- offshoring and job losses: curse of productivity!

2005-02-03T10:59:00.000-08:00

Very instructive article. people just completely forget the role that productivity plays in these cases! i work on SAP implementations... that software itself replaces at least 100 legacy systems - that is a huge change in manpower requirement! and the latest figures show that the US productivity has been increasing by 3% for last few years against the customary 2%.

low productivity
That brings us to another point.. to what i call the curse of Productivity: Developing countries are troubled by low productivities.. look at the Indian example. Dairy and Wheat farming in India has a productivity that's 1-2% that of US levels! In fact Dairy farming in India employs LARGEST number of manpower for ANY SECTOR ANY WHERE IN the world. Despite India being the largest milk producer in the world.. the number of people involved in creating that production.. negates the rewards that the economy could generate if the productivity was higher. and the farmers do not have any incentive to really use mechanized techniques as the labor is so cheap.

the way out?
The all-important question then is: how do we then increase the productivity without increasing the cost of labor relative to mechanization? my bet is to wean the excess workers from the farms - its important to raise the opportunity cost for their daily effort to level exceeding the farm labor incomes.. to get them worthwhile alternatives in the tertiary sectors of the economy. This is the sector that often acts as the catch-all for the farm labor. However, this is not possible until the primary industrial sector of the economy progresses. Its all interlinked to each other.

that is why the anti-India-shining campaigners were totally off the mark when they accused the NDA of ignoring the poor. For all the socialist policies that had leashed India to mediocrity all of these years of existence.. someday we will have to take a hit! But this is something that the politicians are not willing to let go .. specially of the leftist orientation!

reversals from high productivity

US, of course is on the other side of the "Curse of Productivity" continuum! The productivity levels here are rising so high and so rapidly that it might lead to a shrinking economy. So what is the remedy here? to manage productivity? or to discover sectors that are .. as yet low productivity level areas but high value ones.

The McKinsey Quarterly: Don't blame trade for US job losses

The real causes of job losses were weak domestic demand, rapid productivity growth, and the dollar's strength.

The take-away
Protectionism won't address the causes of the loss of US manufacturing jobs in recent years. The real solutions—stimulating domestic demand, cutting the budget deficit, and pushing countries with artificially low currencies to allow them to appreciate against the dollar—are harder to implement but more likely to boost employment.

-ddk

DESHKAPOOR.com

- offshoring and job losses: curse of productivity!