National distribution of wealth

An interesting, sometimes complex (at least to me), article by Laurie Macfarlane for www.opendemocracy.net follows – it amply demonstrates that totting up any figure for national wealth is not straightforward

According to a new OECD working paper, Britain is one of the wealthiest countries in the world.

Net wealth is estimated to stand at around $500,000 per household – more than double the equivalent figure in Germany, and triple that in the Netherlands. Only Luxembourg and the USA are wealthier among OECD countries.

On one level, this isn’t too surprising – Britain has long been a wealthy country.

But in recent decades Britain’s economic performance has been poor. Decades of economic mismanagement have left the UK lagging far behind other advanced economies. British workers are now (said to be) 29% less productive than workers in France, and 35% less than in Germany.

How can this discrepancy between high levels of wealth and low levels of productivity be explained?

Wealth creation and division:

If you pick up an economics textbook today, you’ll probably encounter a narrative similar to the following:

  • Wealth is created when entrepreneurs combine the factors of production – land, labour and capital – to create something more valuable than the raw inputs.
  • Some of this surplus may be saved, increasing the stock of wealth, while the rest is reinvested in the production process to create more wealth.

 

How the fruits of wealth creation should be divided between capital, land and labour has also been the subject of much debate. In 1817, the economist David Ricardo described this as “the principal problem in political economy”.

Nowadays, however, this debate attracts much less attention. That’s because modern economic theory has developed an answer to this problem, called ‘marginal productivity theory’.

This theory, developed at the end of the 19th century by the American economist John Bates Clark (author of ‘The Distribution of Wealth’), states that each factor of production is rewarded in line with its contribution to production. Marginal productivity theory describes a world where, so long as there is sufficient competition and free markets, all will receive their just rewards in relation to their true contribution to society.

There is, in Milton Friedman’s famous terms, “no such thing as a free lunch”.

Seen in this light, wealth accumulation is a positive sum game – higher levels of wealth reflect superior productive capacity, and people generally get what they deserve.

There is some truth to this, but it is only a very small part of the picture. When it comes to how wealth is created and distributed, many other forces are at work.

Wealth, property and plunder:

The measure of wealth used by the OECD is ‘mean net wealth per household’. This is the value of all of the assets in a country, minus all debts. Assets can be physical, such as buildings and machinery, financial, such as shares and bonds, or intangible, such as intellectual property rights.

But something can only become an asset once it has become property – something that can be alienated, priced, bought and sold. What is considered as property has varied across different jurisdictions and time periods, and is intimately bound up with the evolution of power and class relations.

For example, in 1770 wealth in the southern United States amounted to 600% of national income – more than double the equivalent figure in the northern United States.

This stark difference in wealth can be summed up by one word: slavery:

  • For white slave owners in the South, black slaves were physical property – commodities to be owned and traded.
  • And just like any other type of asset, slaves had a market price.
  • As the below chart shows, the appalling scale of slavery meant that enslaved people were the largest source of private wealth in the southern United States in 1770.

When the United States finally abolished slavery in 1865, people who had formerly been slaves ceased to be counted as private property. As a result, slaveowners lost what had previously been their prized possessions, and overnight over half of the wealth in the southern US essentially vanished. All of a sudden, the southern states were no longer “wealthier” than their northern neighbours.

But did the southern states really become any less wealthy in any meaningful sense?

Obviously not – the amount of labour, capital and natural resources remained the same. What changed was the rights of certain individuals to exercise an exclusive claim over these resources.

But the wealth that had been generated by slave labour did not disappear, and it wasn’t only the USA that benefited from this:

  • Many of Britain’s major cities and ports were built with money that originated in the slave trade.
  • Several major banks, including Barclays and HSBC, can trace their origins to the financing of the slave trade, or the plundering of other countries’ resources.
  • Many of Britain’s great properties, which today make up a significant proportion of household wealth, were built on the back of slave wealth.
  • Even today, many millionaires (including many politicians) can trace some of their wealth to the slave trade.

 

The lesson here is that aggregate wealth is not simply a reflection of the process of accumulation, as theory tends to imply. It is also a reflection of the boundaries of what can and cannot be alienated, priced, bought and sold, and the power dynamics that underpin them. This is not just a historical matter.

