The Hollow Ring of the Productivity Revival

For years, I have extolled the virtues of what appeared to be a productivity-led recovery in the United States. The productivity slump that began in the 1970s had left U.S. businesses bloated and exposed to global competition, but corporate America responded with massive restructuring—first in the manufacturing sector and then in the service sector—to improve its competitive position. Unfortunately, this restructuring has a dark side, one that has prompted my second thoughts. Instead of focusing on investment in innovation and human capital—the heavy lifting required to boost long-term productivity—corporate strategies have become more and more focused on downsizing and compressing labor costs. The result is increasingly hollow companies that may be unable to maintain—let alone expand—market share in the rapidly growing global economy. If that’s all there is to the productivity-led recovery, the nation could well be on a path toward industrial extinction. A major rethinking is in order.