Are American Economists Deluding Themselves?

By Robert Hanrott

What many corporations have quietly effected is a massive transfer of time, effort, stress and frustration onto the final customer. Intentional or not, this transfer is not captured in the persistent drumbeat about the productivity of the American economy.

When nationalism, conformism and conventional statistics are mixed in a pot it seems that truth suffers. Monthly we are regaled by economists who tell us that American industry has once again improved its productivity. The Europeans are finished, we are told. The Asians lag behind. As for Africa and Latin America, well, the less said the better. Forget the deficit that will be bequeathed to future generations by a feckless Republican Administration. Forget the chronic balance of payments situation ($726 billion in 2005). Don’t worry about the future. Consume now. Let our kids do the worrying! Meanwhile, just look at the productivity!

Oh, really? Let me suggest that productivity statistics fail to tell the whole truth. Failure to disclose the whole picture is not a vice confined to politicians. Let us peep beneath the covers a moment and examine how American industry achieves these vaunted productivity figures.

American companies have simply shifted the burden of after-sales service, and often sales themselves, onto the consumer. This is a huge and important shift.

In the old days you could pick up the phone or visit a store and place an order or request help from a real human being. Now you are steered towards the internet by byzantine telephone systems, always time-consuming, seldom clear, requiring a decision every time you press a button, and often requiring you to phone all over again if you press the wrong button. In some cases it is impossible to speak to a human being unless you decide to hit the emergency button and get re-directed. In other cases, even when you have successfully worked through all the phone options, you have to wait fifteen minutes to reach a sales representative.

You want to buy software? No more instruction books. Now you have to struggle through usually poorly designed help menus and a mass of verbiage. The help is there; it just takes twice as long to access. Should you have trouble with your computer, you either have to pay for help (Microsoft) or apply for a work ticket and wait until a support agent deigns to answer. (“We undertake to send you a reply within three working days”). Alternatively, you are diverted to Bangalore.

Oh, how the economic reporters love Bangalore. Outsourcing overseas, in other words cutting the office overhead, is now touted as a major contributor to productivity. Every time the business Press gets ecstatic about a new trend one should be suspicious.

The fact is that for every articulate Indian who is well trained enough to sort out your technical query, there is another whose accent is so thick that you cannot understand him or her, and you either have to call back hoping to find another representative, or you have the embarrassment of repeating, “ Please speak more slowly and clearly. I cannot understand you.” In the end you give up and try to fix the problem yourself by trial and error. Since this has happened to me the last three times I have been referred to an outsourced technical representative, I fear it is more than just the odd bit of bad luck.

There are, of course, no supervisors that one is allowed to speak to. Do they still exist? If you have a problem and need to speak to a more experienced person, you are either told they are not available or the phone goes dead as you are ostensibly transferred to them.

As for a serious complaint! When I ran my own company I insisted that every complaint, however minor, came across my desk. That way I knew the weak points of the company’s service, and indeed, staffing. I would personally speak to the customer and put the matter right. It worked. If we lost a customer it was not due to inattention or bad service. CEOs in a multinational cannot get down to this detail, but middle managers can and should. In the old days the United States was known worldwide for its wonderful service. That is history. Now, highly paid executives hide in cowardly fashion behind service people earning seven dollars an hour, and you cannot even discover the name of the CEO. Perhaps the service representative doesn’t know the name of the boss, or is afraid to give it out.

In sum, valuable consumer “leisure” time is eaten up coping with poor delivery, sub-standard product, lack of training, dense and badly written instructions, poorly designed websites, unreliable computers, understaffed companies, not to mention poorly educated staff with inadequate command of their own language. What many corporations have quietly effected is a massive transfer of time, effort, stress and frustration onto the final customer, despite the universal business school mantra, “The customer is king.” The idea of the “service economy” is spin, like so much else in our world today. In a real service economy one would be able to pick up the phone or go onto the internet and experience a sense of customer satisfaction. Far too often one cannot.

So, this seems to be the corporate “productivity” dance, encouraged (invented?) by the business schools : build an impregnable castle and let no outsider approach; install an automated telephone system and speaking computers, then sack existing humans, replacing them where absolutely necessary with immigrants earning $7 per hour in the sales, after-sales and complaints departments, and don’t pay for fractions of hours they work ; only post faq’s on the website and let the consumer sort out what isn’t covered by the faq’s, neatly transferring the hassle; ignore emails from the website; report better quarterly earnings; get head-hunted to an even better-paid job; start again.

