Archive for the 'Productivity' Category

Feb 20 2017

Some thoughts on educating students for “success” and “happiness” in the 21st century

Today we returned to work after a relaxing week of holiday-making for a day of “professional development”. The day kicked off with our school’s director sharing some information about a recent audit of our school’s parent community, which revealed that there is great anxiety among the parents at our school about their children’s experiences in school today, mostly relating to how well they will achieve on their examinations and whether their levels of achievement will assure them entrance to the top universities to which they (both the parents and the students) aspire.

The ultimate source of this anxiety, it would seem, is not the immediate importance of exam scores or even college acceptances, rather the deeper concern among parents that their children may grow up to be less successful than they themselves have been in their careers. I am sure that this anxiety is one experienced by nearly every parent in the history of mankind: from our primitive ancestors who stressed over their children’s abilities (or lack thereof) with a bow and arrow to blue collar workers of the 20th century who worked 80 hours a week to be able to send their children to state colleges where they may learn a skill that would raise their lot in the future. The parents of my students today likewise fear that their own children may grow up to be less successful in the fields they believe to be worthy of their children: business, finance, law, technology, management, and so on.

In fact, the parents whom our school serves are some of the most successful people in the world in their respective fields. They have risen to the top levels of management in multi-national corporations. They sit at the pinnacles of global financial institutions. Many are successful entrepreneurs or investors who have proudly raised their children in a world of luxury. The very fact that they send their children to our school is evidence of their own career accomplishments (we are a very expensive private school in one of the richest countries in the world).

It is for this reason that I believe nearly all these parents’ should be very anxious about their children’s futures. It is natural for parents to want their children to achieve what they have achieved (or greater!). It is natural for parents to desire for their children to be able to enjoy the living standards they have been afforded thanks to their own accomplishments in business, finance or law. As I have said, every parent in history has wanted as much for their children.

But is it realistic for a major league pitcher to wish for his son to grow up to throw a ball 105 miles per hour? Certainly not.
I believe that today it is less likely than it has been for generations that a child growing up at the top of the socioeconomic ladder will, in fact, achieve the level of professional success and the resulting income and living standard that their parents achieved. These parents’ anxieties are 100% justified and they have very little reason to believe their children will someday earn the incomes they enjoy today.

Here’s why: The entire trajectory of the global economy has shifted since my students’ parents embarked on the career paths that led them to where they are today. Globalization and technological change have displaced (or replaced) many of the blue collar jobs that Europeans and American counted on for a decent living standard in the 20th century, and these same processes have already begun to affect the white collar careers on which many of my students imagine their future paths taking them. The knowledge and skills we teach in schools today will be increasingly devalued in the future.

Knowledge will become a free good as artificial intelligence and other information technologies reduce the barriers to acquiring knowledge to zero. Likewise, the gaps in global skill levels and productivity that allowed the growth of incomes in Europe and North America to exceed those in the rest of the world throughout the 20th century have already begun to narrow, evidenced by a decade of low or no growth in the rich world and nearly 5% growth in the rest of the world. This means the pool of skilled workers of which my students will eventually be a part will be vastly broader and deeper than that in which their parents competed.

The knowledge and the skills we teach our students in school today will only continue to be devalued in the future, meaning students whose future aspirations are based on the assumption that such learning objectives will assure them a high income and living standard will find themselves drowning in a labor pool in which they have less economic value than they ever have in history.

Stated simply, value is a function of scarcity, and as skilled and knowledgeable workers become less scarce, those whose only assets are what they “learned in school” will find themselves far less likely to achieve the levels of income that those of earlier generations did.

The implication of technological advancement and globalization (both the defining forces of our century) for education is that unless we begin teaching something NEW and DIFFERENT than what was taught in the last century, our students will almost certainly not achieve what their parents (educated in the last century) have been able to achieve with their educations.

So this begs the question: What can students learn in school today that WILL help them achieve the levels of success and happiness to which all parents aspire for their children?

I think the answer to this question also came up in this morning’s speech by my school’s director. He closed by sharing a quote from a student who recently graduated from my school in which the student reflected on what he learned on a school trip to Nepal during his last week before graduating (as part of our “classroom without walls” experience). After spending a week with the orphans of Kathmandu and in a Buddhist monastery in the Himalayan foothills, this student returned to Switzerland with a new understanding of what happiness meant. He realized for the first time in his life that happiness was not measured by how many material things we surround ourselves with, but by the relationships we have with others in our community and by our connection to both other human beings and the natural and spiritual worlds.

My question (and concern) is: Why did it take until this student’s last week of school before he came to this important understanding? Is this not the most important lesson he could possibly learn? Should only those students lucky enough to spend a week in the Nepalese slums come to such important understandings about life, happiness and success?

