Technical regress

There's a fascinating TV series on now about modern social and economic history. I refer of course to the re-runs of Brookside on STV Player.

One thing this shows is how many opportunities there in the 80s were for workers to top up their wages by stealing from their employers, either by putting their hands in the till or by nicking stuff to sell to their friends. The closure of such opportunities thanks in part to technical change might help explain increased inequality and the Easterlin paradox, as I discussed here.

But there's something else. In one episode the post arrives at breakfast time. Today, this is unheard of. What a poverty-stricken city could achieve 40 years ago is now not possible even after decades of IT improvements. What we have here is technical regress.

Of course management of the Royal Mail and Post Office has long been indistinguishable from dogshit, but this regress is not confined to the postal system. The UK has lost the ability to build train lines. The BBC is less able (or willing) to make high-brow TV programmes whilst much of its current affairs output has become unwatchable. Water companies have become unable to maintain clean rivers. Construction productivity in the US has fallen since the 1970s. Academic research has deteriorated. And Cory Doctorow has described how platforms have become enshittified.

Lest this sound like an old man's nostalgia, I'll point to ONS data. These* show that there are many industries where gross value added per hour worker is lower now than it was in 2007, among them mining, pharmaceuticals, construction, water and wholesaling. In this sense, technical regress has been widespread.

All this alerts us to the fact that supply shocks are not just rises in the costs of raw materials due to wars. They can take the form of companies becoming less able to do things.

Some economists have long scoffed at this. Brad DeLong has called it the "great forgetting" theory of recessions. But I think there's something to be said for it.

For one thing, organizational capital is brittle; it can be destroyed by bad management, which is one reason why so many once-good companies get into trouble.

What's more, such declines and failures don't merely mean that capital and labour are swiftly redeployed at more efficient companies. Economies don't move seamlessly from one happy equilibrium to another. Instead, as Banerjee and Duflo point out in Good Economics for Hard Times, they are sticky: adjustments are slow, so technology shocks can lead merely to stagnation rather than to faster growth.

This is especially the case when, as Xavier Gabaix has shown (pdf), some companies are so big that their getting into trouble is itself a macroeconomic event, or if those companies are hubs, or key members of networks (pdf).

You can read the financial crisis as a form of technology shock - banks became less able to produce credit - and that had spillovers onto the general economy. Or the inability of TransPennine "Express" or Avanti West Coast to run trains has spillovers onto productivity generally as people can't get to work or meetings or are stressed out if they do. Or the failure of large department stores such as Debenhams leads to depressing high streets and shopping malls, causing less custom for other shops.

Now, you might reply here that a lot of these examples aren't so much of technical regress as of bosses degrading quality to get a bigger slice of the pie at the expense of workers or customers. In some cases, yes. But this merely reminds us that the production process is not merely a matter of solving constrained optimization problems as the neoclassical fairy tale says, but is also a location of class struggle.

All this should be troubling for mainstream economics. It means (some?) downturns are not merely fluctuations in demand which are ameliorable by monetary or fiscal policy but are instead the result of company- or industry-specific supply shocks. The fact that recessions have been almost all unpredicted is, I suspect, consistent with this.

This is not just an economic issue. It's a political one. Keynesian economics offered social democratic governments the possibility of controlling economic growth without having to interfere in capitalist management of workplaces. That option, however, exists only if recessionary threats come only from demand shocks and if productivity continues to grow thanks to capitalist dynamism.

Such conditions, however, are now absent. Which means we must take an interest in what Marx called "the hidden abode of production". We must take seriously the possibility that managerialism can no longer raise efficiency and that, as Michael Roberts says, there is a case for "giving workers democratic control of production and services and ending the autocracy of grotesquely overpaid chief executives and shareholder power."

This should not be so radical. Basic economics says that if a resource is scarce we should try to economize on it - and quality management is very scarce.

There is, of course, little evidence that the Labour party is thinking along these lines. Evidence-based policy-making has fallen out of fashion now that the evidence shows that capitalism isn't working.

* Yes, these. Suck it up, FT style guide.

Comments

[TickyW]

"For one thing, organizational capital is brittle; it can be destroyed by bad management, which is one reason why so many once-good companies get into trouble."

Yes, organisational capital, an intangible asset, does not appear on corporate (or national) balance sheets.

