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What Kind of Productivity Do We Need?

Is it possible that we are over-optimizing one factor of production -- labor -- at the expense of other resources that are truly scarce? By Kumar Venkat

On my last visit to India, I walked into a restroom at the airport in Bangalore, the high-tech capital of India, and was greeted by an attendant whose job was to dispense liquid soap and paper towels. The work was, of course, superfluous, but he clearly needed the job and the tips he occasionally received. Perhaps his labor could have been put to a more productive use elsewhere.

But anyone who has seen the vast ocean of humanity in a large developing country like India has to wonder what kind of productivity can truly provide a decent life to everyone. India’s high-tech mecca is full of people with low-tech skills or no skills at all, who provide their labor in myriad ways to keep the city running while elite engineers write software and design computer chips. Labor is not a scarce commodity in many developing regions of the world.

In contrast, labor productivity is central to any discussion of the U.S. economy. High labor productivity has been cited as one of the reasons for the slow job growth in the current economic recovery. Still, many economists believe that productivity growth, which allows goods and services to be produced at decreasing cost, is the ultimate source of wealth for everyone. In competitive markets, lower production costs mean lower consumer prices, which stimulate demand and lead to further increases in productivity and, ultimately, wages. But this conventional argument ignores the crucial role of natural resources in production and consumption.

Labor remains expensive relative to natural resources such as energy and raw materials in industrialized countries. In response, new technologies are designed to reduce and eliminate human labor, making the remaining workers more and more productive. In the past 100 years, the farm sector has gone from using 40% of the U.S. workforce to just 2%. The manufacturing sector continues to lose jobs to automation and the use of cheaper labor overseas. We now transact much of our routine business with the likes of banks, bookstores, and airlines without ever seeing a human face or hearing a live voice.

Is it possible that we are over-optimizing one factor of production -- labor -- at the expense of other resources that are truly scarce? One way to answer this is to look at the biologically productive land and water area required to support our resource consumption and waste output.

Redefining Progress, a nonprofit organization that develops tools and policies for sustainability, estimates that it takes 9.57 hectares to support an average American. This ecological footprint is about 80% higher than locally available regenerative and absorptive capacity. The deficit is made up through imports and disproportionate use of global resources such as the atmosphere. The per-capita footprint is 1.36 hectares in China (36% above capacity) and 0.76 hectares in India (9% above capacity). Humanity’s total ecological footprint is nearly 16% higher than earth’s capacity, indicating an unsustainable depletion of natural capital.

The United States has the largest per-capita ecological footprint among all nations and consumes more than 20% of the world’s resources. Developing countries aspire to a similar living standard but face the enormous task of lifting hundreds of millions out of deep poverty. Their plan for economic growth depends on using large amounts of additional natural resources. China, for example, has become an insatiable consumer of energy and raw materials, with its energy consumption expected to more than double by 2030.

At the time of such unprecedented resource use, nearly 750 million people around the world are either unemployed or classified as “working poor”, according to the International Labor Organization. More than 500 million additional workers will enter the world’s labor markets by 2015.

A number of resource economists and sustainability thinkers have advocated an environmental tax shift in developed nations, which would reduce the tax burden on labor and increase it on fossil fuels, virgin raw materials, waste generation, and pollution. The idea is to encourage more employment of labor and less of scarce natural resources. Tax shifting is finding much more traction in Europe than in the United States.

In developing nations where labor costs are low and raw materials are relatively expensive, resource-saving and employment-generating activities such as repair and remanufacturing are already widespread. But technologies and lifestyles borrowed from rich countries -- including private automobiles and disposable products -- could destroy any possibility of sustainable development in these countries. What they lack -- and perhaps need the most -- are policies and technologies designed to radically increase resource productivity and employment opportunities in tandem.

It is difficult to imagine a livable future where unemployment and underemployment are rampant and the use of natural resources remains unrestrained. Both developed and developing nations face the same ultimate challenge: moving from a narrow view of productivity to a balanced consideration of how best to employ both human and natural resources.

Kumar Venkat is a technologist, entrepreneur and writer based in Silicon Valley.

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