Dangerous Numbers?

• He used such numbers to help pioneer reforms such as the introduction of old age pensions and free school meals which, ultimately, led to the creation of the welfare state

• So, with Booth’s quote in mind, consider current measures of national productivity which indicate a widespread economic slowdown
• Many questions arise including:
  • Why do most developed nations apparently suffer slow productivity growth, especially given their economies are structured differently?
  • Why is Japan always bottom of G7 productivity league tables when it’s famous for highly productive industry?
  • Has globalisation and free trade between nations had something to do with it despite both being thought to improve overall productivity levels, not reduce them?
  • Given the widespread slowdown apparently started well over a decade ago, not just recently following Trump’s tariffs, is there some ‘elephant in the room‘ that might explain the puzzle?
  • Are the measures themselves suspect?
• Sadly, good answers prove elusive, being unable to dig down to any useful detail – so one has to wonder what faith governments and their expert advisers put in them when policymaking 

• Consider the national productivity ratio, which should be:

                                           ALL NET VALUED OUTPUTS

                                           _________________________________

                                           ALL GROSS COSTLY INPUTS

• ACTUAL OUTPUTS:
  • GDP, not revenue or profits, is the official measure used for any nation’s outputs from all its sectors but:
    • How do you value the output of the public sector e.g. the UK’s Army, NHS or DVLA ?
    • Or its white economy (e.g. house or charity work) and black economy (e.g. moonlighting, crime)?
• ACTUAL INPUTS:
  • Numbers of people or hours worked are the only national labour inputs counted
  • Uncounted costly inputs are thus:
    • The skills and experience of those people 
    • Major capital resources – not only factories and offices but also automation, ICT and AI

• So official national productivity ratios are actually just labour productivity ratios
• Hence, they offer only a partial picture of the overall national productivity scene
• They’re also error prone – ONS officials admit they have to employ estimates and assumptions to develop their quarterly statistics, especially for GDP, and then amend them weeks later when more accurate data is collected – so who knows what ‘error margins’ are involved
• Nevertheless, claims of a 0.1% change, say, between quarters always makes media headlines
• The fact is, such national stats are aggregates of the performances of sectors/ regions which are aggregates of organisations, large and small – hence good and bad performers are mixed together, hiding one with the other and identifying neither
• Armed with such data, one wonders how governments can decide both where best to invest billions of tax-payers’ money and then monitor whether they got things right, or not?

• In our view, useful productivity measurement can only be done at organisation level – and even then, not everywhere
• All organisations in all sectors need a ‘balanced scorecard’ of performance measures, not just one purportedly covering everything
• They already measure their financial performance levels – the law requires them to do so
• They should also regularly measure their customer satisfaction levels, employee motivation levels and, especially nowadays, use of corporate knowledge – many do not
• Last, and not least, they should monitor their productivity levels, not just at organisation but also process and task levels – in particular, by measuring major areas of waste, inefficiency and ineffectiveness – readers will know we have offered the detail in past posts

• But back to national level 
• What if the sclerotic growth picture currently painted is roughly right?
• If so, why so?
• Could there be an ‘ELEPHANT’ explanation that nobody has spotted?
• We know that any national productivity improvement lifts a nation’s SoL (Standard of Living)
• We also know a variety of indicators all signal that the SoL of most developed nations has stalled over recent years
• But maybe that’s because QoL (Quality of Living) is overtaking SoL as the priority for most of their people
• The success of productivity improvement has undoubtedly resulted in a widespread rise in the SoL of most people in most developed nations over the last two centuries but this ‘Age of Materialism’ may have peaked
• Many of their people have already got most of the tangible stuff and services they need and now simply replace when it wears out, not buy extra stuff on top
• If so, this would significantly reduce GDP, and so national productivity, growth rates
• Instead, developed nations may be experiencing the early days of an ‘Age of Mentalism’ when valued outputs are unmeasurable outcomes with unlimited growth potential – a ‘leisure and pleasure’ revolution indeed
• Their people have climbed the first rungs of Maslow’s ‘hierarchy of needs’ and moved on to boosting intangibles for their lives viz:
  • First, their family and friend relationships and personal achievements/ development
  • Then, their concern for others and the enjoyment of nature
  • All enhancing their wellbeing
• Years ago, John Maynard Keynes presciently said: “The idler of tomorrow will nourish personal relationships with shared experiences and passions – learn to play the piano, discover the wealth of literature, appreciate art, acquire knowledge“
• None of such intangibles would be clocked by GDP or any national productivity ratio

• So beware some pictures painted by national measures
• They may be missing something important