Productivity: Seeking That Old Magic

THE high rate of U.S. productivity has long been regarded as an American elixir, more responsible than anything else for the nation's envied standard of living and its ability to compete strongly in world markets. Rich investments in technology and worker training have made the value of output per man-hour in the U.S. the world's highest. Historically, that value has risen at a rate of about 3% a year. In the past four years, however, the annual increase has averaged only 1.7%, substantially less than that of Japan and major West European nations. Since wages have risen much faster, the cost of manufactured goods has climbed --adding to inflation. With the U.S. productivity performance since 1966 the worst it has been in the post-World War II era, businessmen are beginning to have new doubts about whether the nation's old economic magic is still working.

At least part of the lag is the natural result of recession, and productivity usually spurts when the economy bounces back. Indeed, along with the economy, productivity has been recovering this year. It rose at an annual rate of 6.8% in the first quarter; second-quarter gains are expected to be lower but still healthy. Even so, many economists and some of President Nixon's advisers believe that productivity should be rising faster during an economic recovery period. "The recent-year figures are only partly cyclical," says Leon Greenberg, staff director of a presidential commission appointed to study the question. "If the low average is permanent, then we have a serious problem."

In their continuing search for means to spur new growth, commission members have isolated some of the factors that hold down the nation's output per man-hour:

LOW MOTIVATION. Many Americans, especially the young, no longer place a premium on material rewards. Thus, despite high wages, there has been a gradual loss of employee enterprise in some factories and offices, along with an increase in shoddy workmanship and malingering. At General Motors, where the absenteeism rate runs a high 5.5%. Labor Relations Director George B. Morris says that the company would not have much trouble paying Detroit's steep wage rates "if only our workers would show up." Many Americans undoubtedly still want to work, but they expect more psychological rewards and less drudgery than earlier generations were willing to accept.

OBSOLETE WORK RULES. Countless labor-union featherbedding practices pad the payrolls and push productivity down in construction, printing and municipal services. The primary issue in last week's strike against some railroads by the United Transportation Union was a half-century-old work rule forcing them to pay a day's wages to any worker after he has traveled 100 miles in a train. Though high-speed equipment has long made it possible to cover several times that distance in an eight-hour workday, the union is determined to keep its pay scale tied fairly close to that 100-mile base. (The union made a deal late last week with one railway, the Chicago and North Western, to modify the 100-mile rule in some circumstances--in return for a 42% wage hike over the next 31 years.)

INEFFICIENT INDUSTRIES. Even during the best of times, labor-intensive industries like the textile, shoe and watch manufacturers usually have low productivity. If left to survive on their own, many companies in those industries could not compete against foreign producers. For political reasons, however, a number of low-productivity industries are kept afloat by tariffs and import quotas.

CAPITAL LAG. Once the world's most modern industrial nation, the U.S. has lost that distinction--at least in such industries as steel and shipbuilding--to countries that had to rebuild almost totally after World War II. Moreover, the rate of increase in U.S. industry's investment in research and development is at least being matched by competitors, especially Japan.

DRIVE AGAINST POLLUTION. The job of removing pollutants from automobile emissions, for example, is bound to lower carmakers' productivity simply because more workers are needed to install new equipment on each car. Yet that is hardly a reason for not cleaning up the air. Social commitments to environmental protection, product safety and even workers' leisure have qualified the concept of productivity far beyond its original definition--which was based on pure efficiency. The fact that the U.S. has decided that some "inefficiencies" are necessary only makes the job of getting rid of the unnecessary ones that much more important.

How can the U.S. become more productive? The most obvious way would be to eliminate most federal subsidies, so-called "fair trade" laws, union featherbedding practices and other protective devices that tend to impede efficiency. But these are long-term solutions at best, and they face high and hard political hurdles. More immediately, U.S. management should be experimenting far more daringly with ways to change basic methods of work in order to heighten employee enthusiasm. Among the more promising new experiments: the four-day work week and West Germany's staggered working hours, which give employees some choice about the times when they begin and finish work each day.

Manpower Training. To its credit, the Nixon Administration is trying many ways to boost productivity. Budget Chief George Shultz has called for the use of "productivity bargaining" in labor negotiations, tying wage boosts more closely to increased gains in output per man-hour. Since management will almost surely have to give labor a fat pay package in the current steel negotiations (see following story), the White House hopes that the companies will at least be able to win some reforms of work rules to stimulate productivity. President Nixon is also considering direct Government aid, in the form of subsidies or tax credits, to increase business research and development.

Business could become more productive if Congress restored the 7% investment tax credit that led to a boom in capital spending during the 1960s. New tax credits would make it easier for companies to buy such highly automated gear as "robot" machines that perform heavy or dirty jobs that few people want. Most important, Congress and private business would do well to spend much more on manpower training programs, particularly for the nation's blacks. M.I.T. Economist Lester C. Thurow calculates that if all the nation's blacks could get jobs that they are now capable of holding, their productiveness would lift the gross national product by 1%. And if blacks were trained up to the whites' average level of skills, the G.N.P. would rise by another 3%. By Thurow's reckoning, all that would cost the nation $80 billion in manpower training programs over the next several years. But it would increase the G.N.P. by at least $40 billion a year--which amounts to a most productive 50% return on investment in the first year alone.

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