The Productivity Trilemma: A response to Maciek Adwent

Maciek Adwent, in a major post The Great Something-for-Nothing Double Bubble , makes a number of really good points. I want to focus on a single one of them, for now.

First, he sums up the great Bush era doctrine of the Management Society, and why it was inevitable that it would fail. The something for nothing double bubble, in retrospect, should have been obvious. It’s the best summary of that era. Bravo.

Then he hits upon a decisively global theme: the beginning of the argument and the conclusion of it follow:

Management Society thinking is predicated on the idea that your job is always going obsolete and that the inevitable outcome of any career path is to start at the bottom, ascend to management, and finally, to ownership. This fits very well with trends of manufacturing jobs moving out of the west and to far away countries where labor is cheap, and for some industries works incredibly well because it allows for business risk to be spread and for specialization to occur amongst vendors who both compete and/or collaborate in the output of a set of products. Sometimes though, it’s just plain stupid…

[The parable of the ad agency]

Anyhow, we should all get back to basics and remind ourselves that things of value come from somewhere, and really valuable things come from the hard work of people’s minds and people taking risks — and not just the risk of being exposed in selling junk investments, or that the 2 million dollar marketing campaign can’t be tied to a single real sale.

As it was explained to me back then by a social studies teacher in Grade 9, you had primary industries, like miners and loggers, that provided inputs for the manufacturers (the secondary sector), like the copper pipe factory or the paper mill. Then you had the tertiary sector – people who added value to the copper pipe by installing it (a plumber) or stocking toilet paper from the mill in a store. You also had the person who cut the hair of the plumber. And the chef who prepared the food for the person who cut the hair of the plumber. The tertiary sector was essentially ‘the services sector’ – but I don’t think it was called that back then.

The Quaternary sector was all about making those products better and discovering better ways of doing things. You might not be the plumber, but you might be the guy that figures out a way to improve the durability of the copper by adding 2,3,6 dichloro-ethyl-propaline to it. You might not be the guy who stocks the toilet paper, but you might be the girl who figures out how to sell more of it.

I grew up – confident that I didn’t want to be a miner or a logger. But years past, and that 4 quadrant circle diagram of how the economy is layed out just kind of sat there in the recesses of the mind.

I read a lot as a young public policy statistician. One paper in particular, introduced to me by Dr. Perl during my first year of grad school, shocked me. The paper was about the productivity trilemma, and spoke in very open, and brutal terms, about the era of post-industrialization and the long term outlook.

The central thrust of the paper was that rising wealth depended on improvements in productivity. Historically, productivity increased in step with better physical technology – computers in the 1990’s, robots in the 1970’s, mass mechanization in the 1950’s, the assembly line in the 1900’s, replaceable parts in the 1820’s. This arguement resonates with the central thesis of another book that I frequently reference: “The Origins of Wealth”. So, if it sounds redundant, it’s because it is.

It was gains in productivity that made us all richer.

Productivity matters.

Gains in productivity can come from any of the four sectors. Fisherman discovery better ways of doing things (to their long term detriment). A mill manager figures out a better way to cut finished paper. The stockboy discovers a better way to organize his trolly to improve his own productivity. Gains in productivity are not restricted to just the Quaternary sector.

But there are different types of productivity growth. Generally speaking, incremental gains in productivity can be made by those directly in the services. However, massive leaps in productivity originate in the Quarternary sector. Computing. Replaceable Parts. Television.

Innovation is valuable because it increases productivity, and productivity is the engine that drives increases in living standards.

Did we really think we could increase wealth without increasing productivity?

Remember that paper on the productivity trilemma? It argued that since industrialized societies were busy outsourcing all the physical technology to the developing world, and instead, supporting more people on service jobs, that productivity increases would come to a standstill.

Take for instance, cutting hair. How can the double digit increases in productivity required to maintain a high rate of economic growth be discovered there? Or waitering?

How can the developed world possibly continue to develop more if it loses the core ability to make increases in productivity?

Horrible, isn’t?

At the core, web analytics and data mining are supposed to be about making things better. It’s about productivity increases. Fewer inputs, higher outputs. Moreover, it should be as progressive as possible in pushing for better social technologies. Sitting in many of those conference calls over the years – I’m forced to conclude that we can do more, faster, and better. Many treat web analytics as though it’s a service industry job. I think of it more as a Quat job.

Much of the leadership will have to come from the quaternary sector to get the economy really moving. Real innovation to support the existing level of consumption is needed, especially since so much of the consumption of the past 8 years was financed by another generation.

To Maciek’s core rallying cry:

Want more money?

Want wealth?

Find ways of being more productive.

I take the rallying cry seriously, and I think you should too.