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THEORIES OF PRODUCTIVITY.
Term Paper ID:23658
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Examines basic concepts related to competitiveness & innovation; compares productivity in manufacturing in U.S. & Germany; science & technology policy. Tables.... More...
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Paper Abstract:
Examines basic concepts related to competitiveness & innovation; compares productivity in manufacturing in U.S. & Germany; science & technology policy. Tables.
Paper Introduction:
INTERNATIONAL SCIENCE AND TECHNOLOGY POLICY: EFFECTS ON COMPETITIVENESS, PRODUCTIVITY, AND INNOVATION
Introduction
This research reviews the effects on competitiveness, productivity, and innovation of international science and technology policy. The findings of this review are presented in the following discussions: implications for competitiveness, productivity, and innovation; productivity measurement; links between competitiveness and productivity; factors affecting competitiveness and productivity; links between competitiveness, productivity, and innovation; and an appraisal of competitiveness and productivity in Germany and the United States.
Science and Technology Policy: Implications For
Text of the Paper:
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"Recent Productivity Growth in Japanese and U.S. [31]Baumol, 418. Manufacturing," in W. Thus, in theabsence of competitor responses, and other factors of production and demandremaining equal, the computer manufacturer may reasonably expect thetechnological innovation to cause the demand curve for the company'scomputers to shift to the right-to increase. Growth in manufacturing labor productivity in Germany and the UnitedStates are compared in the following discussion. Technology assists organizations to eliminate some of the limits totheir ability to grow. Washington: U.S. 199 -93 4. 5 . Of all the periods, the highest laborproductivity growth was registered in 199 -1993 (four-percent per year). [35]Heilbronner and Thurow, 24-26. Relevant data are presented in Table 2. McLennan,(Eds.), in Productivity Growth and U.S. C. The use of a value-basedmeasure incorporates monetary factors and product sale prices into theproductivity equation. [11]Rinehart, 16. The contributions to manufacturing output growth in Germany and theUnited States by labor, capital, and MFP are compared in the followingdiscussion. Economics Today: The Micro View, 7th ed. In the most extreme case, thus, no labor resource will be availablefor productive activities. [42]Lysko, 1995, p. Activities requiring high levels of inputfrom highly skilled craftsmen, such as fine pottery, fine glassware, hand-crafted furniture, and bench-made clothing, which are characterized by highprice elasticity of demand, have all but disappeared from the Americaneconomy. Heilbronner and L. [41]Lysko, 1995, p. Productivity analysis,however, most often employs productivity indices. Output may also be measured in terms of the quantity of products(goods or services) produced. [21]W. [26]Baumol, 416. R. William Baumol, however, challenged this concept.[21] Whilerecognizing that many activities within a complex modern economy resistrigid categorization, Baumol, nevertheless, asserted that, quite generally,economic activities may be grouped into two types. 51. L. These propositions are as follows: 1. The differences inlabor productivity growth between the two countries is another question. W. 4. On the other hand, in a technologically advanced economy, aproductivity measure based only on labor inputs tends to distorttechnological effects on productivity measures. [39]Ettlinger, 15 . In mostperiods, MFP was more important in explaining labor productivitygains."[4 ] Before 1973, most of the increases in labor productivity wereaccounted for by strong growth in multifactor productivity. [18]W. H. [43]Lysko, 1995, p. Norsworthy and D. Levins, "A Science of Our Own: Marxism and Nature," MonthlyReview 38 (July-August 1986): 12. In this scenario, workers in one country arepitted against those in all others."[11] Productivity Measurement When productivity is defined as the output per employee per hour ofwork, a productivity ratio can be established. [3]R. [4 ]Lysko, 1995, p. Stone, Economics, 4th ed. However, given the strong capital-for-laborsubstitution in German manufacturing over most of this same period, thisfactor was, not surprisingly, almost as important."[43] During the 199 -1993 period, when MFP declined, the capital/labor substitution effect wasgreater than the MFP effect. Buying into competitiveness means accepting the right of bigbusiness interests to unilaterally determine our future. (Eds.). 3. 