Today some goods and services are provided by private firms on a commodified basis, whereas others are provided socially as a collective good.

This can often vary significantly between countries.

Where a service is provided by private firms (for example, healthcare in the USA), shareholder claims over profits are reflected in the firm’s value – and these claims can be bought and sold, for example on the stock market. These claims are also recorded as financial wealth in the national accounts.

However, where a service is provided socially as a collective good (such as the NHS in the UK), there are no claims over profits to be owned and traded among investors. Instead, the claims over these sectors are socialised. Profits are foregone in favour of free, universal access. Because these benefits are non-monetary and accrue to everyone, they are not reflected in any asset prices and are not recorded as “wealth” in the national accounts.

A similar effect is observed with pension provision: while private pensions (funded through capital markets) are included as a component of financial wealth in the OECD’s figures, public pensions (funded from general taxation) are excluded. As a result, a country that provides generous universal public pensions will look less wealthy than a country that rely solely on private pensions, all else being equal. The way that we measure national wealth is therefore skewed towards commodification and privatisation, and against socialisation and universal provision.

Capital gains, labour losses:

The amount of wealth does not just depend on the number of assets that are accumulated – it also depends on the value of these assets. The value of assets can go up and down over time, otherwise known as capital gains and losses. The price of an asset such as a share in a company or a physical property reflects the discounted value of the expected future returns. If the expected future return on an asset is high, then it will trade at a higher price today. If the expected future return on an asset falls for whatever reason, then its price will also fall.

Marginal productivity theory states that each factor of production will be rewarded in line with its true contribution to production. But although presented as an objective theory of distribution, marginal productivity theory has a strong normative element. It says nothing about the rules and laws that govern the ownership and use of the factors of production, which are essentially political variables:

  • For example, rules that favour capitalists and landlords over workers and tenants, such as repressive trade union legislation and weak tenants’ rights, increase returns on capital and land. All else being equal, this will translate into higher stock and property prices, which will increase measured wealth.
  • In contrast, rules that favour workers and tenants, such as minimum wage laws and rent controls, reduce returns on capital and land. This in turn will translate into lower stock and property prices, and lower paper wealth.

 

Importantly, in both scenarios the productive capacity of the economy is unchanged.

The fact that wealth would be higher in the former case, and lower in the latter case, is a result of an asymmetry between how the claims of capitalists and landlords are recorded, and how the claims of workers and tenants are recorded. While future returns to capital and land get capitalised into stock and property prices, future returns to labour – wages – do not get capitalised into asset prices. This is because, unlike physical and financial assets, people do not have an “asset price”. They cannot become property. As a result, it is possible for measured wealth to increase simply because the balance of power shifts in favour of capitalists and landowners, allowing them to claim a larger slice of the pie at the expense of workers and tenants.

To the early classical economists, this kind of wealth – attained by simply extracting value created by others ­­– was deemed to be unearned, and referred to it as ‘economic rent’.

For the most part, economists have tended to focus on the acts of saving and investment which drive the real production process. But on closer inspection, it is clear that economic rent is far from peripheral. Indeed, in many countries it has been the main story of changing wealth patterns.

To see why, let’s return to the OECD wealth statistics. Recall that net wealth per household in Britain is more than double what it is in Germany, even though Germany is (apparently) far more productive than the UK. This can partly be explained by comparing the power dynamics associated with each factor of production.

Let’s start with land:

Germany has among the strongest tenant protection laws in Europe, and many German cities also impose rent controls. This, along with a banking sector that favours real economy lending over property lending, means that Germany has not experienced the rampant house price inflation that the UK has. Remarkably, the house price-to-income ratio is lower in Germany today than it was in 1995, while in the UK it has nearly tripled over the same time period. The fact that houses are not lucrative financial assets, and renting is more secure and affordable, means that the majority of people choose to rent rather than own a home in Germany – and therefore do not own any property wealth.

