The Paradox of Productivity
The US economy has had a tremendous run over the past 6 decades or so. Apart from the energy shocks of the 1970s and 1980s, there have been only mild interruptions in a remarkable pattern of growth. There are many factors that have contributed to this phenomenon, and many books have been written to explain it. Stripped to its essentials, however, the great American success story can be summarized in a single word—productivity!!
The technical definition of productivity is simply output (gross product) per worker. Over time, we have enjoyed substantial improvement in this basic statistic. We see evidence of it everywhere. We produce more food on less land with fewer people than at any other time in history. We routinely set records for manufacturing output, but with millions fewer workers than was the case a few years ago. The factors behind this pattern are many and varied. We have the most experienced and educated workforce in the history of the world. Technological advances have been dramatic, thus allowing each worker to do more. Globalization has fostered ever-increasing efficiency. The most critical element can again be boiled down to one word—creativity!!
Creativity led to the implements that allowed us to transform from an agrarian to an industrial society. Creativity fostered the advances in production processes that allowed America to emerge as a major economic power. Creativity brought us the computers, electronics, and telecommunications advances that define the modern world. Creativity is now spawning the advances in nanotechnology, biotechnology, molecular electronics, materials science, and other areas that will propel us into the future. Lest we forget, creativity also gives us (1) the breakthroughs in medicine that extend our lives and make us healthier, (2) the cultural arts that enhance our human experience, and (3) the fundamental scientific discoveries that allow us to comprehend our universe and its possibilities.
These premises are very clear and beyond dispute. Prosperity requires productivity, and productivity requires creativity. Therein lies a fundamental problem. Creativity is, by its very nature, messy, unpredictable, and often controversial. Basic science and cutting edge artistic creativity are offensive to us and are constantly pushing the envelope of our sensibilities. Things that challenge our world view and make us explore fundamentally new ways of thinking are difficult to accept. We don’t burn the perpetrators at the stake any more, but we also don’t easily embrace them.
To make matters even worse, the process of discovery and creativity does not always benefit from gains in productivity to the same degree as a manufacturing plant. Thus, there is a natural tendency for this element of the economy to decline in relative importance over time. The only way to prevent that from happening is to proactively promote programs to support the creative process.
At present, funding for scientific research is under fire, and funding for efforts to support the cultural arts is under fire on multiple fronts. When budgets are tight (and they always are), it is easy to cut those things that don’t seem to bring an immediate benefit (especially if we find them unsettling).
The fallacy in this approach is obvious. If we don’t expose people to creative opportunities early and often and if we don’t encourage ongoing discovery, we ultimately lose the very thing that has allowed us to move forward. It doesn’t happen overnight, it slips up on us gradually over decades. If we are to retain our competitive advantage in an increasingly complex and integrated planet, we have to aggressively support all forms of creativity. To do less is to limit our possibilities.
posted @ 09:00 AM CST [link]
Friday, May 20, 2005
Fruit of the Vine
Although October is the official wine month in Texas, recent actions by the state legislature and the US Supreme Court have given the winemaking industry reason to think May is pretty special.
The Supreme Court decision allows wineries to ship directly to consumers anywhere in the country. Previously, several states, including Texas, had prohibitions against interstate sales to individual customers.
Governor Perry’s signature on SB 877 on May 9th authorized direct shipments of wine to consumers throughout the state. Prior to the passage of that law, direct sales to consumers were only permitted in “wet” areas. The new law is expected to give Texas winemakers a boost in their opportunities for economic advancement.
Other anticipated results in Texas of these new laws include the expansion of wine markets across the US, increase in tourism to rural areas that showcase winemaking, and enhancement of opportunities to compete with the wine industries of other states, principally California, Washington, Oregon, and New York. On the other hand, winemakers from other states now have much more ready access to Texas customers as well.
Winemaking in Texas, of course, is not a new phenomenon. Although California is the largest US wine producer and certainly gets the plum of publicity in that industry, Texans were growing grapes and making wine long before the West Coast got into the business.
