Technology Measures

Some general technical definitions used in this history follow.   More specific ones are given in the applicable discussions.

Efficiency and Productivity

Businesses of all kinds, including those involved in health care and government, are composed of buying, selling, producing, distributing, accounting and financing functions.   Tying these elements together is communication among people operating these functions.   All technologies discussed here affect the producing and distributing functions directly.   Communication, reproduction and computation technologies affect all functions directly.   The business functions and the technologies are related to living standards and each other through efficiency and productivity.   Greater efficiencies and productivities of industries usually result in higher standards of living by reducing the costs of production and the prices of delivered goods and services.

To understand about productivities and efficiencies and their differences, first consider some simple mathematical concepts:   A ratio is one number divided by another number, e.g., the number of good eggs / total eggs.   The units in the numerator and denominator are the same.   A ratio becomes a rate when the numerator and denominator of a quotient have different measures, e.g., eggs bought at $1.80 / dozen.   Efficiency is a ratio of the "good" or desirable output to the total input of something, e.g., a machine capable of running 24 hours per day actually runs 22 hours per day, so its efficiency is 22 / 24 = .92 or 92%.   Productivity is a rate of "good" or desirable output to some common measure, viz., time or area.   For example, a machine that makes 120,000 nails per 60 minutes has a productivity of 120,000 / 60 = 2,000 nails per minute.   Therefore, efficiency and productivity are not the same, although both indicate "good", "desirable", "useful" or "favorable" output versus total input available.   Note that technologies, like everything else, are replete with value judgments, i.e, what is "good" to someone (employer, consumer) may be "bad" to another (worker, environmentalist) and vice-versa.   Also, note that in the above example, both terms, productivity and efficiency, assume a common time period (duration) of measurement, usually a minute, hour, day, week, month, or year when comparing data.   For example, in a given growing season (a few months), land producing 60 bushels of corn on 2 acres (its productivity is 60 / 2 = 30 bushels per acre) is less productive than land producing 111 bushels on 3 acres (111 / 3 = 37 bushels per acre).   A machine producing nails an average of 22 hours per day over a month is .92 (22 / 24) = 92% more efficient, than the same one producing nails 20 hours per day, .83 (20 / 24) or 83% over a month.   The first machine is 9 percentage points (not 9%) more efficient (92% - 83%).   However, if the productivity of the first machine is 2,000 nails per minute and that of the second is 2400 nails per minute, the latter machine is .20 (400 / 2000) more productive (20%).   Note from the above definition that efficiency can never reach the ideal of 100%, since there is always some waste or defects.   As an example, consider farm productivity.   In these data, the productivity measure is persons supplied with farm products per farmworker.   In 1820, 1 farmworker fed 4.1 people.   In 1970, 1 farmworker fed 47.1 people.   During a period of 150 years, farm productivity increased 10 times.   That increase resulted in cheaper food, better health, and more worker time available to do other kinds of work or spend more time at rest and play.

Labor Productivity

A significant measure relating changes in technology to living standards is labor productivity; that is, useful output divided by workhours input for a given period of time.   It is an important measure because it indicates whether more or fewer workhours are expended to produce a given output of goods and services.   Fewer hours worked translates to more hours available by workers to pursue work elsewhere, consume goods and enjoy leisure.   In a factory, if 20 workers expend a total of 40,000 workhours to produce 800,000 pairs of shoes in one year, their labor productivity is 20 pairs of shoes per workhour for that year (800,000 / 40,000).   Technologies can Increase the output for a given labor hour input , decrease the labor hours input for a given output, or both increase the output and decrease the input, resulted in greater labor productivity that results in greater profits to business owners, or higher wages and salaries to workers, and usually, with sufficient competition, lower prices to consumers.   This means more people can buy the products and services, and living standards are thereby increased.   Labor productivity is measured by region, by industry, and by nation.

