At the risk of oversimplifying, a critical element in dealing with both these opportunities and challenges is investment in modern, productivity-enhancing equipment and structures. Our track record in this regard has not been impressive, even adjusting for the cyclical factors and uncertainties of the past two and a half years. Compared with previous decades, productivity growth has weakened substantially in the past ten years.
This poor performance appears to be at least partly attributable to insufficient “capital deepening” – that is, the amount of capital with which workers are equipped. Another part of the problem appears to be that capital investment is not always well integrated into the workplace. 5 Let me expand on this last point. I’m referring here to what we call multifactor productivity.