In Britain, the story couldn’t be more different. Over the past five decades Britain has become a property owners’ paradise, as successive governments have sought to encourage people onto the property ladder. Taxes on land and property have been removed, and subsidies for homeownership introduced. The deregulation of the mortgage credit market in the 1980s meant that banks quickly became hooked on mortgage lending – unleashing a flood of new credit into the housing market. Rent controls were abolished, and the private rental market was deregulated. Today tenant protection is weaker than almost anywhere else in Europe. Meanwhile, the London property market has served as a laundromat for the world’s dirty money. As Donald Toon, head of the National Crime Agency, has described: “Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK”.

The result has been an unprecedented house price boom. Since 1995, skyrocketing house prices have increased value of Britain’s housing stock by over £5 trillion – accounting for three quarters of all household wealth accumulated over the same period. While this has been great news for property owners, it has been disastrous for tenants. The driving force behind rising house prices has been rapidly escalating land prices, and we have known since the days of Adam Smith and David Ricardo that land is not a source of wealth, but of economic rent. The trillions of pounds of wealth amassed through the British housing market has mostly been gained at the expense of current and future generations who don’t own property, who will see more of their incomes eaten up by higher rents and larger mortgage payments.

So while German property owners have not benefited from skyrocketing house prices in the way that they have in Britain, the flipside is that German renters only spend 25% of their incomes on rent on average, while British renters spend 40%. The former is captured in the OECD’s measure of wealth, while the discounted value of the latter is not.

Now let’s look at capital:

In the UK and the US, the goal of the firm has traditionally been to maximise shareholder value. In Germany, however, firms are generally expected to have regard for a wider range of stakeholders, including workers. This has led to a different culture of corporate governance, and different power dynamics between capital and labour.

Large companies in Germany must have worker representatives on boards (referred to as ‘codetermination’), and they are also required to allow ‘works councils’ to represent workers in day-to-day disputes over pay and conditions. The evidence indicates that this system has led to higher wages, less short-termism, greater productivity, even higher levels of income equality.

The quid pro quo is that it also tends to result in lower capital returns for shareholders, as workers are able to claim more of the surplus. This in turn means that German firms tend to be valued less than their British counterparts on the stock market, which contributes to lower levels of financial wealth.

None of this means that Germany is poorer than Britain.

Instead, it just reflects the fact that German capitalists and landowners have less bargaining power than they do in the UK, while workers and tenants have more power.

While lower shareholder returns and house prices are reflected in the OECD’s measure of wealth, better pay and conditions and lower rents are not.

A Comment also published:

We all agree that slavery and theft are a bad idea, yet this logic is not extended to natural resources. As land is supplied for free by nature/God, when it becomes valuable, those excluded from its use suffer a loss of opportunity equal to its rental value. As we are all equally excluded, we should therefore be entitled to an equal share of the total rental value of all land.

As this does not currently happen, there is a net transfer of incomes from those that own little/no land by value, relative to the taxes they currently pay, to those whom the opposite is true.

Therefore the selling price of land is but a measure of economic injustice. If there was no net transfer, it’s selling price would be zero.

So not only does a typical working household have to pay much more to buy a house, they need to do so from a reduced disposable income.

Furthermore, as the incomes of some in society are higher than they should be, this leads to over consumption and misallocation of housing.

The housing crisis is just one symptom of economic injustice. It, along with many other issues, can in principle be easily solved by the application of a 100% tax on the rental value of land.

It just needs enough people to stand up and say so.

 

 

UK manufacturing to become ‘smarter’

The UK magazine Drives & Controls has just reported that a group of UK manufacturing business leaders and academics have joined forces with the government to create the Made Smarter Commission (MSC) which aims to make UK manufacturing “smarter”.
The inaugural meeting of the commission was chaired by Siemens CEO Professor Juergen Maier and Business Secretary Greg Clark and follows the publication of the Made Smarter Review almost a year ago.
The commission aims to drive forward digital developments to boost productivity in British manufacturing, to create more highly-skilled jobs, and to enable more efficient, cleaner production systems. It forms part of the government’s Industrial Strategy.

The commission consists of nine men and eight women from business, trade bodies and academic institutions, and includes top-level representatives from EEF, GE Digital, Renishaw, the CBI, ABB, Nestle, Rolls Royce, the TUC, and Jaguar Land Rover.

