Flawed national productivity measures

“All we know is that productivity is really bad”

This quote is from a Bloomberg interview with Dominic Konstam of Deutsche Bank

But is productivity really that bad?

Who actually knows?

According to the article, apparently ‘nothing is clear’

That said, however, ‘bad productivity might be due to over-employing versus 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, who is aware that national productivity measures are flawed but, nevertheless, cannot resist offering 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) – and they do their level best but the task is complicated:

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

In addition, the measurement of national productivity is more suited to old manufacturing-dominated economies, not modern services-dominated economies:

  • The focus is on output volumes, sidelining quality and service levels offered
  • And on labour input volumes (FTEs or hours), ignoring not only labour quality but also material, capital and knowledge inputs

The result is national GDP and productivity statistics have become next to meaningless for most of us, and potentially misleading for our leaders who view them as stars by which to steer their economies

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

What’s needed at national level is not one number covering national productivity but several – a set of up-to-date, accurate, meaningful performance measures which, together, provide a clear picture of current national economic performance relative to others and the past – a set which highlights changes to our standard of living and quality of lives, and so where significant performance gaps lie and 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 has been officially established and agreed – and so is not collected

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

It’s like weary storm-hit skippers out at sea on a black night, keen to get back to their home port safely, who see just one light flashing ahead and so want to believe it’s their light that they ignore it has the wrong characteristics and end up being led astray


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