2.6 United States 3.3 1.2 2.1 Difference .3 - .2 .51956-1993: Germany 3.1 .8 2.3 United States 3.2 1.1 2.1 Difference - .1 - .3 .21956-1973: Germany 5.9 2.4 3.4 United States 4.6 1.6 2.9 Difference 1.3 .8 .41973-199 : Germany 1.4 - .4 1.8 United States 2. He used it, however, because it simplified themathematical model used in the analysis. (New York: HarperCollinsPublishers, 199 ), 3. First, greater and greater proportions of an economy's labor resourceare committed to those activities which are resistant to productivityimprovement. There are several outcomes of unbalanced growth of thetype described above. Science and Technology Policy: Implications For Competitiveness, Productivity, and Innovation Technology is defined as "society's pool of applied knowledgeconcerning how goods and services can be produced by managers, workers,engineers, scientists, and craftspeople, using land and capital."[1] Whentechnology is considered within the context of physical science, it istypically viewed as the application of physical science and engineeringtechnology to human endeavors. [33]Baumol, 419. (New York:HarperCollins Publishers, 1991), 34. On the other hand,activities high levels of input from highly educated and skilled labor,such as education and health care, which are characterized by a highlyinelastic demand, are consuming ever increasing proportions of theeconomy's labor resources. [2]R. Relevant data arepresented in Table 1. Bibliographyvan Ark, B. Of the two factors, capital-for-labor substitution and multifactorproductivity, the latter turned out to be more important in explainingchanges in labor productivity in the United States. B., and Hebert, R. Labor productivity in manufacturing in the United States grew anannual average 3.1 percent over the 1956-1993 period, and somewhat fasterbefore 1973 (3.8 percent per year) than after 1973 (2.3 percent per year).Labor productivity barely grew in 1973-79, when output rose little morethan one-percent per year. Insome instances, a technological innovation can lead directly to an absolutedecrease in product cost. (Glenview,Illinois: Scott, Foresman and Company, 1989), 462. Baumol, "Macroeconomics of Unbalanced Growth: The Anatomy ofUrban Crisis," American Economic Review, 57 (June 1967): 415-416. Thefindings of this review are presented in the following discussions:implications for competitiveness, productivity, and innovation;productivity measurement; links between competitiveness and productivity;factors affecting competitiveness and productivity; links betweencompetitiveness, productivity, and innovation; and an appraisal ofcompetitiveness and productivity in Germany and the United States. [9]J. 2.3 1956-73 6.5 3.1 3.4 1973-9 2.9 1.1 1.8 1973-79 4.3 1.7 2.6 1979-9 2.1 .8 1.3 199 -93 1.2 1.7 -.4 [source: Lysko, 1995, 49]_______________________________________________________________ This situation changed somewhat after 1973, as growth in multifactorproductivity tended to weaken, while the substitution of capital for laborbecame more intense.[41] In the 1973-79 period, manufacturing multifactorproductivity in the United States declined slightly, but labor productivitystill managed to grow an annual average .8 percent because of very strongincreases in capital service inputs, and the resulting shift in thecapital/labor input ratio. Teaching,however, does permit some degree of productivity improvement through theapplication of technological innovation, such as computerized learning.The performance of a symphony orchestra, by contrast, does not. [1 ]Rinehart, 15. Where they are retained, they are either exclusively available tothe very wealthy, or they are performed by amateurs. [45]Lysko, 1995, p. If their relative outputs are maintained, an ever increasingproportion of the labor force must be channeled into these activities andthe rate of growth of the economy must be slowed accordingly."[34] Examples of this phenomenon have developed in the American economyover the past three decades. [16]Rinehart, 21. Conversely, the quality of a service such asteaching is often measured within the context of the amount of laborexpended, and, thus, is resistant to productivity improvement. Technology is one of the means by which productivity may be increasedwithin an economy, an industry, or an organization.[5] The introduction ofnew technology into industries tends to lower production costs in thoseindustries, over the long-term. R., and Malmquist, D. 2.1 1956-73 3.8 .8 2.9 1973-9 2.3 1.1 1.2 1973-79 .8 1.1 -.2 1979-9 3.1 1.1 2. Historically,the concept of competitiveness has been used to justify business oppositionto unions, reduced hours of work, wage increases, paid vacations, healthand safety regulations, antipollution laws, and so on."