A productivity ‘cocked hat’!

• As the Nobel prize-winning economist Daniel Kahneman once said: “We fixate on anything that can be measured, even badly, and ignore the obvious elsewhere” – Copernicus suffered from such attitudes – the ‘Flat Earth Society’ existed because of them
• ‘Productivity growth’ has become the holy grail for most developed and developing nations:
  • It determines an increase in output, revenue and profitability for private sector organisations enabling them to invest for the future, pay employees well and contribute taxes to fund public services their home nations need
  • It also expects those public services to provide more/ better services for the tax-payers’ money invested in them
• Given this importance, one would expect national productivity to be measured well so that officers on national bridges can sail efficiently towards agreed destinations
• To do this, they need their navigating officers to keep taking a ‘fix’ on their current position to establish where they are now, how far they’ve progressed and how far they have to go
• Sadly, they do not have such clear measures
• Consider the formula used globally to ‘calculate’ national productivity

           National productivity = National outputs / National inputs

         = GDP/ (Labour hours or numbers)

         = Labour productivity (alone)

• The result is a ‘cocked hat’ – an inaccurate, potentially dangerous, measurement experienced by all at sea when navigation marks on which to take a fix are clothed in fog, say, or cannot even be seen
• The larger the cocked hat, the more the result must be treated with caution
• Why so?

• National Output:
  • GDP is a measure more relevant to the old materialism age, especially the days when manufacturing dominated economies – outputs were then easy to count and labour hands dominated input costs
  • GDP is also  more a measure of the circulation of money in an economy rather than the extra wealth generated by it to help improve standards of living
  • And GDP is flawed
  • Paul Polman, CEO of Unilever, said: “GDP counts everything that raises spending as if all were a good thing – more cancer and medical costs, reconstruction after giant storms or wars and conflicts – but it does not measure peace, quality of education, mental health or the protection of the natural capital needed for our survival”
  • Hal Varian, Chief economist at Google, said: “GDP has a very hard time with free” – many valuable benefits are now made freely available, on iPhones for example, and many replace other stuff that they did or would have paid for in the past (this may also partly explain the ‘productivity puzzle’ currently baffling so many expert economists as to why GDP growth has slowed down in recent years)
  • GDP does not count the ‘white economy’ e.g. housework, DIY, charity work, child and elderly care
  • Nor does it count the ‘black economy’ e.g. moonlighting, crime, tax avoidance
  • And, given service outputs are often difficult to count, especially public services, official assumptions and ‘conventions’ are used rather than actual data to complete large chunks of output pictures
  • Hence Nigel Lawson, UK Chancellor of the Exchequer, said: “GDP is imperfect, but less imperfect than all the other things that have been tried”
  • So, in the absence of anything better, the old GDP formula continues to be used

• National Inputs:
  • Labour hours or numbers are not the only important inputs nowadays
  • Labour skills and motivation levels are more important in most organisations but they go unmeasured
  • And capital inputs – investments in machines, IT, new technology, AI etc – and the fact that the more they are used in many industries, the more labour productivity looks better despite that labour not necessarily working any longer or harder, is simply ignored

• CONCLUSIONS:
• It seems only ‘expert’ economists base their ideas and proposals on such national productivity measures yet they are not only flawed but relevant only to the old materialism age – at best, they’re incomplete for the new mentalism era – plus they short-change human wellbeing
• Great caution is therefore needed if and when using them
• Complementary measures covering ‘quality of lives’ are also needed to better represent the modern economic picture