5 Priorities To Boost U.S. Productivity
My contribution to The International Economy magazine symposium on U.S. productivity - and a link to the full debate.
Marco Annunziata - Jun 22, 2024
This article is republished from Just Think with permission from Marco Annunziata.
The International Economy magazine invited me to weigh in on their debate on “America’s Productivity Disappointment”. These debates are one of my favorite readings — with about a dozen experts contributing concise and pointed opinions, they are a great way to survey any specific topic from widely different perspectives and points of view.
The prompt was: “If you were offering advice to the next U.S. President, what policies would you suggest to boost stagnant productivity in the United States, which has been running below 2 percent for nearly two decades?” Very timely, ahead of next week’s first presidential debate, given that neither candidate’s platform seems focused on growth-enhancing measures.
My contribution is printed below, but I encourage you to take a look at the whole debate, which you can access at this link. Or even better, go the home page first, because the magazine cover is a brilliantly humorous commentary on the current state of global policy institutions.
And I hope to see in the comments your ideas for how to boost productivity!
Here is the advice I would give the next U.S. president: Mr. President, remember that productivity in our economy is driven by two forces: innovation, and the right conditions for innovation to be deployed at scale, including a risk-taking culture and a strong profit motive.
Government can almost never create innovation, but it can (and should) almost always create the conditions for innovation and productivity to blossom. To boost U.S. productivity growth, you should focus on five priorities.
First, foster a culture of excellence. Talent diversity is important and discrimination must be fought, but the focus in universities, in the research ecosystem, and throughout the economy must be on excellence, on performance, on the quality of the teaching and of the research and business outcomes—not on social engineering.
Second, innovation requires freedom. Any policies that create a climate of censorship will inevitably inhibit innovation and productivity.
Third, incentive policies should be technology-agnostic. Government can decide to incentivize specific goals. But the best way to do it is to promote the goal and leave it up to science and industry to identify the best ways of reaching it. Subsidizing specific technologies is too often a waste of money, diverting resources and efforts away from what will potentially turn out to be the best solutions.
Fourth, boost investment in infrastructure, including both traditional and digital infrastructure. In many western countries, the quality of traditional infrastructure has been deteriorating for years, causing delays, transportation bottlenecks, and inefficiencies. Upgrading basic infrastructure should be a priority, but it should be done with an eye to how emergent technologies are likely to transform our needs—for example as regards the increasing number of electric vehicles and the promise of self-driving cars and trucks. A more robust and extensive digital infrastructure is also essential to foster the diffusion of digital-industrial technologies, along with the additional efficiency-improving solutions that will gradually be enabled by artificial intelligence.
And last, productivity also comes from high-quality human capital. Here there are two key action items. First, improve the quality of the education system, which in the United States and many other western countries has deteriorated (as documented in the latest OECD PISA report) and not just because of ill-advised pandemic school closures. Second, combat the well-documented adverse impact on cognition that comes from digital technologies. Social media apps must be treated for what they are: addictive substances with amply demonstrated harmful effects on cognition and mental health, especially on the younger generations.
The stakes are high. During the 1996–2005 period, U.S. productivity growth averaged 3 percent per year, courtesy of the first digital revolution. Since then, the rate has halved to 1.5 percent per year. If the previous fast pace had been maintained, the U.S. economy today would be 30 percent larger. Productivity accelerated in 2023, suggesting that innovation might be starting to pay off. Creating the conditions for sustained faster productivity growth is imperative to ensure future prosperity as well as to maintain U.S. economic and geopolitical leadership.