[1 ] In thecontemporary period, governments frequently cite the need to be competitive"to legitimize relaxing regulations on corporations and removing barriersto corporate profitability (most notably enshrined in free tradeagreements), such as spending on unemployment compensation, health,education, and welfare. Florida, and M. C. Productivity may mean many different things, depending upon thecontext in which the term is used. Competitiveness, (New York: OxfordUniversity Press, 1985), 1 1. L. J. Appraisal of Competitiveness and Productivity: Germany and the United States Germany's early growth through competitiveness in the nineteenthcentury was institutionalized in production as well as consumption-orientedstrategies, including: the protection of infant industries; formal linkagesbetween science, education, and manufacturing (principally through banksand cartels); and social insurance policies.[37] The relationship betweengovernment and business that evolved in West Germany after the end of theSecond World War was one in which consumption and worker welfare wereconsidered to increase as a result of production growth. The "distinction between relatively constant productivityindustries and those in which productivity can and does rise is ...real."[28] 2. [12]J. J. New York: McGraw-Hill Book Company, 1983.Ettlinger, N. Lysko, "Manufacturing Multifactor Productivity in ThreeCountries," Monthly Labor Review 118 (July 1995): 48 [19]Cited in B. In such instances, theratio is determined by using output as the numerator, and by using input asthe denominator. Thus, the use of the laborproductivity measure with value-based outputs introduces some distortioninto the productivity ratio, regardless of the objective of the research. Government Printing Office, 1992), 243. Such factors tend to distort the productivity ofworkers. 2.1 1956-93 3.1 1. The Worldly Philosophers. Thisapproach provides management with a basis to evaluate the wisdom of addedcosts in the service function. His scientific management began the development of the empiricalfoundations for the analysis of employee productivity. In effect, this approach to the measurementof productivity is a cost/benefit approach. [25]Baumol, 416. T. The wage levels in constant productivity industries andthose industries in which productivity rises move more or less in unison.Within an economy which permits labor mobility, no one sector will long lagbehind another in the context of wage level movement. 51. [24]Baumol, 416. H. Hebert, A History of Economic Theory andMethod, 2nd ed. Multifactor productivity is the ratio of output per unit of laborand capital inputs combined, which enables the productivity ratio toreflect changes in a number of factors (such as technology, shifts in laborforce composition, capacity utilization changes, research and development,work force skills and effort, and management quality) which affect theproduction process. F. rise, and thesecosts will rise cumulatively and without limit."[33] The consequence is"that the outputs of these sectors may in some cases tend to be driven fromthe market. A productivity comparison based on cost in this instance wouldalso have been misleading. Second, quality tends to deteriorate in some activities whichare resistant to productivity improvement. Later, in the193 s, studies by Elton Mayo led to the discovery of what was termed theHawthorne Effect, which led to the development of the human relationsapproach to management. Althoughcapital service inputs were growing faster than labor inputs throughoutthis period, the substitution of capital for labor was relatively moderate,particularly when compared with Germany.Table 1Sources of Manufacturing Labor Productivity Growth, 1956-93 (Percent)_______________________________________________________________ Output Per Capital-Labor MulitfactorCountry Hour Substitution ProductivityUnited States: 1956-9 3. Gordon, Macroeconomics, 5th ed. [32]Baumol, 419. The human relations approach postulates thattreating employees less as if they are automatons will lead to improvedproductivity. Again, this price increaseresulted from the more complex, and lower pollution designs of the latervehicles. White, "Union Leaders and the EconomicCrisis: Responses to Restructuring," Industrial Relations (Canada) 49 (Fall1994) 841. The resultsof this research suggest that comparative growth rates of manufacturingmultifactor productivity should not be viewed as fundamental, seculartrends, where one country dominates another over extended periods of time.Rather, multifactor productivity growth depends on relationships amongoutputs and inputs that vary cyclically, and can change in a relatively fewyears. Advances in technologyenable organizations to utilize available human capital in more productiveways. Third, other of theseactivities either disappear, or become available only to the very wealthymembers of a society. [46]Lysko, 1995, p. New York: HarperCollins Publishers, 199 .Heilbronner, R. [34]Baumol, 42 . The scientific study into productivity improvement dates at least backto the pioneering work of Frederick Taylor in the second decade of thiscentury. Byrns and G. The driving force in this productivity gainwas the application of new technology. While the increasing capital/labor input ratiocontinued to be an important contributor to the growth of laborproductivity in United States manufacturing in the 1979-9 period, however,multifactor productivity growth also recovered, and was again a moreimportant factor in explaining labor productivity growth. 