Alan Greenspan

"America's immensely productive economy has given us so many things: the highest standard of living in the world, a flexible and resilient economy, . . . [and] a broad, competitive advantage that no other nation can match," said Secretary of Labor Elaine L. Chao welcoming an audience to an October 23 conference.

Participants discussed the significant increase in productivity in recent years and offered reasons for this accomplishment. Alan Greenspan, chairman of the Federal Reserve, regarded the "productivity feast of recent quarters" as "both remarkable and encouraging" considering the state of the economy.

The primary reason for this productivity surge is that companies have cut "fat that accumulated during the long expansion of the 1990s when management attention was focused primarily on the perceived profitability of expansion and less on the increments to profitability that derived from cost savings," Greenspan said. "Managers now . . . are pressing hard to identify and eliminate those redundant or nonessential activities that accumulated in the boom years."

According to Greenspan, the other reasons for growth in productivity include reallocation of computers and networking equipment to firms that could use them more effectively, employing the existing workforce more intensively, and returning to a low inflation environment. Yet these are secondary explanations, he said. "It will ultimately be the quantity of fat in the system and the opportunities for productive reorganization that will determine the potential gains in productivity." Greenspan pointed out that despite the growth thus far, "there is an upper limit to the amount of output that can be produced from an existing facility, even in the short run, no matter how intensively it is employed and how much fat is taken out of the system."

Greenspan also saw the increase in productivity as part of a larger trend connected to the impact of technology. "Arguably, the pickup in productivity growth since 1995 largely reflects the ongoing incorporation of innovations in computing and communications technologies into the capital stock and business practices. Indeed, the transition to the higher permanent level of productivity associated with these innovations is likely not yet completed."

Panelist Greg Bentley, CEO of the software company Bentley Systems, also saw information technology as a key factor in productivity gains. Despite the current poor performance of the industry and the danger of restrictive regulatory burdens, Bentley said, "IT's productivity contributions are constant and sustainable." Phillip J. Bond of the Department of Commerce also regarded IT as vital, saying, "The future of productivity will hinge . . . in good measure on the speed to adopt new technologies for individuals in every conceivable kind of business."

Among the other suggestions for increasing productivity were creating a nation of lifetime learners and building a safer workplace. J. T. Battenberg, head of the Delphi Corporation, found in his own business that improving health and safety resulted in significantly better productivity and quality. Additionally, by boosting productivity in this way, the owners, executives, and employees were all motivated. "Productivity may be viewed with suspicion by employees and unions--usually is--but caring about the health and safety of your employees, or caring about product quality, are concepts that we can all embrace, and that help drive productivity improvements."

R. Glenn Hubbard, chairman of the President's Council of Economic Advisers, underscored the vitality of this issue: "Productivity is really where the action is for the economy. There is no single policy issue more important for the future of the country than understanding the determinants of productivity growth and, hopefully, increasing productivity growth." Hubbard offered practical examples to illustrate this importance: If current trends were to continue, because of the "very high rate of productivity growth in the United States [and] the current lower rates of productivity growth in Japan, it would take fully a generation later for Japanese output to double than in the United States. . . . Small changes in productivity growth are very important for a given country and can be devastatingly important, positively or negatively, for a country over time."