I wonder if it would relieve our parents’ anxieties if we shifted our focus in school today to place less emphasis on a pre-determined set of rapidly depreciating knowledge and skills and more emphasis on relationships, connections with the community and the environment and spiritual self-awareness.

I wonder what our parents would say if we told them that our school’s focus were shifting from providing their children with information and skills that will earn them the best examination results to instilling in them an awareness of and an understanding that happiness is measured not by what you have, but by what you are able to live without.

Will parents understand that their children’s pursuit of a high paying job based on the same knowledge and skills that they learned in school will prove fruitless in an era where knowledge and skills are no longer scarce?

Will they agree that what matters is not their children’s future success as measured by their income and material well-being, rather their future happiness?

I wonder whether my students’ parents realize how justified their anxieties are. And I hope they understand that if or when their children do not succeed on the paths they envision them pursuing, it won’t be their own faults; rather, it is the inexorable outcome in an era where knowledge and skills are continually devalued by technology and globalization.

Henry David Thoreau, who shed the burden of materialistic pursuits for a simple life in the forest, once said, “A man is rich in proportion to the number of things which he can afford to let alone.”

The happiness of being able to do without material things is that to which our education today must aspire. The path my students’ parents followed will become increasingly narrow and unattainable for the next generation. Therefore, a rethinking of what we teach and, in fact, value, is necessary to achieve happiness for our students in the future.

Many schools have embraced the alternative path to happiness envisioned by Thoreau and others throughout history. The awareness that true happiness is not attained by the pursuit of money and status, rather a connection with our community, the natural world and our spiritual selves and an embrace of simplicity over complexity is nothing new. The Buddha new it, Jesus knew it, Emerson and Thoreau knew it.

The question is, do our students know it? Do their parents know it? Heck, do I know it? And once we’re aware of this truth, how can we begin to redesign our schools’ learning objectives so that our students leave school with a truly attainable path to happiness and success, perhaps of a different kind from that imagined by their parents, but one that will certainly be more achievable and just as valuable in a future in which the spoils of global economic activity will be more evenly distributed between the world’s people than it has ever been in history.

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Feb 06 2012

Dr. Irene Forichi on Agricultural Productivity and Economic Development in Southern Africa

On February 6 my IB year 2 Economics classes welcomed Dr. Irene Forichi, former Research Officer for Zimbabwe’s Ministry of Agriculture, and former Regional Emergency Agronomist for the Food and Agriculture Organization for Southern Africa. Dr. Forichi spoke with our classes about the role of agricultural productivity in contributing to human development and economic growth in Southern Africa.

For students or teachers who are interested, she delivered an excellent presentation about the agriculture-related obstacles to and strategies for economic development in the Southern Africa Development Community (SADC). Her presentation can be viewed here, or the PowerPoint she presented can be viewed below.

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Nov 11 2010

Okay, a trade deficit is bad, what can we do about it?

In my last post, I outlined the consequences of a nation running a persistent deficit in its current account. In the post below, I will share some thoughts on how a nations can reduce its trade deficit by promoting increased competitiveness in the global economy through the use of expansionary supply-side policies. Earlier in the chapter from which this post is taken, I outlined other deficit reduction strategies, including the use of protectionism, currency devaluation and contractionary demand-side fiscal and monetary policies. In my opinion, each of these methods creates more harm than good for a nation, resulting in a misallocation of society’s scarce resources (in the case of protectionism) and negative effects on output and employment (in the case of contractionary demand-side policies)

Therefore, the following presents the “supply-side” strategies for reducing a deficit in a nation’s current account.

From Chapter 22 of my upcoming textbook: Pearson Baccalaureate Economics

Contractionary fiscal and monetary policies will surely reduce overall demand in an economy and thereby help reduce a current account deficit. But the costs of such policies most likely outweigh the benefits, as domestic employment, output and economic growth suffer due to reduced spending on the nation’s goods and services. A better option for governments worried about their trade deficit is to pursue supply-side policies that increase the competitiveness of domestic producers in the global economy.

In the long-run, the best way for a nation to reduce a current account deficit is to allocate its scarce resources towards the economic activities in which it can most effectively compete in the global economy. In an environment of increasingly free trade between nations, countries like the United States and those of Western Europe will inevitably continue to confront structural shifts in their economies that at first seem devastating, but upon closer inspection will prove to be inexorable.

