NATIONAL PRODUCTIVITY MEASUREMENT
Economic experts rely for their prognostications on national statistics collected by the ONS – Office for National Statistics – especially the ‘Big Three’:
- GDP = Total national output
- L = Total Labour hours or worker numbers, for national inputs
- GDP/L = National productivity.
But how reliable and useful are these measures?
Consider TOTAL NATIONAL OUTPUT – GDP:
- We have said much about the flaws inherent in this measure – it’s an aggregate of aggregates and so hides anything useful – it’s relevant to the days when manufacturing dominated economies but not modern service-dominated economies – and it’s full of omissions, admitted errors and iffy assumptions
- Even experts have recognised such flaws and so concocted alternatives such as TFP – Total Factor Productivity – but few give that much credence, other experts having described it as ‘magic fairy dust’
- Hence Nigel Lawson, UK Chancellor of the Exchequer, said: “GDP is imperfect but less imperfect than all the other things that have been tried”
And what about NATIONAL INPUTS:
- Labour – Only Total Labour Force Hours or ‘Full Time Equivalent’ numbers are officially counted – even they are said to be suspect – and Labour Quality, reflecting better education or experience, is absent
- Materials – Absent
- Energy – Also absent
- Capital i.e. Cash, Plant, Offices, Machines, Robots, ICT/ AI – Absent.
The result is that, every quarter, we read happy or gloomy headlines announcing latest estimates and trends for each of the above ‘Big Three’ stats – with unmerited accuracy implied by frequent claims of 0.1% rises or falls detected.
But is this really the best our leaders on the national bridge have for navigating the good ship HMS UK and successfully avoiding rocks, passing waypoints and reaching manifesto targets?
All I can say is that, at organisation level, I’ve never yet met a CEO, whatever the sector, public or private, who takes much notice of such national data.
Indeed, as Charles Booth, famous UK shipowner, once wisely said “If numbers are trusted too much, they are more than likely to be more than usually dangerous”
A NATIONAL WATERSHED?
But what if such numbers, whatever their above failings, miss something much bigger?
What if a major change in national productivity is now happening, in plain sight but unrecognised?
Consider human progress to date:
- For 99% of his 200,000 (?) years on Earth, man was a bit-player, weaker and slower than many other animals – hence, to survive, he needed to use his brain, first to feed, warm and protect himself better
- In the following10,000 years, he invented new tools plus weapons which enabled him to win battles with all other species, including his own, and become ‘king of the planet’
- Over the last 2,000 years, his numbers grew exponentially to around 7 billion – most people worked on the land and lived in the countryside – most people were serfs, with lives a constant struggle, health poor, creature comforts rare
- However, starting only a mere 300 years ago, productivity levels rose rapidly, first with the Agricultural Revolution
- The Industrial Revolution soon followed – private sector manufacturing first grew rapidly to dominate economies – this created demand for ‘must have’ and then ‘like to have’ services provided by both private and public sectors, which grew so much that services now dominate those same economies
- At present, we’re also enjoying a Knowledge Revolution with brainwork having taken over from most brawnwork
- And a Leisure Revolution looms on the horizon – first a Keynesian 15-hour week for all, as he predicted, then full unemployment, much due to AI.
So, with such major changes ongoing, how come our macro national productivity measures seem stuck in the past, partial at best and unreliable, perhaps even dangerous ?
The current accepted view is that GDP in most developed economies has stalled – some say peaked, and that sclerotic growth presents a ‘productivity puzzle’
But what if said ‘puzzle’ is explained by our reaching a watershed?
- What if GDP peaking, if true, is simply because most people have bought most volume of stuff they need to meet most of their needs
- They don’t need more, just better, to improve on what already got ?
- Crikey, much on offer is even free nowadays!
- “GDP has a very hard time with free” said Hal Varian, Chief Economist, Google
Conclusions:
- Maybe future productivity measurement should focus not on more volume output, which gets counted, but better outcome value, which often does not?
- And what of a ‘National Happiness Index’, as used or proposed by other nations, as we move from wanting a better standard of living to a better quality of life – from materialism to mentalism one might say
- In the meantime, national productivity measures should not overlook the fact that machines, robots, computers and AI are already doing more and more of the national economic workload – not Labour
P.S. PUBLIC SECTOR UNITS’ PRODUCTIVITY MEASUREMENT
Whether at national or local level, this cannot be measured sensibly because most outputs have no price attached enabling their mix of outputs to be combined into one total volume figure i.e. cash.
Other measurement problems arise because most services are ‘free at the point of delivery’ which means demand is unlimited – hence input costs and service delays are the main management control factors whilst customer satisfaction levels, not demand volumes, are the most important outcomes.
This means overall measures of productivity, even just labour productivity, are impossible for a hospital or police force say.
So what public sector productivity measures exist versus are needed – external measures for the public, internal for unit managers:
- External :
- There are few measures published of any unit’s productivity performance whereby we, the public, can monitor their performance – we first need to be asked and then offered them regularly via the internet
- Those that do exist are usually infrequent and aggregates, mixing good with bad performers, so any external pressure is very limited at present
- Internal:
- Managers do have annual budgets but, in my experience, effort was devoted more to spending at least the full amount allowed this year lest it be reduced next year rather than reducing them
- Best-practice databases are needed to show where improvements are needed – not usually dismissed as ‘inapplicable’ because of claimed ‘differences’ between ‘them and us’
- Meanwhile, cohorts of inspectors and auditors proliferate, collecting all sorts of info but to no noticeable effect
- So nothing much changes, as usual
- And vital measures of process waste, inefficiency and overmanning continue to go lacking.
Enough said!
A HAPPY NEW YEAR TO ALL ON BOARD!
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NATIONAL PRODUCTIVITY MEASUREMENT
The result is that, every quarter, we read happy or gloomy headlines announcing latest estimates and trends for each of the above ‘Big Three’ stats – with unmerited accuracy implied by frequent claims of 0.1% rises or falls detected.
But is this really the best our leaders on the national bridge have for navigating the good ship HMS UK and successfully avoiding rocks, passing waypoints and reaching manifesto targets?
All I can say is that, at organisation level, I’ve never yet met a CEO, whatever the sector, public or private, who takes much notice of such national data.
Indeed, as Charles Booth, famous UK shipowner, once wisely said “If numbers are trusted too much, they are more than likely to be more than usually dangerous”
A NATIONAL WATERSHED?
But what if such numbers, whatever their above failings, miss something much bigger?
What if a major change in national productivity is now happening, in plain sight but unrecognised?
Consider human progress to date:
So, with such major changes ongoing, how come our macro national productivity measures seem stuck in the past, partial at best and unreliable, perhaps even dangerous ?