K -
...The productivity increase of the last few years is very real and will probably accelerate....
But this is the normal condition and is virtually always the case, although the descriptions will change. The real question is what the result is of this productivity increase. In a competitive market, it is not typically the companies that employ the productivity enhancements that reap the profits and benefits, it is the suppliers of proprietary productivity enhancements and the final consumers who pay the lower prices that the improvements in productivity drive through the competitive marketplace. As for the potential employers of productivity enhancing devices, they often simply serve as an additional stress that can threaten survival itself, not just profits.
As a long term example of the results of a sustained high level of productivity improvement, consider agriculture. An annual rate of productivity increase of about 3.5% sustained for over a century has not exactly produced a healthy, highly profitable, industry. Rather, the result has been lower output prices and massive failures and an enormous degree of consolidation. All kinds of agricultural suppliers of proprietary higher order (non-consumer) products and services have flourished, at least at times, and consumers have seen the prices and variety of food improve greatly, but the vast majority of the actual suppliers of food of all kinds have fallen by the wayside.
If you are a telecommunications company who sells directly to the consumer, do you cheer every time a startup company offers you something, for a substantial price, that doubles the capacity of your plant? Hardly. You now have a choice of borrowing money to invest and destroying your earnings due to debt load, or by choosing to go out of business more slowly as your prices must fall due to competitors who do make the investments and achieve lower costs. Of course, as you are going out of business you also are selling your services at whatever price is low enough to do so. As you do this, you are also wiping out the profits of your competitors that they expected to reap from their investments. The consumers are very happy with low prices. The suppliers of the productivity enhancing equipment are very happy with their short term profits, but soon will face competition and their longer term health is utterly dependent on the survival of their customers (you).
Regards, Don |
