Productivity, Ag and Ed

Martin Harris

Martin Harris is an architect and former farmer.

Like any academic deserving of his elbow-patched tweed jacket, I can do an abstract of a lengthier essay. Here it is:

Over the past century the good news about agricultural productivity is that it has increased enormously. Over the past century, the bad news about agricultural productivity is that it has increased enormously.

Now, here’s the essay. It starts with a quote from the conventional classroom wisdom regarding economic productivity, the following coming from one Glenn Hubbard, until recently chairman of the President’s Council of Economic Advisors. He starts with some Econ 101: savings equals investment and greater investment in capital stock (production equipment) results in greater worker productivity. It’s exactly what you’d best say on the test so as to pass. But then Hubbard goes on to say that, “As the capital stock increases, the productivity of workers increases and so do their wages.”

In most cases, it does. An engineer with a bigger locomotive can haul a longer and more profitable train, and some of the added corporate profits come back to him in a wage boost. Let’s look at a couple of cases where it doesn’t. One is agriculture, and the other is education.

Agriculture, over roughly the last half-century, has raised its productivity enormously, in fact well ahead of non-farm productivity advances, a ten-fold increase in productivity between 1940 and 1990 for the farm sector compared to only a five-fold increase for the non-farm sector. Ag has raised its productivity by producing more per worker (milk, for example, required three labor hours per hundredweight then compared to .3 now), the USDA reports. Ag produces more per acre: corn, for example, from 40 bushels per acre then to 120 now. Ag uses fewer workers and acres, but far more equipment and housing (actually, more capital stock per worker, if you do the math) now compared to then, and food costs urban consumers less, in inflation-adjusted dollars, now compared to then.

So, ag wages should have increased, right? Wrong. Inflation-adjusted crop prices have trended steadily downward over the same half century: production that earned $2.50 in 1990 dollars at the end of World War II now earns about 80 cents. The farmer’s share of the retail product price is down from 50 percent then to 25 percent now. Capital investment per farm is way up, although the trend to ever-larger farms makes the current numbers hard to compare with those of any earlier, smaller-farm-size period. But returns to farmers have not increased: income from farming was about $15,000 then (1990 dollars), and it’s about $15,000 now. Except for the very largest operations, in-town jobs account for all the gains in farm family income, the USDA reports.

You can read all of this for yourself in the very best book on the subject I’ve ever seen, American Agriculture in the 20th Century, by Bruce Gardner, who’s taken all the data from various sources—USDA, Bureau of Labor Statistics, census and so on—and compiled them in a way that’s truly enlightening.

Education, over the last half-century, has pretty much done the opposite: reduced its productivity. It’s done so primarily by reducing output per worker, and it’s done that by increasing the numbers of paid staff per pupil. More engineers and conductors for the same size train, you might say.

As with agriculture, the basic statistics for the situation are compiled by the Feds (whatever else you may think of the folks who inhabit the District of Columbia, you must admit that they’re incredibly good at counting beans and publishing the results) in this case, by the Feds in the U.S. Department of Education. The difference is this: while the USDA publishes a fairly poor report on productivity changes in agriculture (Agricultural Productivity in the U.S., ERS-ARB-740) and the Gardner book makes sense of it, the U.S. Department of Education publishes an excellent reference, the annual National Digest of Educational Statistics, which requires no interpretation to understand; its charts and facts speak loud and clear to even the most casual reader.

In it we find that the major input to productivity, labor per unit of output (in education that’s the pupil/teacher ratio) has plummeted since 1955 from 26.9/1 to 17.2/1 in 1998, resulting in annual per pupil costs that have grown from $260 then to $7,000 now. Adjusted for inflation, they should have grown only to $1,370. Professor Richard Vedder of Ohio University uses the pupil/teacher ratio decline to identify a staffing productivity drop of 36 percent in education; he calls out no additional drop because of declining test scores, while other analysts do. On the cost side, Vedder calls out an 80 percent productivity drop, based on the amount per-pupil costs have increased, to produce basically the same product, a high school grad, over the half-century. And yet, teacher salaries-have increased from $3,010 in 1950 to $41,598 in 1998, while an inflation-only increase would have yielded but $20,557: that’s a doubling of salary or a productivity loss of 50 percent.

While Vedder has been analyzing the productivity collapse in education, other researchers—Eric Hanushek from Rochester, Caroline Hoxby from Harvard, Hanna Skandera from Stanford—have taken aim at the root cause of the problem, the pursuit of ever smaller class sizes. Unanimously, they report from their studies, smaller classes (reducing from the high twenties to the low teens, typically) do nothing for student achievement, but such policies do a lot to increase costs and reduce productivity.

In short, ag increased its productivity only to take a beating in returns to industry workers, while education decreased its productivity to capture a windfall in returns; this isn’t what Glenn Hubbard and all those other economics professors said was supposed to happen. It may well be that this double violation of the normal rules of economics has occurred because both industries—agriculture and education—aren’t really free agents in a free market; both are among the most highly regulated in the entire economic spectrum.

But even that isn’t the answer. After all, the public utilities are also highly regulated businesses, their power and communications services are closely controlled by bureaucrats who monitor spending and charges, service areas and technologies, and yet, typically, they’re allowed to earn 12 percent on their investments (ag hasn’t made over 2 or 3 percent, except for a couple of years in the ’70s). Education is highly regulated, too, with state and federal requirements; and yet most of the policies pursued by educators lately, like ever-smaller and more expensive classes, are not regulatory requirements. In Vermont, for example, permitted class sizes could be in the low twenties; they’re in the low teens. Something else is at work here, and it appears to be, as usual, the greatest single variable in a (more or less) free-enterprise economy: the group that does the best marketing wins. Thus, teachers have deliberately reduced their productivity, marketed skillfully and raised their pay, while farmers have deliberately enhanced their productivity, marketed clumsily and suffered accordingly. Is it too simplistic to say to farmers just two words “Market better,” and hope they’ll do so? Ω