In the last part of the 17th century, when Franciscans established a mission near El Paso, they transplanted grapevines they had brought from Mexican missions. It would be another century before wine grapes were introduced to California.
The cultivation of grapes was little known or appreciated by the early Anglo settlers in Texas, but with the influx of Europeans in the mid-19th century, the industry got a strong foothold. Gradually some 300 varieties of grapes suited for the Texas environment were developed, many of them highly appropriate for winemaking. Texas is sometimes called the “grape paradise of the world” as more than 50% of the known grape species call the Lone Star State home.
In the 1970s, approximately 3,000 acres in Texas had become vineyards, and by the mid-1990s, Texas was producing over a million gallons of wine a year and had become the nation’s 5th-largest wine producing state. That volume has continued to increase. Estimates of last year’s production totaled 1.7 million gallons.
Over the past couple of years, wineries in Texas have increased dramatically, growing from about 55 to more than 85 with several applications for new facilities now pending. Winemaking operations now span the Texas countryside from the Panhandle to the Gulf Coast and are located in nearly 50 counties and some 70 cities.
The economic impact of winemaking to the Texas economy is substantial, employing about 1,600 workers in the wine grape industry. The recent court and legislature decisions, accompanied by a growing interest in grape growing and winemaking in various parts of the state, will enable the industry to compete on a much greater scale, offering both opportunities and challenges. Cheers!!!.
Class of 2005
The continuing improvement of our economy is widening the doors of opportunity for new college graduates as prospects for employment are high—about 13% greater than for the Class of 2004. Approximately 80% of businesses with at least 5,000 workers and around 90% of those with 10,000 of more employees anticipate hiring new college graduates. Some 9% of all entry-level positions in the US are forecast to be in the Lone Star State.
In addition to seeking applicants with appropriate academic preparation and skill levels, companies are looking for honest candidates who have constructive work ethics and who are capable of making positive contributions. They also are interested in individuals who possess leadership potential, have good computer knowledge, and are team players.
Not only are there more job openings, but according to recent surveys, entry-level pay is going to be up. Graduates with aerospace engineering degrees can expect average beginning salaries to be 9% more than the remuneration received by those in the same field last year. Other areas and the percentage hike over the wages of the Class of 2004 include: marketing, 6.0%; economics/finance, 5.1%; chemical engineering, 4.3%; liberal arts, 4.2%; mechanical engineering, 4.1%; civil engineering, 4.0%; accounting, 3.9%, and business administration, 3.2%.
Even though graduates who studied computer science will be offered only about 2.6% more than what 2004 graduates were paid, the news is still good as this field is predicted to be among the fastest growing over the next several years. Credit for this expansion is given to the desire of businesses to utilize new and increasingly sophisticated technologies.
The top 10 occupations for new graduates along with expected average salaries include software design/development, $53,729; consulting, $49,781; design and construction engineering, $47,058; financial treasury analysis, $45,596; and private accounting, $44,564. Others in this category are public accounting, $41,039; registered nursing, $38,775; sales, $37,130; management training, $35,811; and school teaching, $29,733.
Although career planning is not the only reason people have for going to college, many of the best paying occupations require or prefer individuals with degrees. Over the past several years, the percentage of adults in the US between the ages of 25 and 34 who have completed four or more years of college work has been creeping upward and now stands around 29%.
In many cases, these individuals are benefiting financially as about half of the 25 fastest growing jobs demand at least one degree. The average annual pay in these fields is approximately $53,975. It’s easy to see the value of a college education when one compares these wages with the $34,200 statewide average per annum pay for all occupations.
Career fields requiring at least an undergraduate degree which are expected to have the greatest number of openings over the next few years include computer-oriented fields and mathematics, business, finance, architecture, engineering, community services, and social services.
About 75% of those receiving degrees this spring are confident in their preparation to enter the workforce. Some of this self-assurance comes from experiences gained through internships. Nearly a quarter of the schools offering internships expanded their programs this year, and over half of the new graduates participated in at least one internship during their academic career.