As a consequence, because no charge to the income statement currently appears in respect of its depreciation (consumption), profits have been overstated and dividend payments too high. In effect, the capital maintenance concept, enshrined in Company Law and which underpins the concept of income, may have been breached.

[Scurra]

That's a good point that TickyW makes - the problem of quantifying 'intangible assets' is a real one, and I tend to think that it runs alongside the problem of quantifying employees as 'tangible assets' (which they are not, of course. They are people.)
Neither of those can be properly represented on spreadsheets, and since that is how 'modern' (as in post-Renaissance!) business is run, it seems pretty much inevitable that we end up in this same situation repeatedly.

[Woody]

Increased regulation and legislation surley has it's place in the list of culprits responsible for slowing productivity growth.

[ltr]

Since 2007, infrastructure and private nonresidential investment in the UK has been strikingly low. This lack of investment has in turn limited productivity. Conservative austerity policy has sharply limited investment, and while the Labour of Jeremy Corbyn understood the problem, the Labour of Starmer shows little appreciation or understanding.

The matter is policy and Conservative policy is a fierce problem for the UK collectively.

[ltr]

Keynesian economics offered social democratic governments the possibility of controlling economic growth without having to interfere in capitalist management of workplaces. That option, however, exists only if recessionary threats come only from demand shocks and if productivity continues to grow thanks to capitalist dynamism....

[ Brilliantly observed and expressed; what a fine essay. ]

[tolstoy]

Really interesting article.

In the example of not being able to build train lines. Could part of this be that some technological innovation has decreasing returns, yet planners always try to build at the leading edge of technology? If high speed is available, they try to build high speed, which costs more than 10% more to go 10% faster. When actually, 1980's style 125 mph that is punctual and reliable would be fine and much cheaper.

[rsm]

'there is a case for "giving workers democratic control of production and services"'

Would a strong basic income free ppl to produce things for free because they like to, as once upon a time we gave away code and circuit designs because information wants to be free?

[Satisficer]

A different take on downturns.

Many are not caused by shocks. Economies are complex systems and one thing that complex systems do is oscillate. And (almost) all recessions have been predicted - by the US yield curve.

[ltr]

Could part of this be that some technological innovation has decreasing returns...?

[ The problem is that the UK had has among the lowest infrastructure and private nonresidential investment rates of any developed and quite a few developing nation. Conservative policy is undermining UK growth potential and growth. ]

[Blissex]

«These* show that there are many industries where gross value added per hour worker is lower now than it was in 2007, among them mining, pharmaceuticals, construction, water and wholesaling. In this sense, technical regress has been widespread.»

Measuring "productivity" using output measured in money terms usually is misleading (using inputs measured in money is usually simply malicious, fortunately here the measure is "per hour worked").

Regardless there are measures that matter, like the living standards of rentiers, and measures that don't matter, like "value added per hour worked" in "mining, pharmaceuticals, construction, water and wholesaling". After all progress in upper and upper-middle class rent extraction has been instead excellent.

«The problem is that the UK had has among the lowest infrastructure and private nonresidential investment rates of any developed and quite a few developing nation.»

Why is that a problem? Investment is not pursued for its own sake, but for the sake of improving the living standards of upper and upper-middle class rentiers.

Why waste resources investing in "infrastructure and private nonresidential" stuff which are unnecessary when upper and upper-middle class rentiers are already doing very well?

Put another way, I feel always tired by the usual clever "technical" observations about this and that issue, as if "politics", that is distributional issues, were irrelevant. A very "centrist" attitude.

Hypocrisy is (like property) a fundamental english value, but to use that so much even online and pseudonymously may be compulsion. But indeed hypocrisy (and property) sometimes seem to be compulsive among the great english middle classes...

[Blissex]

«gross value added per hour worker is lower now than it was in 2007, among them mining»

That point cited as simply as that is breathtakingly stupid or malicious, because the value added of mining is recorded including the price of the stuff being mined, which is pure rent.

In the topical case of the UK in 2007, in that year, more or less on the day when Tony Blair handed over to Gordon Brown, the UK became again a net importer of oil, because the scottish oil-fields had become depleted. Therefore the loss in productivity in mining since then is essentially a lose of rent.

«pharmaceuticals, construction, water»

These are largely rent extraction businesses too, and if an investor wisely targets rent extraction, it is foolish to invest in anything but property, where the *net* APR reaches routinely 50-70%. What kind of industrial business, even an extractive one, can beat that?

