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U.S. Economy Built on Incentives

By: Lou Kren

Saturday, December 01, 2007
 

The U.S. Dept. of Labor in early November released a report showing that U.S. worker productivity rose at an annual rate of 4.9 percent in the third quarter, up from 2.2 percent in the second quarter and representing the largest increase in four years. The results were similar in the manufacturing subgroup of the economy. Despite the often-discussed chinks in the armor, the numbers speak to the dynamic juggernaut that is the U.S. economy, driven by the philosophy of incentives.

Change, change and more change defines American business. Not too many years ago we bemoaned our own shortsightedness (looking at quarterly results, annual budgets or three-year strategic plans) while holding up the Japanese model that seemingly looked farther into the future. And then, when the Japanese economy suffered a prolonged slump while its U.S. counterpart overall continued to grow, thinking changed. Perhaps ‘shortsightedness’ is the wrong term to describe our business planning—a better one might be ‘flexibility.’

I think that neither view is all together correct. Business success, I think, depends upon long-range thinking that sets a strategic path for growth coupled with mechanisms and quick decisions that adapt to changes in markets. The incentives here? Successful businesses and good high-paying jobs. Consider the old Communist five-year production plans. With no competition, and no flexibility, and certainly with no incentives, such economies were destined for failure from the start. Looking back, Sputnik was an aberration; the Great Soviet People’s Toaster, with a life expectancy of 10 slices, was the reality.

The businesses succeeding over time in our country suffer no lack of competition and maintain their freedom to change course if needed. A key ingredient of these successful companies is an entrepreneurial spirit—the hallmark of American ingenuity. That spirit has kept American business humming, its people working and its standard of living high, despite the immense changes in technology, markets and worldwide competition. That is why when some industries fail, others rise to take their place. Horse-drawn-carriage makers provide one example. As the auto industry took hold, carriage makers transferred to gasoline-powered-vehicle production, began manufacturing different products based on core competencies or died. We keep recreating, and that keeps an economy, and a people, vibrant, fresh and successful. That spirit, and the incentive to succeed, should never be stifled. That’s a lesson for our government. As Ronald Reagan put it: “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

Textbooks cite these reasons, among others, for productivity increases:

• Capital investment

• Constant measure and implementation of best practices

• New technology

• Improved education

• Improved worker motivation

• Study and removal of obstacles to effective work.

The results of productivity increases include:

• Higher profits, higher wages, lower inflation and higher GDP.

One other result of productivity increases can be looked at in different ways: unemployment. It stands to reason that if workers are doing more, then less workers are needed. That is a simplified view. Another take: Improved productivity yields increased capacity and the ability to take on more work that requires additional employees.

Of course, manufacturing in America is stressed, but we continue to produce, and, if history is a guide, and our leaders don’t forget what made this country’s economy so vibrant and robust, we will keep producing.

 


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