Minneapolis—Productivity can save the planet and produce peace and prosperity for all. Productivity is the tool that can eliminate all of the scourges of humanity—poverty, hunger, disease and war. Norwegian-American economist and business consultant Tor Dahl passionately made this argument in his keynote presentation at the World Future Society's annual meeting. Dahl is the chairman emeritus of the World Confederation of Productivity Science. One must be on guard against the exaggerated claims of the mavens of any discipline for the significance of their field. Of course, mavens believe that what they do is vitally important, otherwise why would they do it? That said, Dahl was very persuasive.Take South Asians, Cubans, Russians or Mexicans, transplant them to the US and watch them blossom. Is there any better argument for democracy, free trade and globalisation?
What is productivity? Simply getting more output from the same or less input. Dahl showed in his talk the institutional context in which productivity improvement flourishes. His findings will gladden the heart of any libertarian, and anyone else who wants a prosperous future for the billions of people on this planet who are mired in poverty. He began by asking why South Asians and Cubans are more productive outside of India and Cuba? Why do Russians have the highest per capita income of any ethnic group in the U.S., but very low per capita income in Russia? Why are Mexicans five times more productive in the U.S. than in Mexico?
The answer is that productivity flourishes when people are free, safe, and justly treated. Dahl calls this the framework for prosperity. "This principle holds not only for nations, but for any organization or institution that seeks to unleash its potential to achieve improvement and growth," declared Dahl. As evidence for the salience of freedom, Dahl showed the correlation between the Index of Economic Freedom and each country's per capita gross domestic product (GDP). The Index of Economic Freedom encompasses trade freedom, investment freedom, freedom from corruption, and the protection of property rights. The top 10 countries' scores cluster around 80 on a 100 point scale. The U.S. is number four, after Hong Kong, Singapore, and Australia. The poorest countries are also the least free, e.g., Zimbabwe, Burma, Libya, Turkmenistan, and Chad. They generally scored in the 40s on the 100 point scale.
Dahl did a polynomial regression to see how prosperity correlates with freedom. He found that approximately 55 percent of prosperity (R2 = .55) can be attributed to the prevalence of economic freedom.
"The freer you are, the faster you grow," said Dahl. As a stand-in for safety, Dahl looked at lost years of life per 100,000 population due to hunger, disease and conflict in each country. He got an amazing R2 of .51, which he said means that about 51 percent of prosperity can be attributed to people living in safety.
The safest countries included Iceland, Japan, Israel, Singapore, and Australia. The U.S. was number 31 on the list. And his final regression looked at how prosperity correlates with justice. Using a freedom from corruption index, Dahl got an R2 of .83, which he interpreted as meaning that approximately 83 percent the variation in prosperity across countries can be explained by good governance.
"Justice is incredibly important to prosperity," said Dahl. The least corrupt countries included Finland, New Zealand, Singapore, Canada and United States. Among the most corrupt were Nigeria, Madagascar, Indonesia, and Moldova.
Dahl divides the economy into three sectors which he calls transformational, transactional, and the knowledge economy. Today in the U.S., about 10 percent of Americans work in transforming raw materials into finished goods and another 10 percent work in routine transactional jobs, e.g., bank tellers and grocery check-out personnel. This means that 80 percent of Americans are knowledge workers. Dahl then argues that there is no ceiling on the productivity of knowledge workers since knowledge is abundant, and not scarce.
This is an insight that Stanford University "New Growth" economist Paul Romer endorses. In addition, this means that future economic growth depends less and less on the amount of physical resources, and more on transforming those resources into high value products and services. Perhaps one way to think of it is to compare it to gourmet dining: The difference in the price of meal at Denny's and one at the French Laundry does not depend so much on the cost of the calories that go into the meals, but on the differential in the knowledge and artistry of the chefs. About 80 percent of wealth of the world turns out to be of this intangible sort that is embedded in human capital and well-functioning social institutions.
The greatest threat to our way of life is the nanny state; the state that tells you that you have rights but not obligations you first need to meet in order to gain those rights.