PS: on the fall of productivity in UK "mining" (that is scottish oil extraction) my usual pointers:

https://blissex.files.wordpress.com/2021/02/dataukprodbysector1970to2013.png
https://blissex.files.wordpress.com/2018/04/dataukoilextrconsexpmazama1965to2015.png
http://www.coppolacomment.com/2016/07/the-untold-story-of-uks-productivity.html

[Blissex]

«because no charge to the income statement currently appears in respect of its depreciation (consumption), profits have been overstated and dividend payments too high»

That is the very foundation of high book profits and many successful and hugely compensated executive careers!

I think I mentioned in the past Blissex's second law "Almost all non-trivial frauds are based on some form of under-depreciation of assets or of risks" and Blissex's lemma "Most cases of under-depreciation of assets or of risks are intentional fraud rather than mistakes".

[Blissex]

«Blissex's lemma "Most cases of under-depreciation of assets or of risks are intentional fraud rather than mistakes"»

That applies also to most "temporary shortages of liquidity", as they are called in the jargon of central bankers.

[Blissex]

«the price of the stuff being mined, which is pure rent»

Oops, not the price, the value (arguably, the consumer surplus).

[ltr]

« The problem is that the UK had has among the lowest infrastructure and private nonresidential investment rates of any developed and quite a few developing nation. »

Why is that a problem? Investment is not pursued for its own sake, but for the sake of improving the living standards of upper and upper-middle class rentiers.

Why waste resources investing in "infrastructure and private nonresidential" stuff which are unnecessary when upper and upper-middle class rentiers are already doing very well?

[ I assume this argument is meant as sarcasm, because it shows no concern for general British well-being. Still, I need to point out this must be sarcasm.

Also, British productivity is indeed faltering as is American productivity. ]

[Blissex]

«it shows no concern for general British well-being.»

But such concern is COMMUNISM!

And it is anti-democratic: a large majority of UK constituencies have democratically voted against that COMMUNISM!

"There Is No Alternative", at least as long as sincere (or hypocritical) pearl-clutching is the pretend alternative.

:-(

[Blissex]

«gross value added per hour worker is lower now than it was in 2007, among them mining»

There are another couple of "details" here that Economist usually dispense with:

* There used to be a concept in classical political economy called "fertility", whether a corn field or an oil field. What has happened to the scottish oil fields is that their fertility has dramatically fallen since a few years before 2007 as they depleted. Is that a fall in labour productivity? (slightly tendentious question).

* A large part of classical political economy used to be in effect cost accounting (e.g. the guy from Trier), which is very illuminating as to some useful notion of "productivity". The problem is that cost accounting is a very intellectually difficult topic in the presence of multiple factors, joint production and multiple time periods, and handwaving it away is so easy and avoids complicated distributional questions. Only maniacs like Sraffa kept an interest in that.

[Blissex]

«The fact that recessions have been almost all unpredicted»
«A different take on downturns. Many are not caused by shocks. Economies are complex systems and one thing that complex systems do is oscillate. And (almost) all recessions have been predicted - by the US yield curve.»

Don't take our blogger seriously when he quotes some facts, I guess he knows very well that sell-side Economists, journalists, politicians, ... can only predict booms.

[ltr]

Look to the UK and France after 2007:

https://fred.stlouisfed.org/graph/?g=Nvl9

November 1, 2014

Total Factor Productivity at Constant National Prices for United States, United Kingdom, Germany, France and Japan, 1992-2019

(Indexed to 1992)

[Jan Wiklund]

I cerainly agree with the conclusions - but "bad management" seems to be an old story. Alfred Chandler tells (Inventing the electronic century) that RCA, once a world-leading electronics corporation suddenly in the late 60s decided not to develop electronics any more but to "diversify", i.e use their money to live on other corporations' incomes through speculation on the stock exchange.

Capitalists are as lazy as everybody else. That they get tired and buy land is a very old phenomenon, well-known since renaissance Italy. But nowadays there are so many other things they can do to live off their wealth.

[ltr]

Alfred Chandler tells (Inventing the electronic century) that RCA, once a world-leading electronics corporation suddenly in the late 60s decided not to develop electronics any more but to "diversify"...

