couple of other points. First, productivity improvements have a cumulative effect, which is to say they build on each other to multiply the gains. Second, productivity has increased at an unprecedented rate for the past half century.

The most obvious example sits on your desk: a personal computer. Not too many years ago, we prepared letters on a typewriter, one letter at a time. Now, using a computer and word processor, we can select a stock letter from a collection that covers most common issues, add a name and address using mail merge, send the document to the printer, and in seconds a completed letter lands on our desk.

The personal computer, though, is simply the tip of an iceberg. Almost everything mechanical or electrical works better or works faster than its counterpart of 50 years ago. We haven't heard about most of those improvements on the news, for obvious reasons. Individually, they meant little except to people who were directly affected; but collectively they've revolutionized the way we work and live.

Robert F. Abbott is the author of the forthcoming book, Ownership Revolution: How Working People are Buying Up Big Business, from which this article is taken. If you contribute to a pension fund, mutual fund, or whole life insurance policy, you're probably one of the new owners of the big corporations. Find out more at http://www.TheNewOwners.com