Priorities for its first meeting included discussing the pilot for adopting digital technology by manufacturers in North West England, and the Industrial Strategy Challenge Fund for digital manufacturing which aims to bring together UK researchers with business to tackle industrial and societal challenges.

The commission also discussed how the manufacturing industry can be transformed by new technologies such as 3D printing, as well as the need for stronger and more ambitious leadership.

According to Maier, the commission “promises to deliver [the Made Smarter Review’s] core recommendation of driving digitalisation across UK and invigorating industrial strategy. We need now, more than ever, to unite business, employees and government behind a strategy that boosts industrial productivity and improves living standards.

“We will build on our North West Pilot, and look at how we can scale our efforts up across the country,” he adds. “If we get this right, I believe we can kick-start a new industrial revolution, that puts digital tech at the centre of economic policy-making.”

EEF CEO Stephen Phipson describes the formation of the commission as “a bold step in harnessing the expertise right across our sector. We look forward to helping it play a key role in unleashing the potential of manufacturing as part of the fourth industrial revolution and a modern industrial strategy.”

The UK is one of the world’s ten largest manufacturing economies and the fourth-largest in the EU. In 2017, manufacturing GVA (gross value added) totalled £186bn and supported 2.7 million jobs (with estimates of 5 million across the whole of the manufacturing value chain). The sector still accounts for 48% of UK’s exports of goods and services.

Business secretary Clark predicts that the increased adoption of digital technologies “will bring enormous benefits, potentially generating £455bn over the next ten years ­– boosting productivity, creating thousands of new highly skilled jobs and enabling more efficient, cleaner production systems”.

Conclusions:

  • This is the first I’ve heard of this new MSC initiative – one wonders how it will interact with others such as the PLG and PIN
  • The MSC should be a sector specific part of an overall UK Productivity Centre (UKPC)
  • Given manufacturing now comprises only some 15% of the total UK economy, where are the comparable initiatives for the other 85%?

The evolution of productivity

Lydia Dishman wrote an article for Fast Company outlining steps taken over time to improve productivity – it’s not comprehensive but interesting nevertheless

According to her, there’s no definitive source for the start of productivity improvement efforts but there are historical mentions of it in Wealth of Nations by Adam Smith (1776).

Smith contended that there were two kinds of labour – productive and unproductive viz:

‘There is one sort of labour which adds to the value of the subject upon which it is bestowed; there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master’s profit. The labour of a menial servant, on the contrary, adds to the value of nothing . . . A man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants. The labour of the latter, however, has its value, and deserves its reward as well’.

Benjamin Franklin, a contemporary of the Scottish economist, had a simple way of assessing productivity – ‘start the day asking what good shall be done, and at the end of the day evaluate based on what was accomplished’. Lofty, to be sure, but an interesting measure nevertheless.

THE ABUSES OF LABOUR IN THE NAME OF PRODUCTIVITY

A milestone advancing  productivity occurred in the USA during the same era when Eli Whitney invented the cotton gin in 1793. This impacted the U.S. economy, particularly in Southern states where cotton was grown and picked by slaves. Of course, slave labor was free, and abuse of slaves was rampant, yet the landowners got an additional boost to their bottom lines by implementing a machine that increased their production 25-fold.

The cotton gin wasn’t the only technological advancement to grow out of the early days of the Industrial Revolution. Other machines– from steamboats to sewing machines, light bulbs to telephones – that moved production from handmade in the home to factories sprung up across the country during the late 18th and early 19th century and the frenzy with producing more goods more quickly became something of a national pastime.

Slavery was thankfully abolished after the Civil War, but low-wage factory workers (many of whom were children) continued to toil in unsafe conditions for decades, all in the name of increasing productivity. It took years, but eventually, the organisation of labour unions put measures in place to protect workers from the excesses of the push for productivity.

THE BIRTH OF  CONSULTANTS

Although the 20th century was rocked by two World Wars and the Great Depression, productivity was a focal point for manufacturing goods needed to support military efforts and later, to satisfy the demands of the growing middle class.

