September 14, 2015
Robert Samuelson used his column today to note the weak productivity growth in recent years. The piece tells that there are two ways to improve living standards for the typical person. We can alter the distribution between the top and everyone else or we can increase output. He tells readers that Democrats tend to emphasize distribution while Republicans emphasize productivity. He then points out that redistribution has limits, since it is a one-time story, whereas more rapid productivity growth leads to ongoing benefits.
There are a few points worth making here. First, while Samuelson is right that redistribution is a one-time story over a long period of time it can be a big story. If the typical worker’s compensation had kept pace with productivity growth, their pay would be more than 40 percent higher today. For the median worker with an hourly wage around $18 and and hourly compensation around $22 an hour, this would translate into more than $16,000 a year in addition compensation for a full-time full-year worker. This would be real money for most people.
Furthermore, if compensation were to keep pace with even a slow rate of productivity growth going forward, it would mean that workers would see rising living standards on an ongoing basis. In this respect, much of the political elite in the United States has argued that even modest increases in the payroll tax (e.g. 0.1 percentage point annually) would be devastating and not worth considering. If the idea of raising the payroll tax by 0.1 percentage points annually is a huge deal, the prospect of getting ten times as much by addressing inequality must be an incredibly huge deal. So by the logic of our elite, we should think that addressing inequality has enormous implications for living standards, even if we can’t do anything to boost productivity growth.
As far as Samuelson’s point that,”Republicans emphasize improving productivity and economic growth while Democrats focus on redistributing from the rich to the middle class and poor,” this may be true about rhetoric. It is not reflected in outcomes. In the 36 years for which Republicans have occupied the White House since 1947 the rate of productivity growth has averaged 2.0 percent. In the 32 years the White House has been occupied by Democrats the rate of productivity growth has averaged 2.3 percent. While this simple calculation is hardly conclusive (Democratic presidents might have benefited from policies put in place under Republicans), it does show that the productivity gains from Republican policies are not immediately apparent.
Samuelson then follows Mancur Olson and argues that the reason we can’t get more rapid productivity growth is that policies that would increase productivity growth tend to have diffuse benefits and concentrated losers. The losers tend to organize to block the change, while the gainers, because the individual benefits are small, tend to not organize. He then gives this peculiar example:
“Here’s an example: A company and its workers lobby for import protection, which saves jobs and raises prices and profits. But consumers—who pay the higher prices—don’t create a counter-lobby, because it’s too much trouble and the higher prices are diluted among many individual consumers. Gains are concentrated, losses dispersed.”
The reason this example is peculiar is that we have eliminated the vast majority of the import barriers over the last four decades, in spite of the problem noted by Olson. A more obvious example in the current world would be the effort by sectors like the pharmaceutical and entertainment industries to create new barriers in the forms of stronger and longer patent and copyright protection. These sectors, operating through both domestic law and international trade agreements like the Trans-Pacific Partnership, have managed to hugely increase protectionist barriers over the last four decades. This has led to large increases in the revenue and profits going to these industries.
Another obvious example is the financial industry. It used its enormous power in 2008 to force Congress and the Fed to save most of the biggest banks from bankruptcy. It has also used its political power to keep the industry from being subject to the same sort of sales tax as other sectors.
In short, Samuelson’s point about special interests blocking productivity gains is well taken. However, the villains in this story are largely to be found among the wealthy and powerful, the same people who have benefited from the upward redistribution of the last four decades. It is probably worth mentioning that some of these sectors, such as the pharmaceutical industry, are major advertisers at the Washington Post.
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