The auto industry in the United States has been forever changed due to competition from Japan. The textile industry in Europe has long passed its apex of production experienced decades past, and the UK consumer will never again buy a television or computer monitor made in the British Isles. The reality is, much of the world’s manufactured goods can be and should be made more cheaply and efficiently in Asia and Latin America than they could ever be produced in the US or Europe.

The question Europe and the United States should be asking, therefore, is not “how can we get back what we have lost and restore balance in our current account”, but, “what can we provide the world with that no one else can?” By focusing their resources towards providing the goods and services that no Asian or Latin American competitor is capable of providing, the deficit countries of the world should be able to reduce their current account deficits and at the same time stimulate aggregate demand at home, while increasing the productivity of the nation’s resources and promoting long-run economic growth.

Sure, you say, that all sounds great, but how can they achieve this? This is where supply-side policies come in. Smart supply-side policies mean more than tax cuts for corporations and subsidies to domestic producers. Smart supply-side policies that will promote more balanced global trade and long-run economic growth include:

  • Investments in education and health care: Nothing makes a nation more competitive in the global economy than a highly educated and healthy work force. Exports from Europe and the US will lie ever increasingly in the high skilled service sector and less and less in the manufacturing sector; therefore, highly educated and skilled workers are needed for future economic growth and global competitiveness, particularly in scientific fields such as engineering, medicine, finance, economics and business.
  • Public funding for scientific research and development: Exports from the US and Europe have increasingly depended on scientific innovation new technologies. Copyright and patent protection assure that scientific breakthroughs achieved in one country will allow for a period of time over which only that country will enjoy the sales of exports in the new field. Green energy, nano-technology, bio-medical research; these are the field that require sustained commitments from the government sector for dependable funding.
  • Investments in modern transportation and communication infrastructure: To remain competitive in the global economy, the countries of Europe and North America must assure that domestic firms have at their disposal the most modern and efficient transportation and communication infrastructure available. High speed rail, well-maintained inter-state or international highways, modern port facilities, high-speed internet and telecommunications; these investments allow for lower costs of production and more productive capital and labor, making countries goods more competitive in the global marketplace.

Reducing a current account deficit will have many benefits for a nation like the United States, Spain, the UK or Australia. A stronger currency will assure price stability, low interest rates will allow for economic growth, and perhaps most importantly, less taxpayer money will have to be paid in interest to foreign creditors. Governments and central banks may go about reducing a current account deficit in many ways: exchange rate controls, protectionism, contractionary monetary and fiscal policies, or supply-side policies may all be implemented to restore balance in the current account. Only one of these options will promote long-run economic growth and increase the efficiency with which a nation employs its scarce factors of production.

Supply-side policies are clearly the most efficient and economically justifiable method for correcting a current account deficit. Unfortunately, they are also the least politically popular, since the benefits of such policies are not realized in the short-run, but take years, maybe decades, to accrue. For this reason, we see time and time again governments turning to protectionism in response to rising trade deficits.

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Sep 14 2009

Step aside America, Switzerland is the new global leader in competitiveness

World Economic Forum – Latest Press Releases

The World Economic Forum, a group of researchers, leaders, educators, entrepreneurs and others with a vested interest in global economic performance, assembles an annual list of the world’s nations ranked according to “competitiveness”. This year, for the first time ever, the United States does not top this list, instead, Switzerland has been promoted to the status of global competitiveness leader.

What does this ranking really mean?

Competitive economies are those that have in place factors driving the productivity enhancements on which their present and future prosperity is built. A competitiveness-supporting economic environment can help national economies to weather business cycle downturns and ensure that the mechanisms enabling solid economic performance going into the future are in place.”

Competitivness means a nation posesses an evnvironment that leads to improvements in the productivity of its resources, most importantly labor. America, with record budget deficits, in the trillions of dollars, faces a future of tight budgets financed by government borrowing, which eventually means higher taxes and less ability for government to spend on public goods like education and health.

America’s demotion in the rankings is attributable to falling expectations about the country’s future growth potential rather than concerns about its current economic slowdown. Switzerland has also been in a recession for the last year, although due to targeted fiscal policies unemployment has remained low, near its level before the recession begain (around 4%).

The index used to rank countries is based on several factors:

The GCI is based on 12 pillars of competitiveness, providing a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. The pillars include Institutions, Infrastructure, Macroeconomic Stability, Health and Primary Education, Higher Education and Training, Goods Market Efficiency, Labour Market Efficiency, Financial Market Sophistication, Technological Readiness, Market Size, Business Sophistication, and Innovation.

Discussion Questions:

  1. How can a nation’s labor productivity be improved by making policies aimed at improving three of the factors measured by the GCI identified above?
  2. How does America’s gigantic budget deficit ($1.8 trillion) threaten its future ability to provide its citizens with the “pillars” identified above?
  3. Does economic integration with the global economy improve or limit a country’s ability to achieve economic competitiveness? Explain your answer.