So it was ripe for the rise of the earliest efficiency expert, an industrial engineer from Philadelphia named Frederick Winslow Taylor. Nicknamed Speedy Taylor, he would get himself a consulting gig with a company, observe its workers, and calculate how they could do their jobs faster – and then charge a hefty sum for the report.

Peers Frank and Lillian Gilbreth were mining a similar productivity vein by dividing human action into 17 motions and then determining which was the most efficient and effective way to do any task.

From these somewhat ignominious beginnings (Taylor was believed to be a liar who fudged his numbers, and Frank was famous for saying postpartum bedrest was a waste of time–prompting Lillian to keep working after the birth of each of her 15 children) grew a sizeable industry of management consultants who aimed to tackle the productivity problem from every possible angle.

THEN CAME THE PRODUCTIVITY GURUS

Among the more recognisable players is Tom Peters, whose book In Search of Excellence chronicles the productivity practices of “America’s best-run companies.”

Michael Porter wrote Competitive Advantages, also exalting the leadership of productive management practices.

And Bill Smith, an engineer at Motorola, introduced Six Sigma in 1986 as “a disciplined, data-driven approach and methodology for eliminating defects in any process – from manufacturing to transactional, and from product to service.”

According to Six Sigma, “Productivity is much more important than revenues and profits of the organisation because profits only reflect the end result, whereas productivity reflects the increased efficiency as well as effectiveness of business policies and processes. Moreover, it enables a business to find out its strengths and weaknesses. It also lets the business easily identify threats as well as opportunities that prevail in the market as a result of competition and changes in business environment.”

THE CURRENT STATE OF PRODUCTIVITY AND WHAT’S NEXT

The thing is that in the frenzy to be more productive, we as a nation have become a little less so.

Economist Robert Gordon of Northwestern University chalks this up to the fact that we are using methods and procedures that are over a decade old. He told the Atlantic, “We had a great revolution in the 1980s and ’90s as businesses transitioned from paper, typewriters, filing cabinets to personal computers with spreadsheets, word-processing software. And then that revolution was accompanied in the 1990s by the internet, by free information through search engines, through e-commerce, and doing away with paper.” Until we start incorporating more robots and AI to take over our rote tasks, this downward trend will continue.

WORK SMARTER, NOT HARDER

The other obsession with productivity is entwined with a false belief that we need to be working all the time to be our most productive selves. And that’s simply not true.

As Leila Hock, a career coach, points out: “It’s not hard work – work is work, and yes, some work requires more brain power, but most of us smart people like that and want more of it, so let’s stop calling it hard. Let’s call it productive. Effective. Valuable. Anything that speaks to nature over quantity, because that’s what we need more of.”

So maybe Ben Franklin’s to-do list had it right all along.

Work and assess what good was accomplished that day – then the most productive day will have the most good attached to it.

A famous fire that changed workers’ rights

The following are extracts from a publication by the AFL-CIO, America’s Unions

On Saturday, March 25, 1911, a fire broke out on the top floors of the Triangle Shirtwaist factory in New York

Firefighters arrived at the scene, but their ladders weren’t tall enough to reach the upper floors of the 10-story building. Trapped inside because the owners had locked the fire escape exit doors, workers jumped to their deaths. In a half an hour, the fire was over, and 146 of the 500 workers—mostly young women—were dead.

The fire alone wasn’t what made the shirtwaist makers such a focal point for worker safety. In fact, workplace deaths weren’t uncommon then. It is estimated that more than 100 workers died every day on the job around 1911.

What it did do was bring attention to the events leading up to the fire which, after the fire, inspired hundreds of activists across the state and the nation to push for fundamental reforms.

The Life of a Shirtwaist Maker:

The shirtwaist makers, as young as age 15, worked seven days a week, from 7 a.m. to 8 p.m. with a half-hour lunch break. During the busy season, the work was nearly non-stop. They were paid about $6 per week. In some cases, they were required to use their own needles, thread, irons and occasionally their own sewing machines. The factories also were unsanitary, or as a young striker explained, “unsanitary—that’s the word that is generally used, but there ought to be a worse one used.” At the Triangle factory, women had to leave the building to use the bathroom, so management began locking the steel exit doors to prevent the “interruption of work” and only the foreman had the key.

