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OM in the News: The Downside of Increasing Productivity

July 17, 2014

summers article“What has happened in agriculture over the past century is remarkable,” writes Harvard Prof. Larry Summers in The Wall Street Journal (July 8, 2014). The share of American workers employed in agriculture has declined from over 1/3 a century ago to 1-2% today. Why? Because agricultural productivity has risen spectacularly, with mechanization reducing the demand for agricultural workers even as food is more abundant than ever. What has happened in agriculture is happening to much of the rest of the economy.

In Marc Andreessen’s phrase, “Software is eating the world.” Already the number of Americans doing production work in manufacturing and the number on disability are comparable. Despite an expected uptick in the next few years in manufacturing employment, the long-term trend is inexorable and nearly universal. As in agriculture, technology is allowing the production of far more output with far fewer people. No country can aspire to more of an increase in competitiveness than China, yet even it has suffered a decline in manufacturing employment over the past 2 decades. And the robotics and 3-D printing revolutions are still in early stages.

What about services? A generation from now, Summers thinks taxis will not have drivers; checkout from any kind of retail establishment will be automatic; call centers will have been automated with voice-recognition technology; routine news stories will be written by bots; counseling will be delivered by expert systems; financial analysis will be done by software; single teachers will reach hundreds of thousands of students, and software will provide them with homework assignments customized to their strengths and weaknesses.

Those losing jobs due to increased productivity will be freed up to do things in other sectors. But there are many reasons to think the software revolution will be even more profound than the agricultural revolution. This time around, change will come faster and affect a much larger share of the economy. Workers leaving agriculture could move into a wide range of jobs in manufacturing or services. Today, however, there are more sectors losing jobs than creating jobs.

Classroom discussion questions:

1. What are the OM implications of Summers’ article?

2. What do you think American manufacturing will look like in 20 years?

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