Coffee on the Third Floor: Prof. Chad Syverson

Productivity is the name of the game for Chad Syverson (pronounced SEE-ver-son), the J. Baum Harris Professor of Economics at Booth. And it’s a problem. Not just an intellectual question to ponder but, rather, a fundamental economic topic that we should probably care about more than Syverson.  

Upon entering Syverson’s office one may look up and notice on a shelf a helmet with an intertwined “N” and “D” for the University of North Dakota. Syverson grew up in North Dakota, attended the University of North Dakota where he played on the football team, and graduated with degrees in economics and mechanical engineering. After receiving a PhD from the University of Maryland, Syverson took his first academic job in the University of Chicago economics department where he resided for 7 years. While Syverson’s focus on the productivity of businesses in particular may have made the transition from the economics department to the business school a natural one, Syverson has also found that his approach to teaching required very little adjustment in his transition to teaching Booth students: “I find Booth student’s ability to deal in abstracts to be really impressive. I feel comfortable introducing a concept in a more abstract way and then tying it to reality, rather than trying to tell a story, then trying to squeeze it into a more general concept. I find that harder to explain than just clearing away all the clouds, getting the simple model down, then talking about how it fits the real world with all of the squishiness around its edges.”

Professor Chad Syverson

Professor Chad Syverson

Why productivity?  “My interest in productivity was almost surely from my experience in engineering. The reason why I wanted to be an engineer is because I liked exploring why things work, why things broke, why parts go together, why they don’t. But then instead of thinking of this in terms of a machine, think of this in terms of a company: why is this company that I’m working at messed up or not messed up? Why is this division ‘misbehaving” ? Why does this division seem to work? Why do these companies do what they do well, while these other companies making the same product can’t get it right? It was trying to understand this that got me interested in productivity.” While Syverson’s approach to productivity is rooted in the study of individual businesses, he describes it as more outward looking than an operations perspective, which would stop at the boundaries of the firm. Syverson notes that this direction of his research coincided with a movement in the economic literature towards a look into productivity at a company, plant, or even product line level, rather than an aggregate or industry level.

Perhaps important enough to be an adage for business school students, Syverson proclaims “productivity is the speed limit of the economy.” Economic growth in the long run can’t go up faster than productivity growth and Syverson sees the current state of productivity to be a problem. “Productivity growth has slowed down. It has slowed down in the past 10 years and no one knows why. One idea—which I have spent some time doing research on—is that it hasn’t slowed down and we just can’t measure it anymore. The short of the argument is that we’re not really paying for all of these great things like Google and facebook and snapchat and GPS. The problem is that if you’re not paying for it, then it isn’t showing up in GDP. If that becomes a bigger and bigger part of our lives, economic growth is continuing but it isn’t being captured in our GDP. So I looked at this—in four different ways—and found that no matter how you look at it, the story doesn’t really add up, not enough to explain the extent to which economic growth has slowed down.”

While productivity is still increasing, it is increasing at a slower rate than it has in the past. In real terms, if U.S. productivity had not slowed down as it did in 2004, the U.S. GDP would be $3 trillion more per year—that’s enough to give out $9000 to each person in the U.S. Syverson sees this as a problem: “if you think of any investment—whether a physical investment or an investment in human capital—it’s all about giving up something now for the sake of the future payoff. But if this future payoff is shrinking relative to what we thought it would be, then that could change people’s mindsets.”

Syverson’s solution to productivity sounds like a task ripe for MBAs: “the way you end slow productivity growth is that you figure out new and better ways to do things. You figure out how to make new products that people are willing to pay for or you figure out how to make current products with fewer resources. Those are the two ways to create productivity growth. When thinking of new businesses to create, think of businesses that are productivity generating.” Despite this, Syverson does not necessarily look to typical Silicon Valley start-ups for the solution to productivity. He argues, “Silicon Valley’s mindshare is not in proportion with its size in the economy. There are huge chunks of the economy that matter a lot but don’t seem to capture the imagination of students and some faculty in the same way that Silicon Valley does.” What parts of the economy might this be? Healthcare, for one: “If we could figure out how to make healthcare 10% more productive, that’s a year’s worth of growth just by partially fixing things in one sector. Healthcare is not as screwed up as people think, but it’s screwed up in a lot of ways. So it seems like there’s some low hanging fruit if smart people could figure out how to do those things better in healthcare.”

In the classroom, Syverson’s incorporates his productivity studies into his Competitive Strategy class. Dedicating a week to the topic on why it’s hard to be a good company, he emphasizes that the success may not be as formulaic as one could conclude from focusing on successful companies. Having a wealth of experience studying companies that have struggled to be successful, Syverson has an entire course’s worth of content. We can only hope that Syverson will make this the focus of an entire course—he hasn’t gone so far as to think of a name for the class, but he envisions it to be something catchy, yet ominous.

Syverson may not have an exact prescription to solving productivity issues on a more macro level, but he has one productivity hack he wants to leave with all students: “every job has minutiae. Pick a job where you don’t mind the minutiae. A lot of people can imagine jobs where they like the macro or the big idea of. And that’s fine but that’s not all you have to do when you work. So you want to pick something where every little detail, if it isn’t exciting, it’s at least tolerable.” This worked for him: “I’m the kind of person who doesn’t mind digging around through data and looking at data sets, which is one of the minutia of being a professor. I like everything about econ, top to bottom.”