2.6 1956-93 4.4 2. (Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 199 ), 18. Baumol explained the phenomenon of unbalanced growth within aframework of four propositions.[27] Baumol based his propositions on fourassumptions, as follows: 1. New technologies, such as computer technology, however, motivateautonomous investment on the part of individual firms.[35] The autonomousinvestment decisions made by firms are made with an expectation of profitimprovements which will result from the application of technologicaladvances. .8 1.2 Difference - .6 - 1.1 .51973-1979: Germany 1.7 - .8 2.6 United States 1.2 1.4 - .2 Difference .6 - 2.2 2.81979-199 : Germany 1.2 - .1 1.3 United States 2.5 .4 2. When technology is conceptualized within the context of thebehavioral sciences, it is viewed as the application of language andlinguistics, communications, cybernetics, and psychometrics to humanendeavors. [27]Baumol, 415-416. [29]Baumol, 417. With respect to natural resource requirements, it issaid that society is "engaged in a race between technology and theexponentially rising demand for raw materials."[6] With respect to mostfirms, an essential resource is human capital. Technology, thus, is indispensable withrespect to growth. Another approach to the measurement of productivity is by statingoutput in unit quantities. While the application of new technology typically economizes on laborin the short-term, the introduction of increased productivity into theeconomy typically results in the increased demand for human capital overthe long-term.[36] Thus, the application of computer technology inorganizations may be expected to displace some workers during the earlystages of its introduction. J. 1. TheGerman multifactor productivity annual growth rate, however, had beendeclining (1956-1973, 3.4 percent; 1973-1979, 2.6 percent; and 1979-199 ,1.3 percent), while manufacturing multifactor productivity in the UnitedStates recovered from the 1973-1979 decline, and increased faster than theGerman MFP in the 1979-199 period and in the 199 -1993 periods.[44]Table 2Contribution of Labor, Capital and MFP to Manufacturing Output Growth,United States Versus Germany, 1956-93 (Percent Annual Change)_______________________________________________________________ Manufacturing Labor/Capital MFP GrowthPeriod Output Growth Input Growth __________1956-199 : Germany 3.6 1. [6]Heilbronner and Thurow, 19. An attempt to maintain balanced growth in an environmentcharacterized by unbalanced productivity growth will lead to a decliningrate of overall economic growth relative to the rate of growth of the laborforce. [23]Baumol, 416. "This shift has transformed industrialcompetition on a global scale, as knowledge and intelligence replacephysical labor as the primary source of value creation, productivity, andprofit."[15] As the connection between corporate success and national prosperitybecomes ever more tenuous, "the urgent question is competitiveness for whatand for whom? W. Productivity is defined as a measure of the rate at which output flowsfrom the use of given amounts of the factors of production.[7] When thefactors of production are used in an efficient manner, a greater output isderived from a given level of inputs; therefore, productivity increases.By contrast, when the factors of production are used in an inefficientmanner, a lesser output is derived from the given level of inputs, and, inthis latter instance, productivity will fall. INTERNATIONAL SCIENCE AND TECHNOLOGY POLICY: EFFECTS ON COMPETITIVENESS, PRODUCTIVITY, AND INNOVATION Introduction This research reviews the effects on competitiveness, productivity,and innovation of international science and technology policy. [36]Heilbronner and Thurow, 26. While hours worked were declining in German manufacturing at the rateof .6 percent per year, hours worked in the United States increased at therate of .8 percent per year.[45] "The net result was that, although theuse of combined factor inputs increased more in Germany than in the UnitedStates (an annual rise of 2.4 percent versus 1.6 percent), Germanmultifactor productivity grew marginally faster over this 17-year period;the average difference was .4 percentage points per year."[46] Summary and Conclusion This research reviews the effects on competitiveness, productivity,and innovation of international science and technology policy. "Manufacturing Multifactor Productivity in Three Countries." Monthly Labor Review 118 (July 1995): 39-55.Miller, R. B. Government Printing Office, 1992.Ekelund, R. [7]R. Economics, 4th ed. New York: HarperCollins Publishers, 1991.Norsworthy, J. 52. This approach, however, also has itsdeficiencies. [5]R. 3. [38]Council of Economic Advisers, Economic Report Of The President(Washington: U.S. "A Science of Our Own: Marxism and Nature." Monthly Review 38 (July-August 1986): 3-12.Lysko, W. Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 199 .Levins, R. This approach provides false measurements, unless theconstant-dollar concept, which accounts for price level changes, isemployed. Productivity Growth and U.S. Anyattempt to reduce labor input typically results in a severe deteriorationin product quality. Capital-for-labor substitution was "particularly vigorousbefore 1973, but MFP was still more important in explaining the improvementin labor productivity. Lastly, for those activities which are resistant toproductivity improvement, and which are also characterized by a low priceelasticity of demand, the cost to the economy of such activities tends toincrease dramatically. T., and Stone, G. Over the long-term, Baumol's model holds thatsuch a transfer of resources will lead inevitably to a decline in overallgrowth. 51. 5 . 2. L. Thus, there is a tendency for the "outputs of the'nonprogressive' sector whose demands are not highly inelastic to declineand perhaps, ultimately vanish."[31] In some instances, the activity whichwould otherwise wither might be retained through governmental or privatesubsidy. It has long been recognized that growth proceeds at an uneven paceamong the various activities within an economy.[2 ] Nevertheless, theoverriding thought has been that technological innovation, economies ofscale, and other factors lead inexorably to long-term growth throughproductivity. In the German manufacturing sector, labor productivity "recordedimpressive gains over the period as a whole, but with declining annualincreases."[42] Over the 1956-199 time period, growth in multifactorproductivity also was the more important factor in explaining theseincreases. Baumol and K. In other instances, a relative decrease inproduct cost occurs. Over the 1956-199 period, German manufacturing multifactorproductivity grew slightly faster, at 2.6 percent per year, than did thatin the United States, which grew at an annual 2.1 percent average. New York: Oxford University Press, 1985, 99-11O.Pupo, N., and White, J. As a total model, the four propositions hold that, if "productivityper man hour rises cumulatively in one sector relative to its growthelsewhere in the economy, while wages rise commensurately in all areas,then relative costs in the nonprogressive sectors must ... Competitiveness. Glenview, Illinois: Scott, Foresman and Company, 1989.Council of Economic Advisers. Malmquist, "Recent Productivity Growthin Japanese and U.S. "Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis." American Economic Review 57 (June 1967): 415-426.Byrns, R. The stimulus which will be derived fromproductivity improvements, however, may be expected to lead to increaseddemands by the organization for workers over the medium- and long-terms. Understanding Macroeconomics, 1 th ed. For both Germany and the United States, manufacturing multifactorproductivity is a more important explanatory factor than capital-for-laborsubstitution in explaining labor productivity growth. Difference - 1.3 - .5 - .7199 -1993: Germany - 2.2 - 1.8 - .4 United States 2.6 - .2 _ 2.8 Difference - 4.8 - 1.6 - 3.2 [source: Lysko, 1995, 51]_______________________________________________________________ Before 1973, manufacturing output grew strongly in both countries,although the German growth rate was somewhat greater (4.6 percent per yearin the United States and 5.9 percent per year in Germany). "Vigorous capital-for-labor substitution contributed to this growth inlabor productivity, but it is only part of the explanation. In the analysis of unbalanced growth, "outlays other thanlabor costs can be ignored."[29] Baumol recognized that this assumptionwas an unrealistic one. In part, the difference wasdue to the fact that the more complex, and lower polluting automobiles of1979 were more time consuming to make than were the earlier vehicles.Similarly, the 1979 automobile cost more than the 1959 automobile, evenwhen the prices were adjusted for inflation. 1.1 2.8Germany: 1956-9 4.7 2. If the "ratio of the outputs of the two sectors is heldconstant, more and more of the total labor force must be transferred to thenonprogressive sector and the amount of labor in the other sector will tendto approach zero."