Even though approximately 70% of all jobs are filled by low- and medium-skilled workers, an increasing number of occupations today are closely associated with or have components related to the use of modern technology. The areas with above average use of technology have the highest rate of new job growth.
Having a college education that includes proper career preparation can certainly prove advantageous for those entering or seeking advancements in the workforce of the 21st Century.
posted @ 07:56 AM CST [link]
Friday, May 6, 2005
Texas Power
In recent years, the Texas economy has seen a significant resurgence. Though stifled by the national downturn in the 2001-2002 period, the Lone Star State has since led the pace in terms of major corporate locations, job growth, and output gains. This trend is expected to continue, with advances in key sectors driving broad-based expansion across the state.
However, this economic vitality and the resulting opportunities for all Texans can only be realized if improvement in the state’s infrastructure keeps pace. Highways, telecommunications lines, airports, water treatment facilities, and many other types of infrastructure will require enhancement in the decades to come. Similarly, the state’s electric generation and transmission capacity must expand to ensure sufficient power is available for residential, commercial, and industrial use. Moreover, this increase must occur within the context of high demand in urban centers with substantial environmental limits on their ability to accommodate large-scale generation projects.
The need for adding generating capacity is clear. Assuming current growth rates, the Electric Reliability Council of Texas (ERCOT) estimates that demand for electricity will rise by some 21% by 2015 and 47% by 2025. Total requirements (peak demand plus a 12.5% reserve margin) are expected to exceed existing capacity in the next few years.
Renewable energy is highly desirable as a mechanism to meet some of the emerging power requirements. The construction, operation, maintenance, and royalty payments associated with wind farms and other renewable energy resources can serve as crucial sources of business activity for rural areas while providing quality electric power for more populous regions. In addition, renewables involve little or no pollution or use of limited fossil fuels in their production. Not only do they, thus, protect the environment and conserve scarce natural resources, they are also less vulnerable to price volatility triggered by fossil fuel supply and demand conditions, strife in key oil-producing regions, or other market uncertainties.
My firm recently evaluated the economic impact of a substantial addition to wind generation capacity and transmission infrastructure. In particular, we looked at the effect of increasing renewable energy generation capacity to 10,000 MW by 2015; this increment represents a net addition to current capacity of 7,633 MW. We looked at the effect of these investments on not only business activity, but also related issues such as the likely effect on natural gas prices, other benefits of having the transmission capacity in place, collateral gains achievable through enhanced energy efficiency, and related topics.
Constructing transmission lines to connect additional renewable and other energy generated in West Texas to the power grid serving the more populous areas of the state would lead to gains of $587.7 million in output and more than 10,000 person-years of employment. It would also generate about $89.9 million in state and local tax revenues. Building additional wind and other renewable capacity to get us up to 10,000 MW would generate some $4.6 billion in output, almost 58,000 person-years of employment, and $277.7 million in tax receipts during construction. The first 10 years of implementation of these facilities would generate $2.1 billion in output, 28,700 person-years of employment, and $998.3 million in tax receipts to state and local governments.
The bottom line is that renewable energy creates net benefits during construction; generates an ongoing stimulus from operations, royalty payments, and reduced power costs on a continuing basis; and exerts downward pressure on natural gas prices. It also promotes rural economic development, helping to protect farm and ranch income fluctuations in weather, adverse agricultural market conditions, and other uncertainties and providing local and county governments with revenue enhancements in the form of property taxes and increased sales tax revenues, in addition to other benefits.
Energy derived from the wind is not subject to the price fluctuations that plague fossil fuels. Although such power has long been viewed as too expensive for widespread use, recent technological advances and increases in the price of other fuels have changed this situation dramatically. In the current market, wind power is increasingly becoming a cost-competitive alternative fuel. In addition, a concentration of wind farm activity increases the likelihood of locating related support production, while the process itself contributes to meeting long-term energy needs in an environmentally appropriate and cost-effective manner.