Labor productivity does not always increase with new technologies because of countervailing causes.   Economic depressions, work stoppages caused by labor disputes, lethargic management and ownership, the unintended consequences of government laws, less demand for the product, fewer available resources, etc., have caused declines in productivity at one time or another.   The rise and fall of municipal and regional populations and their incomes over the history of the U.S. is often caused by changes in technologies and associated labor productivities and costs associated with those areas.   However, labor productivity data have limitations: they cannot account for changes in quality or kind.   For example, although the labor productivity (bits per workhour) of a currently made computer is far greater now than one made in 1990, it ignores the qualitative improvements (e.g., reduced computer weight, increased memory capacity) made in that time period.   In spite of this shortcoming, labor productivity is a measure so important that businesses, scholars, and government agencies track it regularly and watch it carefully as an indicator of economic "health" and "progress" (more value judgments!).

Production Rate

The production rate; that is, goods or services output / unit time (day, week) input is another important measure that indicates improvement in efficiency, productivity, or both.   Increasing the productivity and efficiency of production will increase the production rate; that is, it will increase the number of goods or services produced and delivered per time unit (minute, hour, day, month, year, season) for a given amount of equipment and labor during a given period of time.   Therefore, the fixed costs (see above) are allocated to more units, which decreases unit costs.   In a market (capitalist) economy, competition among businesses will drive down the unit cost of goods and services and consequently make more of the goods and services affordable, i.e., the price will be less to more consumers, who will be able to buy more, thereby improving living standards generally, on the average.   For examples of improved production rates, in the U.S. in the early 19th century, canals moved bulk products from producer to consumer faster than animal-drawn wagons on primitive roads, so it replaced many of them.   Later, railroads moved the goods faster than canals and obsoleted most of them.   In the 20th century, airplanes and pipelines moved things faster than railroads and obsoleted most of them.   Technologies continually change.   What was efficient and productive yesterday is no longer so today.   These changes constitute "progress"!

Unit costs and Prices

Business total costs can be divided into fixed (indirect) costs, i.e., those costs that are mostly independent of the number of units produced ("volume"), and direct (variable) costs, i.e., those costs that almost vary directly with the volume of goods and services produced.   Examples of the former are plant, equipment, tools, advertising, and technical, scientific, supervisory and management labor.   Examples of the latter are production ("blue collar") labor, product materials, and packaging.   Unit costs are total costs divided by quantities produced.   Since revenues derived from customer sales (unit prices x quantity sold) must cover all business costs and profit, the more production units sold, the greater the profits.   Of course, investors who are convinced that they can make similar or substitute products more cheaply to achieve similar profits will enter into competition, offer lower prices to achieve sufficient revenues, and drive down unit prices to customers.   The point is that by (1) increasing the number of customers and revenue, or (2) increasing productivity and efficiency, or (3) decreasing wages, salaries and material prices will decrease customer prices and make more goods available to more people, assuming sufficient competition.   In addition to these more benign methods, buying out competitors or driving them out of business by temporarily pricing below costs, or persuading friendly government executives and legislators to increase import tariffs and quotas, or seeking "sweetheart" (non-competitive) contracts from companies, unions, and governments, and combining into trusts and other non-competitive compacts with competitors are all part of the capitalist system that increase unit costs and prices.   (It's no secret that the last thing a competitor wants is competition!)   Assuming competitive conditions, the overall effect of reducing company unit costs is to reduce customer unit prices and permit more customers to afford the company products, thereby increasing average living standards among more buyers.

Environmental Costs

Raising basic (and non-basic) living standards, or just maintaining them, comes with costs excluded from company production costs.   Every person and every artifact comes with a small or large deterioration of the resources and beauties of the air, water and land, and the elimination of some fauna and flora.   Occasionally, a species is eliminated.   Environmental improvements and associated costs can be added to production costs, and even eliminated entirely in some areas, but they never can be reduced in total, except by a reduction in average living standards or a reduction in total human population.