Productivity and Progress

By Modica, Nathan F. | Monthly Labor Review, September 2017 | Go to article overview

Productivity and Progress


Modica, Nathan F., Monthly Labor Review


The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War. By Robert J. Gordon. Princeton, NJ: Princeton University Press, 2016, 784 pp., $39.95 hardcover.

Is U.S. productivity growth in the middle of a long-term slowdown, or is it on the verge of a dramatic turnaround? Is the information revolution that began in the mid-1990s just a residual crumb from the banquet of innovation in computing and other technologies? Or is it a harbinger of greater revolutions to come in artificial intelligence and the digital economy? In The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War, Northwestern University Professor Robert J. Gordon makes the case that slow productivity growth is here to stay for at least the next quarter century.

Gordon's prediction is informed by an exploration of how the past century and a half of innovation has affected the U.S. economy and standard of living. In particular, Gordon describes how two of the greatest crises in post-Civil War history--the Great Depression and World War II--led to the most prolific period of technological and organizational innovation in the United States. Gordon looks at the responses to these historic challenges in relation to long-term productivity growth.

What does Gordon mean by "productivity," and how does it relate to economic growth? One widely used measure of productivity is labor productivity, which is defined as the ratio of real gross domestic product (GDP) to hours worked. A more detailed measure, total factor productivity (TFP), relates output to a combined index of both capital services and labor input. The labor input measure used in TFP calculations generally includes an adjustment by certain attributes of the labor force--in Gordon's case, by educational attainment. TFP can be thought of as the part of GDP that does not come from increasing inputs of capital and labor. Growth in TFP can come from improvements in technology, the organization of production, and any other indicator of how efficiently inputs are used. As such, TFP is seen as a catch-all measurement of technological change and a key component of economic growth. As Gordon asserts in his book, current U.S. demographic and educational trends are not favorable to economic growth, so future growth must rely on increasing productivity.

One might question whether it is possible to predict how technological developments and improvements in organizational efficiency will affect productivity trends in a large economy. Gordon argues in the affirmative and devotes hundreds of pages of historical observations to make his case. His book tells the story of how a few outstanding inventions introduced in the 1870s--notably, electrification and the internal combustion engine--led to cascading surges of innovation that propelled economic growth for roughly a century. Gordon follows other economic historians in calling this post-Civil War era of abundant technological development the Second Industrial Revolution, or IR #2. (The First Industrial Revolution [IR #1] of steam engines and textile mills began in Great Britain in the late 18th century.)

IR #2 saw the United States rise to the forefront of global innovation. In addition, the effects of this revolution on productivity growth were greater and longer lasting than those of IR #1. Part I of Gordon's book studies the economic and social impacts of IR #2, which spanned the period 1870-1940. The first eight chapters detail advancements in living standards, with thematic titles such as "What they Ate and Wore and Where They Bought It" and "The American Home: From Dark and Isolated to Bright and Networked." While these chapters are immensely readable as self-contained narratives, their overarching theme is that of a 70-year burst of innovation that outlasted any similar period in history, anywhere in the world. This revolution touched every production process, every form of labor and leisure activity, every building, and every vehicle. …

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