Jeremy Rifkin

Aggregate efficiency is the ratio of potential work to the actual useful work that gets embedded into a product or service. The higher the aggregate efficiency of a good or service, the less waste is produced in every single conversion in its journey across the value chain.

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Traditional economics says you increase productivity by investing more capital in better machines and by providing better-performing workers, all of which reduces the fixed and marginal cost of production. But these factors account for only about 14 percent of productivity. Much of the rest of productivity is accounted for by the improvement in aggregate efficiency in the managing, powering, and moving of economic activity.

Aggregate efficiency works the same way in economic production as it does in nature. When a lion chases down an antelope and kills it, only about 10 to 20 percent of the entire energy in the antelope gets embedded into the lion; the rest is heat lost in the transition. So the lion’s aggregate efficiency is only 10 to 20 percent. If it could consume more of its prey’s energy, or use less of its own in the hunt, the lion would gain productivity as a predator.

Economists are now learning that aggregate efficiency is a critical determiner in productivity growth. In the past, economists have missed this because they have not been trained in thermodynamics; chemists, engineers, biologists, and architects get it.

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