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Jul 31

Current national productivity measures

Nowadays, the constant media refrain is: “G7 productivity growth has slowed right down – living standards will fall – inequality will rise – it’s a puzzle why”

Some experts say we couldn’t keep on growing at 2% plus per annum:

  • We’re in an era of ‘secular stagnation’ according to Larry Summers, Harvard economics professor

  • Goldman Sachs say rich nation productivity has grown at an average pace of just ¾% since 2008, down from 2% in the three decades before

However, others like Professor Robert Gordon of Northwestern University, USA, say it’s all because no major new productivity enhancing  inventions/ innovations are appearing, or indeed are possible, so productivity growth rates have long since peaked and will continue to struggle from now on

But all these experts base their thinking on available national measures of output and productivity viz:

  • Outputs = GDP = a measure prone to considerable error, full of dubious assumptions and estimates, and becoming increasingly flawed given much output value now goes uncounted as we move from an era of materialism to mentalism – Charlie Bean, economist and ex deputy governor of the BoE (Bank of England) even believes the UK economy may be growing 0.75% per annum faster than official figures say

  • Productivity = Outputs/ Inputs = GDP/ Labour hours or numbers input – hence labour quality/ skill levels are ignored – ditto other costly inputs such as physical and intellectual capital

There’s also a growing gap between the prices paid for goods and services clocked by GDP and the value of extra benefits obtained from those same goods or services – aka consumer surplus – e.g. freebies like Google searches, unlimited social contacts via Facebook or  worldwide communications from Skype

Add a value for this extra and maybe, just maybe, GDP and so (labour) productivity has been growing just as fast, if not faster, than it did in apparent better years before the 2008 financial crisis

Indeed, one estimate has it that some 30% of actual GDP now goes unmeasured/ uncounted – if so, this would make a mockery of the credibility attached to the quarterly national GDP and productivity statistics issued by the ONS (Office for National Statistics)

The media and opposition MPs love them, of course, especially when it’s bad news which is good news for sales or votes – headlines of doom announce ‘GDP has fallen by 0.1%’

But just who is prompted to do what when they read or hear such stuff?

The problem is we don’t know what extra value to add to current GDP level

At the same time, there’s significant labour substitution ongoing with the use of more IT, automation, robotics and Artificial Intelligence – this is surely having a big impact on national productivity by increasing output volumes, improving quality levels and enabling things to be done much faster and more accurately than before

As a result, labour productivity simply has to have been getting significantly better, year on year – but the statistics deny this

Worse still, it seems all the experts have their suspicions about official stats, add a few caveat ‘maybes’ to their thinking, but then shower us with theories and conclusions for why productivity growth has stalled plus remedies for corrective action

We prefer the other tack, believe what we see happening at the coal-face and hear what front-line managers say, and conclude it is better to ignore current official performance stats and  seek other measures by which to fix the current position of the UK economy and the direction it is following

Conclusions:

  • Nations might well be better off ignoring current national productivity measures and looking to others to build a credible national economic picture – otherwise, govt ministers and top managers might take wrong actions in some areas and overlook right actions in others

  • The Times leader says: “Good public policy needs evidence more than dogma – policymakers operate with partial information and imperfect foresight, and it has been so for a sustained period”

  • We say: “Without facts, expert opinions inevitably multiply”

 

 

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