On Thanksgiving, some people probably gave thanks for this year’s bountiful harvest. But I doubt many prayers included “and we give special thanks, dear Lord, for the increase in ‘total factor productivity’ over the past year.”
Yet increases in economic efficiency are something we should appreciate. Having more goods and services to meet people’s needs and wants may not be as important as health or family, but we shouldn’t scorn such plenty.
Our nation has a long history of rising living standards due to greater use of economic resources — land, labor and capital — and to increases in the efficiency with which basic resources are combined. Yes, the current rate of increase of levels of living is less than it was in such high-growth periods as the last third of the 1800s, the 1920s, the three decades immediately after World War II — or even the 1990s. It is better, however, to have some economic growth than none at all.
It was in the late 1700s, with the application of water power to more tasks, development of the steam engine and the mechanization of textile manufacturing, when technological change began to play an increasingly important role.
As tools and machines became more sophisticated, capital also played a bigger role. There was a high savings rate in the young nation, but more financial capital was needed and much came from England. Many U.S. canals, mills, railroads and mines were financed with British money.
Early in the American growth process, technology was imported. But soon domestic technology development took off. Much of this was Yankee ingenuity, but some was government.
Our country was not alone in technological advances in the 1800s. England remained a leader in the era of “steel and steam,” and Germany by itself led almost all the advances in industrial chemistry.
Between 1865 and the mid-1890s, a restrictive monetary policy imposed hard economic conditions on many households, particularly those in agriculture, forestry and mining. But the overall economy grew from increases in the classic economic factors of land, labor and capital and from the new factor of technological advances.
This process continued into the 20th century. World War I ended large-scale immigration for nearly a century, but demand for better explosives, naval armor plate and steam turbines and anything related to aviation induced technical innovation. And that took place in spades during and after World War II. The Manhattan Project to develop the atomic bomb and work on radar and the proximity fuse in labs at MIT and Johns Hopkins vaulted knowledge in physics, chemistry and electronics forward.
The Cold War and space race during the 1950s and 1960s helped maintain a high level of federal spending on research and development that has translated into new materials, integrated circuits, the Internet and GPS, among many other innovations we take for granted.
So where are we now? Some economists argue that the forces of technological innovation that buoyed our economy for decades are largely spent and that we are entering a period of “secular stagnation.” But others disagree and point to continuing advances in communications and information technology and in the life sciences.
My home state of Minnesota is a good case study in economic growth. Like the rest of the country, we grew largely from immigration and the utilization of new farmland, mines and forest in the initial several decades of our existence. The waterpower for sawmills and flour milling at St. Anthony Falls, the seed for what now is Minneapolis, was not new technology. And there was little technological change at first, except in machinery. Labor was scarce so agriculture and mining mechanized quickly.
Other than for machinery, there was little technological change. For example, there was no increases in annual corn yields of about 30 bushels per acre from 1870 to 1930.
But hybrid corn and increasing use of synthetic fertilizer and other farm chemicals boosted yields 50 percent from 1930 to 1950, then doubled them from that year to 1970 and doubled them again by 2010. For 2015, the state average is about 187 bushels per acre, six times what it was in the 1930s.
That is an example of incremental improvements in technology. Similar things took place in forestry, mining, manufacturing and retailing.
Productivity changes are disruptive. At one time, it took more than 20,000 workers to produce 40 million tons of iron ore per year. Now it takes a tenth of that. A family friend once farmed 320 acres with four sons. Now, one son and one grandson farm 1,500.
Moreover, while the income growth springing from technological innovation was widely distributed to most levels of the population in the first four postwar decades, over the past 20 years, nearly all the increase in national income from all sources has gone to a small fraction of already high-income households.
As we finally face distribution questions, it is politically and economically easier to restructure things to reduce inequality during a time of growth rather than during stagnation.
We have gone through a lot in the past eight years. And many households continue to struggle. But technological innovation and productivity growth remain a gift for which we should be grateful.