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One More Time: This
Is What Will Solve the Credit Crisis
In a recent Wall
Street Journal editorial, Professor Russell Roberts asserts that both
politicians and economists are clueless about how to fix the current
economic problems.[i]
He is right.
But
economists are not clueless about what is to be done.
They are clueless about how to do it.
Economists know that the economy needs
stable or falling prices, rising wages, profitable companies and
dramatically increased growth.
Right now, the
administration is doing the exact opposite of what it will take to reach
these goals. They are propping up failing companies. They are
encouraging consumption instead of saving, even though consumers are
already carrying the greatest debt load in history. They are lowering
interest rates that eventually will fuel inflation. And wages are
falling as unemployment grows. This confluence of factors, predictably,
has produced negative growth in the economy in the third quarter.
Economists
have learned that to get where you want to go, it is best to start by
behaving as if you are already there. Only by behaving differently can
you get to the place where behavior must change from what it is today to
create sustainable growth.
So — what
must be done so that wages will rise, prices will fall, investors will
invest, and positive growth will occur?
For
heaven’s sake, we all know what that is!
1.
For wages to grow, productivity must increase.
This is one of the great constants in economics: Productivity
improvement and compensation are correlated with coefficient of .99!
Lack of productivity improvement was the root cause of the current
credit crisis, and until that is addressed, the economy will continue to
weaken. It is a waste of my time and yours to argue that correlation
does not mean causality. If you pay someone more than his/her value
added, you will go broke. Pay him/her less, and he/she will leave.
2.
When productivity increases, prices come down. Every year for
the last 20 years, the prices of computers have declined by an average
of 7% per year. Why? Because the productivity of computer
manufacturing has increased by 12.85% per year.
3.
Because productivity in computer manufacturing increased by
12.85% per year for 20 years, real wages increased by 5.67%
per year, even though these workers were among the highest-paid in the
world. The high productivity growth further added to workers’ incomes
by lowering prices and increasing stock prices in their retirement
accounts. |
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4.
The manufacturing of computers has been one
of the most profitable industries in U.S. history.
Investors poured money into the sector at a pace
that helped manufacturers double the capacity and
speed of the computer about every two years. For
this, investors were rewarded with a return of
9.76% for 15 of those 20 years.
5.
How quickly did this sector grow?
Remember; they paid workers the highest wages, they
offered dramatically falling prices with
better quality of product, and they provided premium
returns for owners and investors. This sector grew
by 10.83% per year!
Now comes the
statement that paralyses everything and prevents the
cure from being administered: “That is all well and
good for Silicon Valley, by it certainly couldn’t be
applied to the economy as a whole.”
This is one of
those self-defeating arguments that has held the
U.S. back for 30 years. In the meantime China, a
country that has used productivity improvement as
its strategy to lift 400 million people out of
poverty, has passed Japan in GDP (as measured in
purchasing power parity) to become the second
largest economy in the world. Try to tell Singapore
that they cannot grow by 9% per year — or the
650,000 new companies that are formed each year in
the U.S. Of course they can do it — if they know
how. It is true that the U.S. does
not seem to know how to do it.
The U.S. is a
knowledge economy. Knowledge workers don’t react
well to stopwatch-and-clipboard approaches. Nor do
they cooperate particularly well with helping to dig
their own professional graves for companies that
prefer downsizing to growth.
Let me assure
everyone that there is no problem in increasing
productivity in every company, every government
agency, every nonprofit organization, and every
individual by at least 10% per year! This is the
same as China’s annual productivity increases over
the last decade.
You just have to
know how.
And until you
do, don’t deny 302 million Americans the opportunity
to make the crisis the best thing that has ever
happened to the U.S. in modern times: A time to
start afresh and become an example to those
countries that are still looking to us as a beacon
of freedom and prosperity in this world.
In the next column,
we shall start with the How.
[i] Roberts, R. Don’t Just
Do something, Stand There, The Wall Street
Journal. October 31, 2008. A15.
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Leading, innovative companies understand the power
of productivity as the strategy for achieving
greater corporate performance and bottom line
results. Yet, most companies do not apply a
systematic and rigorous process for realizing their
untapped productivity potential. 80% of all
corporate initiatives focus instead on efficiency
improvements that are not tied to overall growth
objectives and do not produce any breakthroughs in
performance. Productivity improvement, on the other
hand, is so highly leveraged that even small
increases can dramatically affect revenue, cost
effectiveness and profits, while raising employee
satisfaction and customer delight. For publicly held
companies, stock prices and market capitalization
can increase dramatically.
Tor Dahl & Associates is the world leader in this
"new" field of productivity. We have debunked the
old myth that productivity takes away jobs and that
it is only concerned about "doing more with less".
Our successful productivity strategy is rooted in
the fundamental belief that productivity is about
removing barriers to individual performance, freeing
up resources from unproductive processes and
reallocating those resources to higher yield
activities that support organizational growth
objectives. It is a positive method that leads to
greater earned competitive advantage, increased job
satisfaction and positive employee engagement,
rather than job losses and downsizing.
Tor Dahl & Associates offers a compressed tutorial
for corporate teams during which the fundamental
principles of productivity will be taught and
practiced. It is an enjoyable, stimulating,
practical and valuable session that identifies key
factors that impact productivity and how your
organization can apply this insight to make dramatic
improvements in personal and organizational
performance. Contact us now to arrange for a
customized tutorial for your leadership team. Email:
loretta@tordahl.com. or Telephone:
1-800-TOR-DAHL. |