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Dec 03 2008

American auto makers insult the intelligence of high school Econ students!

Automakers turnaround plans sent to Congress – Dec. 2, 2008

…and hopefully every other American with a functioning cerebral cortex. Ford Motor Company announced today its ambitious plan to cut costs and restore its profitability as it appeals once again to Washington for a $25 billion “low-interest bridge loan” (aka bailout).

The company announced that the salary of Ford CEO Alan Mulally would be cut to $1 a year if Ford actually borrowed money from the government. When Mulally appeared before the House Financial Services Committee last month, he did not agree to the suggestion of such a paycut…

Ford and GM also announced plans to get rid of corporate jets. Mulally, Wagoner and Nardelli were all roundly criticized at a House hearing last month when they admitted they had each flown their corporate jets to Washington to ask for help…

Mulally and Wagoner will be driving to Washington in hybrid vehicles made by their companies when they return to Capitol Hill later this week to make their case for loans. Nardelli is also not planning to fly to Washington but Chrysler has not disclosed any more specifics of his travel plans.

So the CEOs of the three largest auto companies are agreeing to be exploited for one year by accepting a salary of one dollar. The combined savings from the salary cuts of the three companies’ CEOs  equal roughly $6 million, or about 0.024% of the sum the companies are asking for from the government. Selling corporate jets during a recession when demand for such frivolous luxuries is at a record low will also do little to cut the costs of the incredibly inefficient US automakers.

As for any serious cost cutting plans, Ford had little to report:

…the Ford plan is perhaps most notable for what it did not include. The company did not mention that it would be dropping any brand or unprofitable models…

There was also no announcement of additional plants being closed or capacity being eliminated. Ford said it continues to work with its unions and dealers to achieve additional savings, but it did not set any cost savings targets for those discussions.

Ford highlighted many of the cuts it has already made, including closing 14 plants and reducing salaried personnel by 36% over the past three years. The company also touted labor cost savings that would bring the cost of factory workers’ pay and benefits close to those of the nonunion U.S. plants operated by Asian automakers

Real cost savings will only be achieved by the further closing of plants. With the economy in a deep recession and auto sales at their lowest in decades, the demand for new cars is just not there. Until Ford and its American competitors begin adjusting their plant capacities to the realities of market demand, the chances of achieving profitibility seem slim.

Allow me to make a connection between the situation faced by American auto makers and a basic economic concept we are currently studying in Microeconomics class. Firms, as any first year econ student knows, are profit maximizers. In fact, all companies are trying to make the same thing as all other companies, profits. When a firm experiences negative profits, or losses, as Amer auto makers are today, it can do one of two things to restore profitability: 1) Increase its revenues or 2) Lower its costs. Since demand for new cars is so low, the revenue increasing option is just not there, so American auto makers must reduce costs to restore profits.

There are two main types of costs we study in microeconomics. Short-run and long-run costs. In the short-run, which in the case of the auto industry we can consider the last few months since the financial crisis began, firms can do one thing to lower their costs: reduce the use of labor. Workers can be asked to take unpaid vacations, jobs can be eliminated, work hours can be cut back. In the short-run, plant size is fixed, meaning firms cannot add nor eliminate capital and land resources. The only variable resource is labor. By “reducing salaried personnel by 36% over the past three years” Ford has taken steps to lower its short-run costs of production.

Long-run costs must also be considered when firms are faced with negative profits. The long-run in the automobile industry is considered the period of time over which auto makers can either add new plant facilities or shut down existing facilities, lowering the costs of capital and land to firms. Long-run cost reductions have also been undertaken by Ford, including “closing 14 plants… over the past three years”.

Clearly, Ford has made an effort to reduce short-run labor costs and long-run capital costs by eliminating some of its work force and closing some of its factories in recent years. But today, as the US officially enters what is likely to be a deep, long recession, the announcement by Ford and its competitors that its new strategy for further cutting costs hinges on paying its CEOs one dollar and making them travel across the country in hybrid cars represents a laughable insult to the intelligence of high school Econ students.

Discussion Questions:

  1. What is the “variable resource” that firms can use less of in the short-run if cost reductions are needed?
  2. In Microeconomics, we sometimes refer to the long-run as the “variable plant period”. Explain the meaning of this concept.
  3. The law of diminishing marginal returns would indicate that if Ford were to close additional factories, it would almost certainly have to simultaneously lay off thousands of additional workers. What is the law of diminishing marginal returns and why does it require firms to lay off workers as plants are closed?

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