The New Problem of Productivity - Drucker PDF

# 13. The New Problem of Productivity The productivity of the new dominant groups of the workforce - **skilled workers and service workers** - is the most difficult problem that administrators in developed countries will have to face in the coming decades. Serious work on this challenging task has...

# 13. The New Problem of Productivity The productivity of the new dominant groups of the workforce - **skilled workers and service workers** - is the most difficult problem that administrators in developed countries will have to face in the coming decades. Serious work on this challenging task has only just begun. Productivity in making and moving things - in manufacturing, agriculture, mining, construction, and transportation - has been increasing at an annual rate of 3 to 4 percent compounded over the last 125 years. As a result, total productivity in developed countries has increased by a factor of 45. This explosion of productivity in these countries is the basis for all increases in the standard of living and quality of life. It provided the vast increase in available and disposable income and purchasing power. However, ***one-third to one-half of these gains was taken in the form of leisure*** - something that only existed for aristocrats and the wealthy idle before 1914, when everyone else worked at least 3000 hours a year. (Today, the Japanese work no more than 2000 hours a year, Americans 1800, and Western Germans 1650.) The explosion of productivity also paid for the growth of education (which has increased tenfold) and the even greater expansion of healthcare. ***Productivity has become "the wealth of nations."*** The fact that productivity was increasing was so unusual that there wasn't even a word in any language to describe it. For Karl Marx - and for all 19th century economists - it was axiomatic that a worker's production could only be increased by working harder or for longer. Marx based all his ideas on this belief. But Frederick Winslow Taylor (1856-1915) refuted this axiom by beginning his work in productivity in the early 1880s. The first substantial results came in 1883, the same year that Marx died. Taylor did not use the term "productivity" --- its use didn't become common until World War II. In its 1950 edition, the most authoritative English dictionary, the Concise Oxford, did not yet list the term with its current meaning . Today, it is commonplace to say that ***productivity is the true competitive advantage.*** It is reasonable to argue that ***the explosion of productivity was the most important social event of the last 100 years***, and it has no precedent in history. There have always been rich and poor, but before 1850 the poor in China were not much worse off than the poor in the slums of London or Glasgow. In 1910 , the average income of the richest country was at most threetimes the average income of the poorest countries; today it is 20 to 40 times greater, even without considering leisure, education, or healthcare. Before the explosion of productivity, it took at least 50 years for a country to become "developed." South Korea, which in 1955 was one of the most "backward" countries in the world, achieved this in 20 years. This radical reversal of what had been the norm since time immemorial is entirely due to ***the productivity revolution***, which began in the United States around 1870 or 1880. Productivity in making and moving things continues to increase at the same annual rate. Contrary to what people believe, it is increasing just as rapidly in the United States as in Japan or West Germany. In fact, the current increase in productivity in U.S. agriculture --- between 4.5 and 5 percent annually --- is by far the largest recorded in any country at any time. The increase in U.S. manufacturing during the 1980s --- 3.9 percent annually --- was in absolute terms larger than the corresponding annual increases in Japan and West Germany, because the base in the United States is so much higher. However, the productivity revolution has already ended in developed countries. There simply aren’t enough people employed in making and moving things for their productivity to be decisive. Today, these employees represent only one-fifth of the workforce in a developed economy, whereas just 30 years ago they represented almost a majority. In contrast, ***productivity is not increasing for the people who really count---those who work in the industries of knowledge and services.*** In some areas, it is even declining. In department stores in all developed countries, salespeople, adjusted for inflation, are selling no more than two-thirds of what they were selling in 1929. And few would argue that a teacher in 1991 is more productive than a teacher in 1901. ### II. The first thing we learned - and it was a rude surprise - is that ***labor, that is to say, people, cannot be replaced by capital in intellectual and service work, nor does new technology automatically generate higher productivity in these areas.*** Capital and technology are factors of production - to use the economists' terminology - in making and moving things. In intellectual and service work, they are tools of production. Whether a tool aids or harm productivity depends on what people do with it - for example, the purpose for which it is used - or on the skill of the user. Thirty years ago, we were sure that the computer would cause massive layoffs of office workers. Today, investment in information processing equipment rivals investment in materials processing technology in conventional machinery, and the most important part of it is in services. Yet, since the introduction of computer technology, office jobs have increased at a rate faster than at any previous point in time. There has been virtually no increase in the productivity of service work. The most notable example is that of hospitals. When I began working in hospitals (in the late 1940s), they were entirely labor-intensive, with little investment in capital beyond bricks, mortar, and beds. Many - perfectly respectable - had not invested in techniques that were already old and widely available; they didn't have X-ray units, clinical labs, or physical therapy services. Today, hospitals are the most capital-intensive facilities; there are huge sums invested in ultrasound, scanners, nuclear magnetic imaging devices, blood and tissue analyzers, clean rooms, and dozens of new technologies. Each one of these has brought with it a need for additional and expensive personnel, without reducing a single person from the staff already in place. In reality, the worldwide explosion of healthcare costs is largely due to the fact that the hospital has become an economic monstrosity. A facility that is both labor-intensive and capital-intensive is simply not economically viable, as any economist can attest. However, at least hospitals have increased their capacity to perform. In other areas of knowledge and service work, there are only higher costs, more investment, and more people. Only massive increases in the productivity of hospitals can stop the explosion of healthcare costs. And these increases can only be achieved with "smarter work." Neither economists nor technologists accord primary importance to smarter work as the key to the productivity explosion; the former put more faith in capital investment and the later in technology. But smarter work - call it scientific management, industrial engineering, human relations, efficiency engineering, or task study (the modest expression preferred by Frederick W. Taylor himself) - has been the primary force behind the productivity explosion. Capital investment and technology were as high in the developed countries during the first 100 years of the Industrial Revolution --- that is, in the century before Taylor -- as they have been in the subsequent century. But productivity in making and moving things only took off on its meteoric rise when smarter work began to have an impact. However, in making and moving things, smarter work is only one of the keys to increased productivity; in knowledge and service work, it is the key. But smarter work means something very different in knowledge and service work than it does in making and moving things. ### III. When Frederick W. Taylor started what later became known as scientific management, he studied the movement of sand with shovels. He never asked, "What is the task? Why are we doing it?" He only asked, "How is it done?" Almost 50 years later, Elton Mayo (1880-1949), of Harvard, set out to demolish scientific management and ==End of OCR for page 1==