Econ: Productivity

17 March 2024

In 1959 the leader of the USSR, Nikita Khrushchev, visited an Iowa farm and was astonished that Roswell Garst, his two sons, and a few employees could operate it. A Russian farm that size needed 60 workers, he said. [1]

When Grandma and I were in Ethiopia in 2000, we would see local women walking barefooted to reach a village market, to spread a few vegetables on the ground, hoping to sell.

Productivity needs two things: Capital (assets, tools, knowledge, supplies, infrastructure) and industriousness (willing and capable workers).

Russian farms had some capital (the land and basic tools) but lacked industrious workers. (Old Soviet joke: We pretend to work, and they pretend to pay us).

The Ethiopian women were exceptionally industrious, but lacked capital (a bike).

The US is the most productive country in the world, because we are blessed with both. In 2023, a record breaking 5.5 Million businesses started up in the U.S. [2] Most were initially funded by a home mortgage.

A Peruvian economist, Hernando de Soto (NOT the 16th Century explorer) found ways to provide capital to industrious poor women. If lent enough money to buy a sewing machine, they could prosper. Or, where property rights are “iffy,” to accept informal proofs of owning a home, sufficient to underwrite a tiny loan, to start a modest business. [3]

Always remember: governments consume wealth. Capitalized industriousness produces wealth.

1. Rod Swoboda, Article in Wallaces’ Farmer, April 3, 2015, “50th Anniversary of Khrushchev’s Visit to Iowa is celebrated.”

2. US Chamber of Commerce (www.uschamber.com)

3. A recent study reported bad outcomes for third world borrowers unable to repay the tiny loans; sometimes good intentions are insufficient

Loving you

Grampa Jeff