Editor's Page -- Closing The Technology Gap

Dec. 21, 2004
Capture 'unexploited opportunities' for productivity growth.

In our hunt for more of the magic elixir that sparked the United States' longest economic expansion in history, it seems we're in danger of over looking the obvious. Increased productivity -- producing more with the same or less -- is at the heart of increasing wealth, and investment in key technologies has historically helped drive increased productivity. We should know this because manufacturers lead the U.S. economy in both metrics. But the noise from economists debating the causes of the long rise and precipitous decline in the economy and news reports parsing each over-hyped, over-analyzed economic statistic have drowned out the voices of reason, causing even the most investment-friendly companies to be gun shy. Fortunately a new research report released last month and another look at a year-old study might bring us back to our senses. The new report, "Technical Change in the U.S. (1947-2000): Measurement and Macroeconomic Consequences," finds room for manufacturing productivity improvement in its analysis of the gap between the quality of "frontier" technology (that is the very best, most productive equipment) and the average equipment found in most businesses. For durable goods manufacturing, the gap stands at 35.5%; for nondurable manufacturing it is 37.9%. Jason G. Cummins, of the Federal Reserve Board in Washington, D.C., and co-author of the study, says such gaps represent "unexploited opportunities" for productivity growth. "Historically, the research shows that the technology gap drives the adoption of new technologies, which has in the past resulted in productivity gains and improved prospects for future growth." The research shows, he adds, that this is true even in times of capital overhang and recession. Last year's study by Washington, D.C.-based consultants Joel Popkin and Co., "Producing Prosperity -- Manufacturing Technology's Unmeasured Role in Economic Expansion," reveals the key role that investment in advanced manufacturing technology, especially machine tools, plays in increasing productivity. Such investment, along with changes in manufacturing practices that implement the technology most effectively, results in faster, lower cost, more flexible, higher quality manufacturing, which drives productivity growth. As an example of productivity gains, the report cites the durable goods manufacturing sector, a major user of machine tools, which has led the U.S. economy with respect to productivity and price performance in the previous two decades. Together, the research provides a clear strategy for fighting your way through and out of this recession: investing in productivity-enhancing technology. It's not a question of whether you should make capital investment; it's a question of which investment will provide the biggest boost to productivity at your plants, your company and throughout your value chains. What are you waiting for? Patricia Panchak is IndustryWeek's editor-in-chief. She is based in Cleveland.

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