Friday, November 07, 2003

It's interesting to see that economists are still predicting US's near-term productivity at 2-2.5%.  They had the same estimate two years ago but the average rate has been over 5%.  The difference is huge.  5% represents a ~12.5 year living standards doubling rate vs. ~36 years at 2%.  Here are some reasons that a higher rate can be sustained: The higher averages may mean that greater information flow is smoothing the productivity enhancement curve as well increasing the "sharing" of best practices processes across industry segments.  That will yeild a higher sustainable average over the longer term.  A large percentage of this increase in productivity growth is due to advances in information technology.  So as Moore's law marches on, we will continue to see this improve.  Information technology is also supercharging other technology segments to plunge them onto their own rapid doubling rates. Finally, the infrastructure for sharing information services (SOA and IT dial-tone) is being put in place across industry segments.  This will make it possible to more quickly and fully realize the benefits of Moore's law across the economy.   10:15:01 AM    Comment_ Trackback []

WSJ.  Great article on the recent surge in productivity growth.  It is the highest growth 2 year growth rate in 50 years (which reflects payoff from investments in the 90s and pricing pressure on corporate profits from the Web's information flow).  It also shows that computers are starting to automate the service industry (up until 2 years ago, productivity improvements were limited to a small subset of manufacturing and technology sectors). The two hold outs in the service world are education and healthcare.  That means that while productivity improvements will allow wage increases and qualitative improvements in other service industries without inflation, both healthcare and education will continue to see massive inflation.  The article included lots of great examples, including a nearly direct refutation of Baumol's disease (which claimed that a Mozart quartet would always take the same number of people over the same people regardless of technology improvements) for service productivity.  Here are some: Countrywide Financial Corp., a large mortgage lender based in Calabasas, Calif., says it has reduced the time required to originate a loan to about 10 days from nearly 60 days a decade ago. Richard Jones, the company's chief technology officer, says Countrywide aims to reduce the underwriting time to just 20 minutes in the months ahead. "We're not very far from being able to do that," he says. Jay Meetze, director of the Opera Company of Brooklyn, says using virtual players reduces his cost of hiring musicians to a little bit more than $5,000 for each performance, compared with a typical rate of $15,000. The savings will allow him to begin a 24-performance tour of another Mozart piece, "The Magic Flute," in April. The high-tech music system was donated by a small New York company called Realtime Music Solutions. The now-widespread efforts of airlines to install automated check-in kiosks at airports demonstrate how long it can take for companies to adapt. Since 1997, Northwest Airlines Corp. has installed 755 such kiosks at 188 locations. Two-thirds of Northwest's passengers -- up from 20% in 2001 -- now use either the kiosks or a separate feature that allows them to check in at home via the Internet...  Mr. Melnik says on average one kiosk has the capacity to replace 2½ employees. The cost of maintaining a kiosk is one-fourth the annual cost of compensating a single employee. 8:37:57 AM    Comment_ Trackback []