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The Myth of Productivity

Increased productivity ought to benefit the poor and the working class. Productivity becomes a myth when only the propertied are beneficiaries. Robert Kurz is a social critic in Germany. His article is translated from the German on www.krisis.de.
The Myth of Productivity

Technological Development, Rationalization and Unemployment

By Robert Kurz

[This article originally published in the Brazilian newspaper "Folha" 1995 is translated from the German on the World Wide Web, www.krisis.org.]

There is a na´ve and yet rational idea about productivity. When productivity increases according to common usage, human life must be relieved. Higher productivity allows more goods to be produced with less labor. Isn't that wonderful? In our age, increased productivity also produces an avalanche of unemployment and misery together with a swelling mass of goods. Since the end of the 70s, sociologists emphasized a technological or "structural" mass unemployment. This means that unemployment develops independent of the business cycle of the economy and even rises in the boom. In the 80s and 90s, the base of this structural unemployment grew greater and greater from cycle to cycle in nearly all countries. According to the data of the International Labor Organization in Geneva, 30 percent of the gainfully working population in a global standard were without a firm job. This hard fact not only contradicts common sense; it provokes a remarkable reaction of the economists.

Economists act as though the irrational phenomenon cannot be explained from the laws of the modern economy. Rather unemployment has non-economic causes, above all a misguided economic policy of the governments. At the same time economists claim that the number of jobs will not decrease but increase. The history of modernization proves this. What appears to the impartial observer as the cause of sickness is the prescription for healing. The economists operate with an equation that doesn't seem to end. Where is the error? One axiom of economic theory says that the goal of production is to cover the population's needs for goods. This is actually a banality. Everyone knows that the goal of modern production is to realize an operational profit. The sale of produced goods should bring more money than their production costs.

What is the relation of these two goals? The economists say the second goal is only a means, the best means for reaching the first goal. Nevertheless the two goals are obviously not identical. The first goal is an aggregate economic goal and the second is an operational or managerial goal. Contradictions result which have made the modern economic system unstable from the beginning. The seemingly obvious idea that increased productivity must make life easier does not understand special operational rationality. The goal of increased productive force is crucial. If people produce for their own needs, they will use improved means and methods to work less and spend their gained time in life-affirming ways. However a producer of goods for the market could work as much as before and apply the increased productivity for the production of a greater quantity of goods to earn more money instead of enjoying more leisure. An operational manager could get this idea because he had no interest in more free time for his paid employees. Thus he will use the additional productivity as an advantage in competition for lowering operational costs instead of for the comfort of the producers.

Therefore in modern economic history, working hours have always fallen far less than productivity increased. Most paid workers work more and longer today than farmers of the Middle Ages. Thus lowering costs does not mean that workers work less with the same production but that fewer workers produce more products. The increased productivity distributes its fruits very unequally. The "superfluous" workers become unemployed while the profits of businesses soar. If all the businesses do this, the total economy is threatened which the stubborn operational interest does not expect. Social purchasing power falls through increased unemployment. Who can still buy the growing masses of products?

The guilds of medieval artisans had a presentiment of this danger. For them, it was a sin and a crime to make competition for colleagues through increased productivity and drive them to ruin. Therefore the production methods were strictly fixed and could not be changed without the guild's consent. This static social organization prevented a technological development more than technical ability. The artisans did not produce for a market in the contemporary sense but for a fixed regionally limited market without competition. This order of production lasted longer than usually assumed. In large parts of Germany, the use of machines was forbidden by the police until the middle of the 18th century. As everybody knows, this prohibition first fell in England. With that the path was free for technical inventions like the mechanical loom and the steam engine which led to industrialization.

The dreaded social catastrophe promptly occurred. In all Europe, the first mass technological unemployment prevailed around the turn from the 18th to the 19th century. This catastrophe only affected a certain sector, textile production. Weavers and spinners everywhere rose up in desperate rebellions and attempted to destroy the new machines to save their jobs and the social organization of their artisan way of life. This was all past, the economists said. Hasn't the further development proven that the fears were groundless? Despite further expansion of the new industrial forces, the original technological mass unemployment actually receded quickly.

What caused this decline? Forced by mutual competition, the industrialists had to pass on part of the productivity profits to consumers. The machines made products cheaper for buyers. Many people who in the past had to wear their old clothes longer could suddenly afford new clothes several times a year. In this way, the market expanded by leaps and bounds. Fewer workers were needed for the production of a certain quantity of textiles while the demand for cheap materials and clothes rose so strongly that in the long-term more workers, not fewer workers, were needed in the new textile industries. Thus the problem was not solved. Some time or other, every market must reach its satiation limits and cannot be opened up any more to new buyer classes.

Only in a certain phase of development does increased productivity lead to that opening when the origi8nally expensive product is lower in price through improved methods and passes over into great mass consumption. If this stage is not reached, the increased productivity plunges the past way of production into crisis as the example of textile workers in the 18th and early 19th century showed. At the other end of the development, crisis threatens again (now on the basis of industrialized production itself) when the expansive stage is exceeded and the additional markets satiated. This same expansion can be seen again and again in other branches.

In the course of the 19th century, one sector after another of old manual work was industrialized. Prices were reduced for more and more products and the markets nearly exploded. This process accelerated. The superfluous manual workers usually found work right away in industry and the great social crisis of the old textile producers was not repeated. Not only everyday objects could be purchased by the poorer classes. Luxury products earlier reserved for the "top ten thousand" were increasingly part of mass consumption. Even Karl Marx called this general lowering of prices of industrially manufactured goods a "civilized achievement" of capitalism.

In this way, crises only seem to be painful transition to new thrusts of prosperity. However what happens when all the branches of production are industrialized and all the satiation limits are reached in the expansion of their markets? The economic development also seems to refute this fear. Industry not only exhausted the old artisan branches of production but produced completely new branches of production creating products and needs that never existed before. Thus the process of increased productivity, expansion, satiation of markets, creation of new needs and new expansion never seem to strike an absolute limit.

Out of these ideas, economists like Joseph Schumpeter and Nikolai Kondratieff offered the theory of the so-called "long waves" for the cyclical development of the modern economy. According to this theory, a specific combination of industries reach their satiation limit again and again, become old and begin to shrivel after a phase of stormy expansion. However as "creative destroyers" (Schumpeter), innovative businessmen produce new products, methods and industries liberating capital from the old stagnating industries and giving it a rebirth in a new technological body. The classic example for this birth of a new great cycle is the automobile industry. In 1886, the German engineer Carl Benz built the first car. However up until the 1st World War, this "motor vehicle" was a very expensive luxury product for several rich playboys like a private airplane today.

The innovative businessman Henry Ford appeared as from the textbook of Schumpeter's theory. His creation was not the car itself but a new method of production. In the 19th century, productivity increased so that manual branches of production were industrialized through the introduction of machines. No great attention was given to the organization within the industry itself. First after 1900, the US engineer Frederick Taylor developed a system of "scientific management" to divide the individual work processes and increase efficiency. With the help of this system, Henry Ford discovered new reserves of productivity in the organization of the production process. For example, he discovered that a worker who bolted together the parts of a chasis lost much time on the average because he had to get new bolts again and again. The work process was made "flowing. The assembly line was soon introduced, a method that Ford adopted from the slaughter houses of Chicago. The results were striking. If the production capacity of an average automobile factory up to the 1st World War was around 10,000 cars a year, Ford in 1914 produced the fantastic number of 248,000 cars, his famous "Model T", in his new Highland Park factory in Detroit.

The new methods were a second industrial revolution. This "fordist" revolution came too late to prevent the worldwide economic crisis (1929-33) caused by the costs of the 1st World War and the decline of world trade. After 1945, the "long wave" occurred of the industrial mass production of automobiles, household appliances, entertainment electronics and so forth. According to the old model, the increased productivity created enormous masses of new jobs in much greater dimensions because the expansion of the markets for cars, refrigerators, televisions and so forth made necessary more work than was saved per product by the "fordist" methods.

In the 70s, the fordist industries reached their historical satiation limit. Since then we have been experiencing the third industrial revolution of micro-electronics. Immediately people remembered Schumpeter. Actually the new products went through a similar process of lower prices as cars and refrigerators. The computer is quickly transformed from an expensive equipment for big businesses to a product of mass consumption. However this time there was no boom in jobs. For the first time in the history of modernization, absolutely more labor was saved by a new technology than was additionally necessary through the expansion of markets for new products.

In the third industrial revolution, the capacity of rationalization is greater than the capacity of expansion. The earlier effect of an expansive phase created work. The technological mass unemployment from the early history of industrialization returns but in all industries and on the whole planet, no longer limited to one branch of production. The administrative interest continues ad absurdum. After 200 years of modernization, the time has come to finally use the increased productivity so that everyone works less and lives well. However the system of the market economy just cannot do that. It can only transform the additional productivity to additional production on one side and unemployment on the other side. The economists don't want to understand that the third industrial revolution has a new quality where the theory of Schumpeter no longer applies. Thus they still wait in vain for the "long wave" of micro-electronics. They wait for Godot.

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