[32] Thus, if, through subsidization, the output of thesector resistant to productivity improvement is kept in a constant ratiowith the productive sector, a steadily increasing proportion of theeconomy's labor resource will be consumed by the nonproductive sector. The cost per unit of output in the sector resistant toproductivity improvement will rise without limit, while the cost per unitof output in the progressive productivity sector will remain constant.Within such a framework, it would be expected that the demand for theoutput from the sector resistant to productivity would decline, unless suchoutput is characterized by a highly inelastic demand. [15]Florida and Kenny, 159. One current trend in services productivity measurement is themeasurement of cost savings in relative to average market costs, as thenumerator, with the dollar value of the operation as the denominator. Research and development, however, tends to be retained in thehome base to generate the new innovations and next-generation productsrequired to continue the cycle.[13] As product life cycles become shorter and new generations of productsemerge at an ever more quickly, innovation becomes "an inseparablecomponent of production itself with the shift to a virtually seamlessinnovation-production system."[14] Continuous innovation, thus, becomes akey source of economic advantage. Between 1929 and 1947, the level of capital stock per worker in theUnited States remained static.[38] During this same period, however, grossnational product (GNP) per worker in the United States increased at therate of 1.5 percent per year. [3 ]Baumol, 417. Macroeconomics, 5th ed. "Union Leaders and the Economic Crisis: Responses to Restructuring." Industrial Relations (Canada) 49 (Fall 1994) 821- 846.Rinehart, J. In this approach, it is not necessary to adjustfor the effects of inflation. L., and Thurow, L. Productivity ratios, however output is measured,provide an output measure based on units of input. The behavioral science concept of technology incorporatesapplications of engineering research (particularly human factorsengineering), logistics related to the effective use of physical resources,and information science. [8]Byrns and Stone, 345. Kenney, "The Globalization of Japanese R&D: TheEconomic Geography of Japanese R&D Investment in the United States,"Economic Geography 7 (October 1994): 345. Miller, Economics Today: The Micro View, 7th ed. L. In one sense, this approach is superior tothe use of value as stated in constant prices. During thesesame years, capital service inputs increased approximately twice as fast inGermany as in the United States. Further, in the context ofinternational trade, monetary factors and product sale prices are among themajor determinants of export/import levels. Competitivenessinvolves a race to the bottom. Technology, thus, is the "conscious invention ofways of acting on the material world to meet our needs."[2] Innovation, in an economic context, is the introduction of newproducts, or production processes.[3] Innovation, thus, is technologicalchange.[4] Technological change may involve improvements to non-humanresources or new knowledge about how to combine resources. ... Ekelund and R. First, there are the"technologically progressive activities, in which innovations, capitalaccumulation, and economies of large scale all make for a cumulative risein output per man hour."[22] Second, there are those activities "which bytheir very nature, permit only sporadic increases in productivity."[23] Baumol held that the basic difference between the two groups ofactivities "is the role played by labor in the activity."[24] In the caseof those activities which are characterized by productivity improvements,labor is said to be "primarily an instrument-an incidental requisite forthe attainment of the final product."[25] In the case of those activitieswhich are resistant to productivity increases, however, "labor is itselfthe end product."[26] Manufacturing is a good example of an activitywherein labor may be considered as an instrument, and which lends itself toproductivity improvement. By improving the performance of computers by a factorof two, as an example, a computer manufacturer reduces the relative cost toconsumers of these computers by approximately one-half. L. 52. J. Manufacturing." In Baumol, W. [17]Cited in N. Such a shift in the demandcurve should, in turn, result in a market share increase for the computermanufacturer. With the continuing advances intechnology, the multifactor productivity concept is probably the most validmeasure. [22]Baumol, 415-416. Productivity, thus, is theequivalent of the marginal product.[8] The necessity of competitiveness has been promoted by governments,corporations, and economists to the point that is positive character isvirtually taken for granted.