Optimizing Productivity

In order to understand what happens to health when productivity rises over time, it is useful to compare a final output at two stages of productivity: an extremely low level and the optimum level.

For concreteness, we can imagine a physically onerous task such as digging coal from a seam.

This situation is depicted in the following figure.

Productivity is too low for production
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Productivity is so low that input cost exceeds potential value at all quantities. As productivity rises over the years, the entire input cost curve will shift slowly down, and then rapidly up. Concurrently, rising productivity will cause the rational output quantity to increase from zero.

Under the initial conditions cited, workers are digging for coal with nothing more than shovels, or possibly even their bare hands. Drudgery is therefore intense, injuries and deaths are frequent, and the input cost curve is extremely high.

In the figure we assume that input cost exceeds potential value even at low quantities, and that potential gains are therefore zero.

Because effectual value cannot exceed potential value, coal is an irrational output in this situation, and the optimum output quantity is therefore zero.

With enough time, sweat, injuries, and deaths the workers might be able to extract sufficient coal from a seam to warm their houses. However, the health lost in obtaining this coal would be higher than the maximum health that could be gained from burning it.

An important general conclusion is that, until technical developments have reached the point where productivity allows input cost to drop below potential value when production begins, such production is irrational.

In the situation depicted, the village should obtain its warmth from wood and other fuels that can be obtained at lower input cost than coal.

A fundamental issue facing people in this situation relates to the social choice of technological complexity. If this village decides that it must replace wood with coal, then it is compelled to accept a level of technological complexity that will deliver the required productivity. It might make this choice, for example, if its population is rising and the surrounding forests are being destroyed.

However, people may decide that they are content with the current level of complexity. In this case, they would reject the increase in productivity and the use of coal. Instead they would seek to lower their population and to reduce their waste when burning wood, thus increasing their ecological efficiency for this activity.

Under favorable conditions, these measures would permit the society to continue indefinitely with its technologically simple mode of life.

For the sake of this discussion, let’s assume that higher technological complexity has been socially accepted, and that increased productivity is deemed to be desirable. Rising productivity will generally cause the input cost curve to first move down and then move up. It will also cause output quantity to rise.

The indicated strategy is therefore to increase productivity until input cost has been minimized and the output has reached its optimum quantity, thus maximizing potential gains. These results are depicted in the following figure.

Productivity is at the optimum level
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Rising productivity causes the input cost curve to move down and output quantity to increase. Productivity is optimized when these two effects have maximized potential gains.

Input cost has dropped from its original level, IC1, to the minimum achievable level, IC2. This means that productivity, taken in isolation, has been optimized.

If productivity is lower than this, the input cost curve will still be above IC2.

If productivity is higher, the input cost curve will have returned to a level above IC2.

Because input cost is lower than potential value in this situation, potential gains are being achieved, and the output is not necessarily irrational, although the final verdict on this depends on its effectual value.

If output quantity increases from 0 to Q1, these potential gains have been maximized.

Note what would happen if productivity rose further. Not only would the input cost curve move up, output quantity would increase beyond its optimum level, thereby reducing net potential gains.

Driving productivity too high therefore diminishes aggregate health in two discrete ways: through an input cost curve that rises above its lowest attainable level, and through a loss- creating increase in output quantity.

From this discussion it is clear that productivity can be too high as well as too low. Excessive productivity is in fact inevitable when an economy is guided by capitalist logic, which tends to continuously increase productivity for two reasons: to drive output quantity up in order to increase profits, and to drive financial costs down so that national firms can compete more successfully in global trade.

Even in the capitalist world, however, environmental concerns and social pressures will occasionally force productivity to move in the opposite direction.

Some interesting examples appeared in a Scientific American article that discussed the threat of fishery collapses from modern fishing methods. In addressing the problem of bycatch (unwanted species caught in nets), which at the time killed hundreds of thousands of dolphins per year in the hunt for tuna, the author states:

One solution to the bycatch from nets would be to fish for tuna with poles and lines, as was practiced commercially in the 1950s. That switch would entail hiring back bigger crews, such as those laid off when the fishery first mechanized its operations.1

The author also cites a law requiring oyster-dredging boats in Chesapeake Bay to be powered by sail instead of by motor, and another law that forbids the use of nets pulled between two boats ("pair trawls"). His summary statement is this:

Numerous other regulations on sizes and total amount of the catch, as well as allocation and allowable equipment, can be viewed as acknowledgements of the need to curb efficiency in order to achieve wider social and ecological benefits.2

These steps were taken to reduce the tuna catch and increase the number of fishing jobs. In the preceding figure the reduced catch would be represented by the leftward shift of output quantity, assuming that the latter has exceeded its optimum.

What the article misses is that the changes may benefit workers by providing them with more skillful and possibly less dangerous work. These benefits would be depicted in the figure by the downward shift of the input cost curve.

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