Skip to main content

The global gravy train has stalled, derailed by a productivity crisis. If you had hoped that green shoots in the U.S. and Europe would quickly generate sufficient demand to create a virtuous circle of wealth generation and rising prosperity, think again. An analysis of global productivity by the Conference Board suggests that the world is becoming less efficient at producing goods and services.

The rate of increase in output from the world's workforce continues to decline, hamstrung by a productivity slowdown in industrializing Asia just as the richer nations begins to emerge from recession. The question we need to answer is whether we are still working our way out of a slump, or have we run out of ideas?

Worldwide, growth in labour productivity, represented by output per person, slowed to 1.7 per cent in 2013, the third consecutive year of decline. The Conference Board figures show that Europe and North America are largely stagnating in terms of the ability of their economies to generate more wealth from work. Meanwhile, the rate of growth in productivity among the poorer industrializing nations is slowing down.

Productivity growth rates among developing countries are much higher, reflecting the greater output as workers acquire more skills and move from farms to factories and offices. America's workforce increased its output per person by 0.9 per cent in 2013, the same as 2012. Each Chinese produced 7.1 per cent more wealth last year but China's efficiency gains are falling steadily, from 7.4 per cent in 2013 and as high as 8.8 per cent in 2011. India's slowdown in productivity improvement is even more marked, from 5.8 per cent in 2011 to just 2.4 per cent last year.

More worrying, says the Conference Board, is the decline in total factor productivity, which measures economic growth originating from factors other than capital or labour, therefore measuring the efficiency of the whole economy in allocating resources, whether people or machines. Total factor productivity dropped below zero for the global economy in 2013. The reason for the breakdown in efficiency improvements may in part be due to the global slump on demand, but the drop in productive use of resources may also be "related to a combination of market rigidities and stagnating innovation."

The latter raises more worrying questions about how new technology is affecting the way we work, or whether we even make good use of the technology we have. The slowdown in Asian productivity growth is hardly surprising and demonstrates the extent to which Chinese manufacturers find themselves on a treadmill, forced to hire more staff at ever higher wages in order to achieve smaller increases in output. The solution is clearly a transition to greater mechanization and to the service economy, a process that is underway but will require a massive shift in resources into education and technology.

The unanswered question is whether North Americans and Europeans can become more efficient. In other words, is the digital information economy really a magical tool that will unlock a library of riches? Or is it just a distraction, a vast jungle of confusing and largely irrelevant data? If it is the latter, it might explain why so many of us seem to be working so much harder for no better reward.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe