I've been spending some time trying to figure whether an economy can sustain economic growth in the long run with a limit to it's labor force growth rate given a rate of population growth. My own very simplistic model said that without increasing labors growth rate it can't... primarily because labor's growth determines consumption growth as the economically limiting factor which determines capital incentive to invest in additional production (domestically, that is) unless export growth takes up the difference.
Anyway I decided to look up the economic theory of economic growth. It's more precise and includes more variables than my simplistic 1st pass model (my model sort of bundled most of the variables together), but one of the major factors in economic growth is total factor productivity (TFP) .. plus labor and capital. But TFP is hard to distinguish from Capital so I wanted a better more comprehensive description of TFP.
In looking for it I came across an econ paper that says TFP is not really that well understood or even well defined
.. which makes sense since TFP is actually the residual of the difference between output as the measured economic growth (GDP for example) and measured labor and capital inputs.... i..e. what can't be accounted for by measures of labor and capital inputs is lumped into Total Factor Productivity ... and that's precisely what TFP is... what isn't accounted for by measures of labor and capital.... and it's not a small factor.... mostly larger than either labor or capital contributions to output!.
.. which makes sense since TFP is actually the residual of the difference between output as the measured economic growth (GDP for example) and measured labor and capital inputs.... i..e. what can't be accounted for by measures of labor and capital inputs is lumped into Total Factor Productivity ... and that's precisely what TFP is... what isn't accounted for by measures of labor and capital.... and it's not a small factor.... mostly larger than either labor or capital contributions to output!.
So I offer the following snippet I lifted from the econ paper for addition to your knowledge base. Source here. Paper is entitled Needed: A Theory of Total Factor Productivity, Edward Prescott, from International Economic Review, August 1998.
In other words the rationale for TFP (residual of differences) is wide open... left to interpretation & subjectve conclusions by the economists. Considering TFP's not just a minor factor in economic growth theory then it seems it (theory) has a lot that hasn't been accounted for. The more I delve into what economics profession actually knows the less I find they know in fact. I mean the economic theory of economic growth foundations and means seems to me would be a fundamental and rudimentary element of knowledge.... both well understood and in concert with empirical foundations over time. Obviously it isn't though. BTW, the theory behind economic growth rests on Solow's 1957 theory with minor modification since then. .. and it turns out that subsequent to his theory empirics doesn't add up to it.... hence the addition of TFP since then. Cute... something vaguely described to account for the descrepancies but without much foundation to support it in detail .. but it sounds good and therefore must be real ... though nobody can define exactly what it is ... or what it isn't for that matter.
I'm slowly becoming no longer hopeful that economists understand economics at all. Maybe Marx was closer to economic truths than everybody before and since.... but his analysis cut at the heart of that which those in control of capital depend on for continued control.... so naturally his analysis must be wrong ... certainly not to be entertaned as viable. Pretty much like Keynsian analysis... which proposes that gov't should be directly involved in economics... so the free-marketeers, laissez-faire advocates, libertarians, & capital owners must naturally oppose it to preserve their own objectives.
Maybe I better start reading some of Wallerstein's books. From what I've read of his works so far he probably has as good a handle on economic fundamentals as anybody has had or yet has.
Addendum ---- finding out a bit more about Total Factor Productivity. In reading throuth the Prescott paper (see link in the note to which this is a response), he goes through all possible scenario's (mathematically) to assess which of the productivity factors can account for major differences in productivity improvement rates across nations. Most can't even come close, much less have a significant impact.
However one of the factors does dominate and in a big way: Changes in work practises. Prescot cites data from several cases: ... Textile industry between India and Japan in the 1920's, and Coal Mining in the US from 1949 - 1994.
In the Japan v India Textile case, Japan's prodctivity improved by a factor of 120% while India's only by 40% with the same equipment available at the same relative price. The difference is quite enlightening... Japan's producitivy grew by 4x India's because the Japanese textile workers were illiterate girls from 15 to 18, having no union (trying to form one once resulted in all the girls being returned to their provinces), staying in company dormatories for the duration. The productivity improvement came from having fewer girls operate more looms at a time.... exploiting child labor with no gov't advocacy group preventing it.
India's textile workers however were all adult men who worked in the textile industry their entire adult lives. They resisted employer demands to operate more looms per man because it reduced their composite income and increased their unemployment in the textile industry. In other words, the were sufficiently organized and the textile industry was their life-work, as opposed to the near slave labor conditions imposed by Japan's textile industry on their young illiterate females.
See pages 543 & 544 for the full account.
For the Subsurface Coal Mining in US case, the miners were highly unionized, but the price of coal declined as the miner's productivity improved, and vice-versa... i.e. productivity and price are negatively correleated (highly correlated). The productivity improvement didn't come from new technology availability, but from the miner's union incentive to use boring machines rather than picks & shovels they'ed used until then. Boring machines had been in long use and were proven technology for decades before the sub-surface mining industry started to use them. The reason they hadn't used them earlier was that the Union wouldn't accept them. What changed though, so that they had incentive to adopt the use of borning machines was that oil and natural gas (the alternate energy source) became very cheap (imports from Venezuala, Mexico, near East) and without price reductions in coal many mines would have closed --- leaving too many union miners out of work. Hence the union decided to employ boring machines in return for a $20/ton rice paid to the Union fund by the employer. The cost / ton of coal mined thus dropped by the producitivty increase to compete with the new cheap oil and N.G. imports .
Thus, it wasn't invention of new technology that mattered in the dramatic improvement to coal mining productivity, but rather was due to workers deciding to adopt more productive methods in return for negotiated fair compensation for the increased productivity.... their incentive to do this was to prevent loss of jobs due to exogenous factors --- price reductions of oil and N.G. due to imports.
The full account and charts describing this in detail and more are found on pages 544 and 546.
What's relevant and significant in both accounts is that it was workers changing methods of production that accounted for the rate of change in productivity... not new inventions, not new capital investment, not composite savings, not new organizational structures. Whether workers were coerced to change (i.e. as in child labor in Japan), or had or didn't have incentive to change methods were the determinates.
if you're the least bit curious about things that affect or don't affect productivity change over time and across nations the linked article (here) is a must read.