Why Government Regulations Help Workers’ Productivity

When it comes to overall economic growth, the conventional advice for governments is to get out of the way. After all, fewer government-implemented policies mean less “red tape” and therefore, less risk of a slowdown waiting to wreck any business’s competitive advantage.

A new report from the Information Technology & Innovation Foundation offers a different argument. The report “Think Like an Enterprise: Why Nations Need Comprehensive Productivity Strategies” says our widespread aversion to government intervention is exactly why the U.S. and many developed countries, like Japan and Korea, are in a productivity rut today—and have been since the Great Recession. The report encourages nations to implement a productivity body and promises that by doing so, developed countries like the U.S. can increase annual labor productivity by at least one percent. For less-developed nations, that percentage is likely to double.

Why Productivity Matters

We know productivity—as the ratio of output to input—is an important factor for economic growth, but according to economist Robert Atkinson of ITIF, we aren’t maximizing outputs in all industries the way we could. And the result is that we have a productivity problem, which, as the most important factor in economic well-being, goes on to affect per capita incomes and wages and our standard of living.

The report says:

“Acting in response to market forces alone most firms will underinvest in productivity-enhancing activities. Moreover, many industries are structured in ways that will lead to productivity underperformance absent sectoral-based productivity policies. In addition, maximizing productivity requires economy-wide technology platforms and development of these platforms often lags in the absence of supportive government policies. Finally, expecting the optimal array of policies and public programs and actions to emerge on their own in an organic, trial-and-error way is wishful thinking.”

Despite the conventional economist’s little understanding in productivity growth, Atkinson says a lot is going to change because countries are “aware that productivity’s been growing a lot more slowly so they’re trying to focus a lot more attention on it.”

The Fear That Productivity Kills Jobs

The widely popular argument that technology kills jobs and replaces workers has caused heightened uneasiness for many—and perhaps that’s why there’s been little push to design robotics sophisticated enough to disrupt the workforce in a major way. But this kind aversion to technology investments is “a recipe for productivity underperformance,” argues Atkinson. Sure, millions of human workers might soon be replaced by AI technologies, but this doesn’t mean that more workers won’t be able to do their jobs better.

“If you look at the U.S., we have a program that the National Science Foundation runs that’s called the National Robotics Initiative,” says Atkinson, “and it’s explicitly designed to support robotics that don’t replace workers and that, instead, assist workers. I think that’s a bad idea. I think we should be trying to have technology that would replace workers and raise productivity much, much more and then help workers transition to new jobs.”

Throughout history, as technologies have advanced, the rates of unemployment have either stayed the same or declined, as Garry G. Mathiason, chairman of law firm Littler Mendelson, which has a specialization in robotics employment law issues, told Fast Company last year. Despite widespread fear of robots taking human jobs, the evidence suggests that productivity growth benefits the average worker.

And while workers who are displaced will find themselves training for different careers, overall, it’s a positive outlook because productivity goes up, companies have bigger profit margins, workers make more money, and the nation, as a whole, feels more optimistic.

So, How Can Governments Influence Productivity Growth?

Currently, the U.S. has no government-backed productivity body because “there’s a very strong bias and fear against productivity,” explains Atkinson.

“There’s some things where regulations hurt productivity,” he adds, “like European labor market regulations that make it really, really hard to fire somebody. There’s clear evidence that that hurts productivity. But there are other regulations that could help productivity if they’re designed in the right way.”

For instance, Atkinson points to Australia’s National Productivity Commission, whose job is to identify opportunities and policies to improve productivity, as a good example of something the U.S. should implement. Other countries, like Cyprus and New Zealand also have policy commissions. As technologies continue to advance, employers trust that workers will also advance and improve, but without the right tools and training, this kind of improvement doesn’t happen at the same speed as technologies advancing.

Another example of nations taking the right steps is the U.K.’s national productivity plan which lays out the country’s productivity problems and explores ways the government can help. In developing countries like South Africa and India, there are productivity organizations but they’re not as developed, often focused on organizing conferences and helping companies develop higher productivity tools and management techniques.

When asked whether nations that have implemented some kind of productivity commission have seen productivity rates increased, Atkinson says the data here is still lacking. Still, Atkinson believes nations—especially the U.S.—need policies that will take a “comprehensive look” in place.

To do so, the U.S. needs to:

1. Incorporate productivity as a principal goal of economic policy. For instance, legislatures need to require major economic organizations in the federal government, whether it’s the Department of Commerce, the National Economic Council, or the Federal Reserve Bank, to include boosting productivity in their mission statements.

2. Go beyond the traditional economist’s advice of getting market conditions right and “create much stronger incentives for firms to invest in better tools, better technologies to raise productivity,” explains Atkinson. These incentives can include tax policies to encourage organizations to invest in tools and that will drive productivity. Or “systematic, platform technologies that accelerate productivity across industries,” says the report.

For instance, when it comes to construction, which has less productivity today than 20 years ago despite a number of technologies that can be adopted, policies are desperately needed for automated systems adoption.

“Eventually, everyone on the construction site will have a tablet device and know exactly where all the materials are and the supply chain is and when they’re arriving on the construction site,” says Atkinson. “Eventually they’ll do that but it might be 20 years from now.”

3. Establish a “research and development strategy focused on spurring the development of productivity-enabling technologies, such as robotics,” says the report: “Governments need to focus a much larger share of their R&D budgets on advancing technologies that will reduce the need for labor.”

4. Identify key ways productivity policies differ between industries so that all sectors can benefit from maximized output.