National productivity measures – Current flaws

To quote from a Bloomberg interview with Dominic Konstam of Deutsche Bank: “All we know is that productivity is really bad”

But is productivity really that bad?

Who truly knows?

According to the interview: “Nothing is clear”

That said, however: “Bad productivity might be due to over-employing versus too little investment taking place – and that might be due to employers expecting demand to improve, but it hasn’t”

It’s yet another example of an economic expert, a top banker in this case, aware that national productivity measures are flawed but, nevertheless, unable to resist offering his conclusions based solely on them

Such ‘experts’ forever trot out their theories knowing full well they cannot be rubbished because there are no facts available to prove them wrong – or right

How so?

Nations employ cohorts of professional statisticians, even whole organisations of them like the UK’s ONS – Office of National Statistics – all devoted to collecting state data, aka statistics, on the value of total outputs and the productivity of total labour inputs (albeit ignoring all other costly inputs such as raw materials, capital investment and knowledge)

Said statisticians do their level best but their task is complicated:

  • Much GDP data is not readily available and has to be estimated:
    • Public sector expenditure is assumed to be equivalent to its output value
    • Forecasts are sometimes employed which inevitably introduce errors
  • Much output of value is uncounted e.g. housework, charity work, child/ elderly care, the work of unregistered unemployed
  • And much other output is uncountable e.g. black economies, black markets, Google or Skype freebies – aka consumer surpli


In addition, the current measurement of national productivity is better suited to old manufacturing-dominated economies, not modern service economies – the focus is on:

  • Output volumes, largely ignoring quality and service levels offered
  • Labour input volumes (FTEs or hours) only, largely ignoring labour skill and experience levels


The result is national GDP and productivity statistics have become next to meaningless for most managers, whatever their sector – and potentially misleading for government ministers who view them as stars by which to steer their economies

Hence, headlines announcing that ‘national productivity is really bad’ may be plain wrong – ‘alarming productivity gaps’ may not exist between specific nations – some nations may even be doing much better than indicated – no one truly knows!

What’s needed at national level is not one number covering productivity but several – a set of up-to-date, accurate, meaningful performance measures which, together, provide a clear picture of current national economic performance – a set which establishes our current standard of living and quality of lives, plus where significant performance gaps lie and improvement action is needed

Then, at last, we might be spared all the doom and gloom that our media love to pepper us with

At present, no such set of measures is on offer

Hence, our leaders and expert economists fall-back on the only measure that does exist, and mostly ignore its flaws

It reminds one of skippers offshore on a black storm-ridden night, keen to get their boat and crew back to their home port safely – through the rain and spume, a single light is seen flashing ahead – they so want to believe it’s their light – they ignore it might have the wrong characteristics and be the wrong port, even a headland – it’s the only light so it must be right – it’s also a cause of many shipwrecks


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