This year is the 300th anniversary of the birth of Benjamin Franklin. Hence the recent interest in his amazingly productive life as an inventor, businessman and diplomat. What would he say, I wonder, about how U.S. manufacturers should compete with the cheap manufacturing labor available today in emerging countries?
For several years the American economy has registered very good labor productivity growth, about 4.6% annually. Last year, however, we saw output per man-hour increase by only 1.8%, noted The Conference Board in a recent report.
This compares to amazing increases in productivity in developing economies, particularly China and India, but Eastern Europe as well. China, for example, has averaged an 8.7% increase in worker productivity every year since 2000! That means that not only do hundreds of millions of Chinese work for far less than American workers, but that they are constantly gaining on the United States and Western Europe in terms of how much each worker turns out for a relatively small wage.
While the U.S. productivity numbers slowed down last year, they are not nearly as disheartening as those of Western Europe. Germany, once the economic powerhouse of Europe, saw its productivity grow at an anemic rate of 0.9% last year, the same as the U.K., a country Ben knew well. Productivity in Italy actually declned by 0.9% in 2005.
So should we all learn Chinese and Hindi? Well, let's "add a little perspective" to all of this, Ben would say. If you check the gross domestic product (GDP) per worker per year compiled by the Bureau of Labor Statistics (BLS), the one fact that jumps off the pages of statistics is that U.S. productivity has led the world for generations and still does by a wide margin.
GDP per employed person in the United States stood at $80,000 per worker in 2004. That's the average for all employed people in the country, from top managers to retail clerks. That's an extraordinary number when you compare it to other countries. One developed country, Norway, comes close at 97% of the American number. Productivity in the rest of Western Europe and Japan come in at 50% to 80% of the Americans.
The productivity growth in American industry is often attributed to investments in state-of-the-art information technology and advanced automation systems. That investment cycle is over, some say. Others note, Ben would be one of them, that there's always a new wave of technology to take advantage of in manufacturing. Output per hour should always go up over time, he would say, or management is not doing its job.
So what's the message here for industrial management and labor today?
"Well, there's more to business than statistics and there's more to manufacturing success than productivity increases and efficiency," I think Ben would say. "There's Yankee ingenuity and creativity," much of which, he could very correctly add, got this whole industrial revolution going and kept it going.
The question is: Are Americans still the amazing people who produced so abundantly and creatively over the past 300 years? Can we, as a people still compete with any and all in the industrial marketplace? I believe we are and we can, and I think Ben would agree. How about you?