Wednesday, July 31, 2013

CFOs don't care about worker productivity.

There are a lot of things about the American economy that economists and high-profile journalists (Andrew Ross Sorkin, Jesse Eisinger and so on) do not see. In general, the American economy is far more sclerotic than the economic establishment realizes.

1. Chief Financial Officers don't care about worker productivity.
2. Corporate executives have a lack of respect for the poor and the middle class - this damages total factor productivity.

Regarding worker productivity, CFOs want to do the easy stuff, but avoid the hard slog.
Layoffs are easy: you reduce costs and also reduce the productive potential of the affected departments. Worker productivity remains unchanged. Transferring to an outsourcer is also easy: but the worker productivity problem remains unchanged and you could make things worse. (Executives claim that outsourcers have an incentive to solve worker productivity problems, that is often untrue, think "law firms' billable hours model").
The above is short-term cost cutting, and is of limited benefit to long-term shareholders.

Solving long-term cost efficiency problems and worker productivity problems requires executives to work a lot harder and be more curious. Corporate executives don't want to do that.

Now what about the disrespect for the poor and middle class, if you are a long term shareholder why should you care? Here's why:
A CFO has two choices:
A political insider, almost a member of the corporate elite himself is making a pitch. He has a technology solution of limited benefits (or none at all). The new technology framework certainly does not solve the worker productivity problem. But the fellow has an expensive suit and tie and the CFO is impressed. They shake hands and have a deal.
A political outsider sends a letter to the CFO. He solves the worker productivity problem, in fact his solution increases worker productivity by a factor of five (five hours of work becomes one hour of work). But the CFO is an important guy and he has no time to waste with people of low socioeconomic status. He tosses the letter in the trash.

Are corporate executives really that shallow? Yes they are. I'll give some examples in the next post.