Productivity Paradox?

Response to ‘What is the Productivity Paradox’, by Peter de Waard in the Volkskrant, August 25, 2016

By Michel Mooij

Wherever a paradox appears, one sees one concept for two different things.

This is also the case with productivity. Is it the productivity of humans (labor) or the productivity of the machine/technology (capital)? In economy we call both of them productivity. But human-productivity leads to income and employment and the machine-productivity to return on invested capital.

If the productivity of the combination of man and machine increases and the share of human work there-within drops, then it is quite possible that the human productivity is falling. As long as the overall productivity is rising, the productivity of man is not relevant in itself. Were it not that the productivity of man is the key to participation in the economy. Involvement in the economy requires the contribution of labor or capital still.

Human productivity is the key to participation in the economy

There is already quite a lot of production, which no longer needs people to do work. A massive increase in productivity that is not reflected in the productivity of man, but in the productivity of the machine as a capital asset. No wonder that the return on equity is rising faster than wages.

Because technology substitutes the demand for labor, it eliminates the possibility to earn an income with work. That includes knowledge workers with higher education and entrepreneurs in services as well.

Why would one want to raise human productivity still when there is not enough work for everyone?

Unemployment is the result of increased productivity. Increased prosperity is the result of increased productivity (human plus technology). Now that we have reached this level of technology and wealth, we must learn to distribute the proceeds of increased productivity in a fair and stabilizing way. Given the fact, that already machines are very productive, we should not judge a person on his productivity. And since machine learning enables machines to increase the productivity of machines, there is no longer a role for people in being productive.

But where will all the products from the high (machine) productivity go? Withdrawal, as with overproduction of tomatoes after a good harvest? Should we call this ‘overproductivity’? Perhaps it is better to ‘produce’ enough wealthy and acquisitive consumers, for example through a basic income funded with the proceeds of the machine productivity?

If machines are productive and able to make money, they still are not able to spend it as a consumer (except for energy and maintenance). Machines will have to outsource the role of consumer, to humans and pay them sufficient income to buy what produce the machines.

So man has outsourced production to the machine, and the moneymaking machine has contracted consumption in humans. The perfect symbiosis of man and technology, right?

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