The “shirtwaist”—a woman’s blouse—was one of the country’s first fashion statements that crossed class lines. The booming ready-made clothing industry made the stylish shirtwaist affordable even for working women. Worn with an ankle-length skirt, the shirtwaist was appropriate for any occasion—from work to play—and was more comfortable and practical than fashion that preceded it, like corsets and hoops.

Clara Lemlich:

Years before the Triangle fire, garment workers actively sought to improve their working conditions that led to the deaths at Triangle.

In 1909, as factory owners pressed shirtwaist makers to work longer hours for less money, several hundred workers went on strike.

On Nov. 22, a section (Local 25) of the International Ladies’ Garment Workers’ Union (ILGWU) convened a meeting to discuss a general strike. Thousands of workers packed the hall.

Nineteen-year-old Clara Lemlich was sitting in the crowd listening to the speakers—mostly men—caution against striking. Clara was one of the founders of Local 25, whose membership numbered only a few hundred, mostly female, shirtwaist and dressmakers. A few months earlier, hired thugs had beaten her savagely for her union involvement, breaking ribs.

When the meeting’s star attraction, the American Federation of Labor President Samuel Gompers, spoke, the crowd went wild. After he finished, Clara expected a strike vote. Instead, yet another speaker went to the podium. Tired of hearing speakers for more than two hours, Clara made her way to the stage, shouting, “I want to say a few words!” – once she got to the podium, she continued, “I have no further patience for talk as I am one of those who feels and suffers from the things pictured. I move that we go on a general strike…now!”

The audience rose to their feet and cheered, then voted for a strike.

The Uprising of 20,000:

The next morning, throughout New York’s garment district, more than 15,000 shirtwaist makers walked out.

They demanded a 20% pay raise, a 52-hour workweek and extra pay for overtime.

The local union, along with the Women’s Trade Union League, held meetings at dozens of halls to discuss plans for picketing. When picketing began the following day, more than 20,000 workers from 500 factories had walked out. More than 70 of the smaller factories agreed to the union’s demands within the first 48 hours.

Meanwhile, the fiercely anti-union owners of the Triangle factory met with owners of the 20 largest factories to form a manufacturing association. Many of the strike leaders worked there, and the Triangle owners wanted to make sure other factory owners were committed to doing whatever it took—from using physical force (by hiring thugs to beat up strikers) to political pressure (which got the police on their side)—to not back down.

Soon after, police officers began arresting strikers, and judges fined them and sentenced some to labor camps. One judge, while sentencing a picketer for “incitement,” explained, “You are striking against God and Nature, whose law is that man shall earn his bread by the sweat of his brow. You are on strike against God!”

The struggle and spirit of the women strikers caught the attention of suffragists. Wealthy progressive women like Anne Morgan (daughter of J.P. Morgan) and Alva Belmont (whose first husband was William Vanderbilt) believed that all women—rich and poor—would be treated better if women had the right to vote. Alva saw the labor uprising as an opportunity to move the women strikers’ concerns into a broader feminist struggle. She arranged huge rallies, fund-raising events and even spent nights in court paying the fines for arrested strikers.

The coalition of the wealthy suffragists and shirtwaist strikers quickly gained momentum and favorable publicity. Fifteen thousand shirtwaist makers in Philadelphia went on strike, and even replacement workers at the Triangle factory joined the strike—shutting it down.

A month into the strike, most of the small and mid-sized factories settled with the strikers, who then returned to work. The large factories, which were the holdouts, knew they had lost the war of public opinion and were finally ready to negotiate. They agreed to higher pay and shorter hours but refused even to discuss a closed shop (where factories would hire only union members and treat union and nonunion workers equally in hiring and pay decisions).

At a series of mass meetings, thousands of strikers voted unanimously to reject the factory owners’ proposal. They insisted on a closed shop provision in which all employees at a worksite were members of a union. For these young women workers, the strike had become more than taking a stand for a pay raise and reduced work hours. They wanted to create a union with real power and solidarity.

While a closed shop became standard practice in later decades, at the time, their insistence seemed radical. The issue unraveled the alliance between the union and the wealthy progressive women. But by then, only a few thousand workers were still on strike, from the largest, most unyielding companies—including Triangle.

