Editor’s note: This article is the first of three adapted from the keynote address given at the annual shareholders’ meeting of Talbert Fuels, Inc. on Dec. 3, 2001.

There is a general popular assumption that there was an enormous increase in America’s productivity during the 1990s. Actually, the ’90s did not witness America’s greatest period of continual increase in productivity and economic growth. That distinction belongs to the period from just after World War II until 1973 and the OPEC oil embargo.

When the OPEC embargo hit, productivity went into steep decline. Though it did recover to a great extent in the mid-’90s, we have not seen anything like that long, post-World War II period of continual, sustained productivity increases. More importantly, the recent productivity gains have been different in character.

During that post-war period, right up to the initiation of the OPEC embargo, productivity increased, as measured by growth of output per labor-hour, an average of 3 percent per year. From 1973 until 1995, productivity growth averaged only 1.4 percent per year.

The worst was from the OPEC embargo until just after the Saudis pulled the plug on oil prices in 1981. From 1973 until 1982, productivity increases dropped to 0.9 percent per year. There was more to the OPEC embargo damage than the high price of gasoline.

From 1995 to mid-2000, the productivity-growth figure returned almost to where it had been in that long post-World War II entrepreneurial boom, averaging 2.9 percent. The productivity gains of the e-commerce revolution did not come with computers but with the advent of networking. These gains, unlike those of post-World War II, have been accompanied by lay-offs rather than by hirings.

Though productivity increases went down with the initial bursting of the e-commerce bubble, at times they have spurted back up. This is deceptive because it is due to the definition of productivity increase combined with layoffs enabled by the application of networking. Since we are talking about growth of output per labor-hour, if you eliminate enough people from the payroll and keep up your same rate of production, you are technically increasing productivity. But you are not necessarily, as was the case in the earlier period of high productivity, increasing correspondingly the demand for a better product. These recent productivity increases are not having the same boosting effect on growth.

The difference between these two periods of high productivity gains has been remarked upon by visiting engineers from other countries that happen to have been here in the U.S. for visits during both periods.

When visiting during the first period, they say, they were struck by the way in which American engineers and designers had a “can do” attitude and were always out in the middle of the floor or out in the field, involved in the project. During this second period of high productivity increases in the 1990s and beyond, they remark by contrast that American engineers and designers are up in booths playing with computers and seldom get down in the middle of things the way that they used to.

The three factors which are usually identified as the cause for the long period of productivity gains after World War II are: 1) the application of new technology, especially from the war, 2) the drive that grew out of Great Depression scarcity and suffering, and 3) an increase in global trade as Europe and Japan were reconstructed with our aid and colonial empires broke up into new nations.

The factors given for the decline in productivity after the OPEC embargo, are: 1) higher oil prices, 2) growth of environmental and other laws and regs, 3) high inflation, and 4) government R&D slowdown.

OPEC killed the productivity increases that made us the leader of the free world. It caused the inflation. We lost the entrepreneurial drive. Instead of finding money-making ways to clean up the environment and lead the world, we went for the “solution” of big government control. Instead of using R&D effectively to stop OPEC from taking the Oil Weapon and wielding it over us, we stumbled. We did not show the kind of R&D and innovation that won World War II, or that got us to the moon.

We need to do so, starting with making it very clear to OPEC that we are now going to listen to breakthrough inventors and take back the oil weapon.

The president just said that we can lead the world in cleaning the environment with an entrepreneurial approach. Let’s start with oil and gasoline. Other than the force we’ve now shown, it’s the only language that OPEC understands: cheap, ecologically sound oil production and cheaper, cleaner, more powerful gasoline right here in the USA.

Larry Elgin is the chairman of U.S. Defense – American Victory in Washington, D.C.

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