Working Smarter

Productivity is the art of turning out the most goods with the least amount of labor and materials, and productivity figures are among the most important gauges of an economy's health. Beginning in the late 19th century, for example, the yearly rise in the productivity of England, then the world's foremost industrial nation, was just slightly less (1%) than that of its industrial rivals, chiefly the U.S. and Germany. But by the mid-20th century that seemingly small difference proved to be enough to tumble England from its previously undisputed industrial predominance.

Once a hallmark of American industry, productivity improvement in recent years has become elusive. In the 1950s and early 1960s, output per hour of work rose 3.2% annually. But from 1977 to 1982, U.S. manufacturing productivity grew by just .6%, while in West Germany the increase was 2.1%, in France 3.0% and in Japan 3.4%. Last year, however, the U.S. rate increased by 2.8%. In the first quarter of this year it was up at an annual pace of 3.2%. John W. Kendrick, a professor at George Washington University and a guest at last week's TIME Board of Economists meeting, believes that the U.S. is now "going back to the higher productivity trend we saw between 1948 and 1973." One of the leading American experts in the field, Kendrick maintains that many of the factors that made the U.S. inefficient in the 1970s are now improving.

Oil price rises were one of the most important causes of trouble in the '70s, but these are likely to remain moderate. Inflation, another reason for the drop in efficiency, also appears to be more in control. Finally, the 20 million young workers of the baby boom who entered the labor force in the 1970s have now become more skilled and thus more productive. Kendrick predicts that productivity will increase by 2.7% a year until 1990.

Members of TIME'S Board of Economists were skeptical. Lester Thurow noted that only manufacturing has had a healthy productivity increase, while construction and other areas have been less successful. Thurow also pointed out that even highly computerized fields like banking have not posted very encouraging results. Between 1977 and 1982, banks increased their total work force by 21%, but increased output just 8%. Recent figures on U.S. productivity are promising, but TIME'S economists are not ready to declare the beginning of a new era of American economic efficiency.