[ Andy Grove of Intel wrote of the need to be paranoid to survive. The point however is why Conservative policy is evidently encouraging "laziness" in the UK and why Labour is not fighting this. ]

[ltr]

https://www.theguardian.com/education/2023/mar/15/1100-scientists-and-students-barred-from-uk-amid-china-crackdown

March 15, 2023

1,100 scientists and students barred from UK amid China crackdown
Exclusive: Foreign Office rejected record number of academics in 2022 on national security grounds
UK quietly shifts China policy as trust between countries erodes
By Hannah Devlin - Guardian

[ Conservative disdain for and antagonism towards China will prove immensely harmful for the UK. ]

[ltr]

https://www.nytimes.com/2023/03/16/world/europe/uk-ban-tiktok.html

March 16, 2023

U.K. Bans TikTok on Government Devices
The move reflects fears in Britain and elsewhere in the West that the popular app’s Chinese ownership could share user information with Beijing.
By Stephen Castle

[ Coming soon, Tory efforts to return the UK to the opium trade and yet another Opium War. Then, another effort at burning the Summer Palace in Beijing.

I am appalled. ]

[Blissex]

«1,100 scientists and students barred from UK amid China crackdown [...] UK quietly shifts China policy as trust between countries erodes
By Hannah Devlin - Guardian

[ Conservative disdain for and antagonism towards China will prove immensely harmful for the UK. ]»

Let's not be silly: there is no distrust, disdain or antagonism towards the PRC. It is just that the USA have decided to recreate the iron curtain between the first world and the second world, to ensure that PRC (and very secondarily the RF) don't dominate the global economic system, and governments have to choose which side they want to be in (if they are lucky... most won't get to choose). The UK ruling class have most of their investment assets in the USA and rely on the USA for protection against "communism"...

http://www.telegraph.co.uk/culture/books/non_fictionreviews/3667997/How-victory-spelt-the-end-of-empire.html
«Churchill was reduced to a subordinate position in the Grand Alliance as early the Teheran Conference in 1943, when he "realised for the first time what a very small country this is". By Yalta in February 1945, he was "weaker than ever before". Roosevelt was concerned with Stalin – he "wasted little time on pandering to Churchill, a vaudeville act with which he was becoming bored". By that time, Clarke writes, "a well-briefed and prudently calculating leader" would have realised "what limited options were realistic... for Great Britain as a bantam in a heavyweight league, for the Anglo-American alliance as an expedient relationship premised on subordination”»

"Winston Churchill in the Twenty First Century" Roland Quinault:
«Churchill had one great post-war aspiration of his own: the establishment of an Anglo-American world order on the basis of an ever closer union of the two great branches of the "English-Speaking Peoples". In 1943, when his hopes of Anglo-American harmony were at their zenith, he even proposed after the war the establishment of a common citizenship. The irony was, of course, that one of the war aims of the Roosevelt administration was the liquidation of the British Empire, and the expansion of American power and influence at the expense of Britain.»

Churchill to De Gaulle, 1944-06-04, quoted in Jean Lacouture "Le Rebelle", 1984.
«"How can you think that we British would take a position separate from that of the United States? We are going to liberate Europe but it is because the Americans are with us in doing it. Because every time we must choose between Europe and the open seas, we shall always choose the open seas. And every time I have to choose between you and Roosevelt, I will always choose Roosevelt."»

Andrew Marr, "History of modern Britain":
«Britain’s dilemma from 1945 until today has been easy to state, impossible to resolve. How do you maintain independence and dignity when you are a junior partner, locked into defence systems, intelligence gathering and treaties with the world’s great military giant? [...] In practice this meant sharing intelligence with the Pentagon and CIA, the intertwining of nuclear strategy, large US bases on British soil, the leasing of British bases to America, and a posture towards American presidents that is nearer that of salaried adviser than independent ally.»

"Ubi major minor cessat".

[ltr]

"Let's not be silly: there is no distrust, disdain or antagonism towards the PRC. It is just that the USA have decided to recreate the iron curtain between the first world and the second world..."

This is a proper and correct understanding. Being sentimental on foreign policy is silly. I am terribly disappointed, but this understanding is correct.

[rsm]

《Let's not be silly: there is no distrust, disdain or antagonism towards the PRC.》

Why is it unsurprising that the nation who still worships royals would feel affinity towards the authoritarian dictators who lead the Chinese Communist Party?