Some would argue that leisure deprival is mainly foisted onto the public by hi-tech companies, and that large swathes of the economy are innocent of the charge. There is some truth in this, but it is a matter of degree. In my local branch of the Bank of America there used to be three or four tellers. These have now been reduced to two, sometimes to only one. A queue stretches to the door on an average day. Collective time lost waiting on the part of the unfortunate customers? Who knows? Our local Safeway store used to be staffed in such a way that there was usually somebody to ask where the pickle could be found or the nuts discovered. Not now. Customers wander the aisles gazing in frustration at the shelves, wasting their lives while CEOs claim another year of record profits. Even the servicing of a furnace or the purchase of a refrigerator is nowadays fraught with problems. One is still plagued by unnecessary telephone systems (installed simply because they are available, no doubt), unreliability, poor training and skimpy product knowledge. We have all experienced the infuriating business of being given a time frame for a home visit and having to stay at home, waiting for a service call.

By the way, look out for the next productivity enhancement: the abandonment by companies of 800 numbers. Allowing consumers to phone your company free is a throw-back to the bad old days of real service.

Were the whole country benefiting it might be a different matter, but the country does not benefit. On the contrary. In New York Times of February 27th, 2006, Paul Krugman made a startling revelation (a startling revelation to the man in the street, at least). A good education is supposed to be a passport to prosperity. Not so, he says. Between 1972 and 2001 the wage and salary income at the 90th percentile of the income distribution rose only 1%, yes, 1% per year. And these are supposed to be top earners. Between 1980 and 2004 the wages of the average worker, further down the scale actually fell slightly, after accounting for inflation, and so did the wages of half the working population who earned less than the typical, or median employee. Clearly, the tide has not lifted all boats. The people who really made the money are in the 99th percentile and above. Oh, yes, there is an “above”. The 99.9th percentile saw a rise during the same period of 497%. As Krugman says, no, that is not a misprint. He goes on to say that we are rapidly producing an oligarchy, which is by definition based on power, not market forces.

Oligarchies are almost guaranteed to be corrupt. Lo and behold, note the sinister antics of lobbyists and the preference given by Congress to powerful commercial special interests. The hired mouthpieces of big business will naturally not discuss this disagreeable trend, nor the fact that in real terms wages have fallen for large swathes of the work force over the last thirty years.

Where have the benefits of the increased productivity gone? Into the pockets of a relatively small number of CEOs and investors. This development threatens democracy, prosperity and, eventually, the very political stability of the country. The CEOs and their friends will not take steps to reverse the trend, but economists commenting on the United States performance should have the professionalism and courage to stop talking about rising tides raising all boats. They could, instead, talk about ancient Rome and what happened to its skewed and unjust economy in ancient times. Or they could discuss current oligarchies -- the Philippines or Pakistan - - and discuss their less than stellar political stability and dependence on the military.

One cannot measure an economy solely in terms of output per worker. It also needs to be measured in terms of tasks transferred to the man in the street, already stressed out by long hours, short holidays, mortgage repayments, health and education costs and job insecurity. Factor in the time spent doing what corporations should be doing, but are not, and the so-called productivity of US companies looks less impressive.

The point is that real productivity is less than measured and recorded by current methods that ignore the effect on the individual consumer of company policies on sales and technical support in particular.

Let me add two further points, one about government policy, the other about the quality of American management. American productivity figures are bolstered by national policies that have the effect of either maintaining or even reducing real wages by abandoning the principle of the living wage and allowing the supply of cheap labor to increase both by legal and illegal immigration. It is surprising that so many people should be proud of this development.

Secondly, given the hours of work, the benefits paid and the long vacations enjoyed by European workers, it is surprising that the so-called “productivity gap” between the United States and Europe is not much larger. Rather than boasting, commentators should be asking why, under the circumstances, European companies do as well as they do. Some of the discrepancy lies in the excessive levels of executive pay in U.S corporations (although the salary gap between America and European CEOs has narrowed somewhat as European boards feel constrained to compete for “talent” in a globalized job market). But ask many European executives familiar with the cultures of large American companies and they will point to corporate inefficiency. This inefficiency arises in part out of indecision, over-long meetings, excessive memo and mail creation, passing the buck, and self-defeating management by fear, all observed to be part of a multinational culture, to be avoided by sensible employees if possible. This is a widespread perception overseas, and although circumstantial and intermittently documented, is sincerely felt and experienced, although it cannot apply by any means to all U.S corporations. Nonetheless, it is an avenue for investigation for those anxious to improve true productivity.

Let me issue a challenge: Can anyone can tell me what in any case all this frenetic search for productivity-at-all-costs is for? How does it increase human happiness and commitment to the company or to the system? Can anyone show how it adds to the pleasure and fulfilment of consumers as a whole, the economic lot of the consumer, its health or longevity, anything at all? No, I doubt any champion of unrestrained capitalism will be brave enough to put his head above the parapet and explain how we benefit from this bogus and frustrating so-called “productivity” scam.

Until economists are prepared to look at the whole picture, their claims about the efficiency of American business must be regarded with suspicion.

April 17th, 2006