While Baumol's point is true as far as it goes, it mismeasures the nature of productivity in music. In Mozart's time, the only way to hear a minuet was to be physically present when it was played. Obviously, that greatly limited the number of people that could potentially hear his music. But today, that same minuet can be played simultaneously on radio, television and the Internet, potentially reaching billions of people at once. Moreover, the performance can be recorded on a CD, DVD or videotape, making it available for future generations as well.
Therefore, we can say that productivity among string quartets has in fact risen astronomically when the potential number of listeners is considered the output measure. Something like this is happening in many industries once thought to be immune from productivity increases. For example, if one measures a physician's output by the number of patients he sees in a day, his productivity may not have risen much over the years. But if one measures his output by the number of patients cured or the lengthening of their life spans, then medical output can be seen to have risen a great deal.
Triplett and Bosworth, partly by taking advantage of better measures of service output, have concluded that there has been a big jump in service-sector productivity in recent years. They surmise that the rate of increase in service productivity is now equal to that in manufacturing. This conclusion is confirmed by a new Federal Reserve Bank of Chicago study, which found that services are now reaping the benefit of past investments in IT that will continue for years to come.
Rising productivity at home offsets most, if not all, the advantages India can offer in the realm of cost savings. As companies study the trade-offs more carefully, I think they will find that there is no pot of gold waiting for them there. At the same time, worker apprehension over outsourcing will diminish once the economic expansion takes hold and begins reducing the unemployment rate. As economist Brad DeLong notes, "Few would be worried about outsourcing if the U.S. unemployment rate were still closer to 4 percent, rather than at the over 6 percent level that it is."
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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