Running to Stand Still

Aug 29, 2022 Dieter Adam

Increasing investments, but no gains in productivity?

Prior to the COVID-19 pandemic, low or no productivity growth over the past two decades – across OECD economies, and across sectors – had been an observation often commented on, and lamented, but rarely with a convincing explanation. For manufacturing, average overall productivity for the years 2001 to 2019 increased by 2.8% p.a. for the USA, and 2.1% for the Euro area (Source: OECD; Gross value added per person employed, constant prices). The first two years of the pandemic saw a big drop in 2020, due to various pandemic con­trol measures, with a corresponding (or even larger) gain in 2021 where these controls were reduced or lifted.

There has been some hopeful speculation that the COVID-19 pandemic, shaking up and disrupting processes across the board – from consumer demand and supply chain problems to aggravated labour shortages – might somehow improve the productivity picture, but there is little sign of that so far.

There are reports in many countries that companies’ investments are in­creasing, but these increases include investment in building larger inven­tories of inward goods and raw materials, something that doesn’t improve productivity unless it directly reduces ‘idle time’ caused by a lack of inputs.

Overall, across industries and (OECD) countries, there are no signs of an impending growth in productivity, in spite of higher levels of investment. It might just be another example of having to run to stand still, as was the case for the Red Queen in Lewis Carroll’s Through the Looking-Glass.