[9] Competitiveness is cited as ajustification of decisions and actions of firms, "especially when theoutcomes adversely affect some people, groups, and classes. Multifactorproductivity growth also was the more important factor in the 199 -93period. "The Localization of Development in Comparative Perspective." Economic Geography 7 (April 1994): 144-166.Florida, R., and Kenney, M. Pupo and J. Heilbronner, The Worldly Philosophers (New York: Simon &Schuster, Inc., 1986), 289-29 . A History of Economic Theory and Method, 2nd ed. Often, productivity is measured by stating output inmonetary terms. [4]R. [14]Florida and Kenny, 159. Another important aspect of productivity analysis is the way in whichdata are compared. Links Between Competitiveness and Productivity As technology matures and labor costs become an increasing competitivefactor during later stages of the cycle, production tends to be movedoffshore. One example of the deficiency may be seen in the automobilemanufacturing industry. Links Between Competitiveness, Productivity, and Technological Innovation Technological innovation tends to reduce product cost, and, in turn,cause the demand curve for a product to shift to the right-increase. J. [44]Lysko, 1995, p. Economic Report of The President. In that industry (before the widespreadintroduction of robotics), more worker hours were required to produce anautomobile in 1979 than were required in 1959. By the 198 s, however, "the twinAmerican traditions of Fordist mass production and Taylorist management,which depend on large numbers of unskilled workers in routinized tasks,were recognized by many as outdated in a global economy characterized bycompeting and innovative production systems, which increasingly involvedskilled labor and customized products." Comparisons between the United-States and its competitors revealed a lack of innovativeness or a sluggishadoption of new manufacturing technologies than in other countries, such as Japan, Germany (West Germany at that time).[39] By the early-199 s,however, the application of new technology accounted for almost 2 percentof the total increase in real national income in the United States. F. Rinehart, "The Ideology of Competitiveness," Monthly Review 47(October 1995): 15. Ettlinger, "The Localization of Development in ComparativePerspective," Economic Geography 7 (April 1994): 153. "Money wages will rise as rapidly as output per man hour inthe sector where productivity is increasing."[3 ] Based upon these assumptions, Baumol's model of unbalanced growthcontains four propositions, the last three of which derive from the nextprior proposition in the model. 4. Thurow, Understanding Macroeconomics,1 th ed. [37]N. "The Ideology of Competitiveness." Monthly Review 47 (October 1995): 14-23.----------------------- [1]R. "The Globalization of Japanese R&D: The Economic Geography of Japanese R&D Investment in the United States." Economic Geography 7 (October 1994): 344-369.Gordon, R. van Ark, "Manufacturing Prices, Productivity, andLabor Costs in Five Economies," Monthly Labor Review 118 (July 1995): 69. A productivity indexprovides a convenient and an accurate means of comparing and evaluatingproductivity changes over time and between economies.[12] Relative changesin productivity provide a better means of assessing what is occurringwithin an economy than do absolute measures of productivity. J., and McLennan K. The exception was 1973-79, when multifactor productivity (MFP) showed a small decline. This difference, however,did not necessarily mean that productivity in the automobile manufacturingindustry had declined between 1959 and 1979. "Manufacturing Prices, Productivity, and Labor Costs in Five Economies." Monthly Labor Review 118 (July 1995): 56-72.Baumol, W. This concept emphasizes device effects andprocedures. [2 ]R. There is no end, no stopping point, no timewhen the corporation will say, 'All right, we have reached our targets; nowwe can increase wages, stop chopping and overloading jobs.' This meanscontinuous rounds of cutbacks and concessions, as there will always beworkers somewhere in the world who are desperate enough to work morecheaply."[16] Factors That Affect Competitiveness and Productivity The factors that affect competitiveness have been described by MichaelPorter in the "diamond of competitiveness." Four elements are included inthe paradigm for understanding relative advantage (competitiveness), asfollows: (1) factor conditions, which are the traditional factors ofproduction; (2) demand conditions in home markets; (3) related and supportindustries to buttress internationally competitive firms; and (4) firms'strategy, structure, and rivalry.[17] Productivity is affected by theoutput per hour of labor and by the substitution of other factors forlabor.[18] According to Porter, efficiency refers to lowering of costs per unitof output, whereas differentiation refers to the creation of additionalvalue added per unit of output through the improvement of product quality,customization, or improved after-sales services.[19] In both casesproductivity is increased, but the mechanism through which it is achievedis different. (New York: McGraw-Hill Book Company, 1983), 177. [28]Baumol, 417. New York: Simon & Schuster, Inc., 1986.Heilbronner, R. [13]R.
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