ABSTRACT
High labor productivity growth is generally considered to be a critical factor in international competitiveness and economic growth. Why is productivity growth so important? Because it reflects productive investments in the latest labor-saving technologies and process innovations. Productivity growth also creates the possibility that future generations
standard of living. Finally, rapid productivity growth can help to reduce inflationary pressures, and, as a result, create the conditions for a looser monetary policy and, potentially, lower interest rates (Galbraith and Darity, 1994). With lower interest rates, investment by firms may increase further – and thus a virtuous cycle of rapid technological change, higher productivity growth and more investment may result. At the enterprise level,
C.W.M. Naastepad and Servaas Storm
OVERVIEW
the pressures of intensified international competition in three ways. First, because productivity growth leads to a reduction in production costs, it will raise the international cost competitiveness of firms. Second, productivity growth is a reflection of the firm’s capacity for process innovation. Finally, productivity growth, particularly when it is due to computer-based technology, is often accompanied by increased organizational flexibility at the enterprise level; this, in turn, makes it easier for firms to respond to changes in global competitive pressures (Lorenz, 1992, 1999).