  • In February 1910, the strike finally was settledThe few remaining factories rehired the strikers, agreed to higher wages and shorter hours and recognized the union in name only, resisting a closed shop.
  • Local 25, which prior to the strike represented only a few hundred members, now had more than 20,000.
  • However, workers at Triangle went back to work without a union agreement. Management never addressed their demands, including unlocked doors in the factory and fire escapes that functioned.

 

The Legacy of the Shirtwaist Makers:

A week after the fire, Anne Morgan and Alva Belmont hosted a meeting at the Metropolitan Opera House to demand action on fire safety, and people of all backgrounds packed the hall.

A few days later, more than 350,000 people participated in a funeral march for the Triangle dead.

Three months later, after pressure from activists, New York’s governor signed a law creating the Factory Investigating Commission, which had unprecedented powers – they first enacted laws covering fire safety, factory inspections and sanitation and employment rules for women and children – then entirely rewrote New York State’s labor laws and helped create the nation’s most sweeping worker protections.

Target setting

Targets are needed to bring meaning to any performance measure

They enable one to quantify scope for improvement, performance gaps to be closed and urgency for change

Told your ‘bad’ cholesterol level is 8.6 and most would ask ‘so what?’ – told that good health requires the level to be below 5 and a course of statins is needed pronto

At work, all teams need to fully understand how they are being measured – and be provided with rapid feedback on actual performance levels whilst their efforts are still fresh in their memories

However, targets vary over time viz:

  • Budget targets = Short term – one year ahead:
    • Usually set by taking last year’s results and adding a small % to them so they’re not too difficult to meet
    • However, if and when they are met, most managers either don’t try to do any better (i.e. they put a brake on progress) or they don’t let it show in their results in order to get a flying start for the next year
    • In the public sector, it’s often worse – a culture of ‘use it or lose it’ is widespread – any manager who spends less than his budget in one year would expect to have it reduced in the next, so he makes sure he spends the lot
    • In addition, budgets, whatever the sector, can lock in considerable waste – if last year’s budget funded a 30% waste of resources, as many do, then adding say 5% to the total not only perpetuates current waste but adds to it
    • So always ask of any budget, ‘how wasteful?’ and ‘how stretching?’
  • Best practice (BP) targets = Medium term – two to three years ahead:
    • Internal BPs – they provide worthy targets, at least to start with – first identify best performances recently achieved by your own team, then other in-house teams working on similar work – then ask why your team does not achieve these BPs all the time – it’s much like an athlete constantly comparing his latest performances with his PB (Personal Best)
    • External BPs – by non-competitors who are leading lights in specific fields – some are happy to publicise their better ways of doing things, and the lessons learned from mistakes made
    • External BPs – by competitors – if there’s a significant performance gap between you and the best in your sector, your very existence is under threat so action is needed to close the gap – however, beware copying what others do for it may not suit your circumstances and abilities – it’s much like watching Rory McIlroy play golf but never being able to play like him – instead, it’s often better to study your own working methods and improve them in your own way
  • Goals = Long term – five years ahead:
    • Goals are aspirational targets i.e. dreams that just might become reality
    • Most global winners possessed ambitions out of all proportion to their resources and capabilities when they started out

Given these options, beware the following:

  • Many targets are set arbitrarily by back-room bureaucrats who lack a good understanding of what managers need to focus on in order to keep their customers happy and their units performing well:
    • The latest example is the decade-long campaign for normal (gold standard) rather than caesarean (systemic failure) births despite the danger and psychological damage done to mothers and their babies
    • Hospitals were assessed accordingly, even ‘congratulated for having done only natural deliveries over eight months’ according to The Times
  • Other targets are always raised every year:
    • A ‘puissance problem’ is the result
    • Managers keep ‘raising the bar’ regardless of how high it was last time so, eventually, it can become too difficult to meet
    • Teams then either give up trying and / or become demotivated, and so fail miserably, especially if there are no extra carrots on offer

Overall, target setting is thus not a quick, back-of-envelope exercise but one which must be carefully considered

For positive results, targets MUST be seen by those who have to reach them as realistic, stretching but fair – otherwise, only negative results will follow