Productivity is more of many intangibles

Nick Schulz has an interview in TCS (How Powerful Is Productivity? (05jn17) with William Lewis, the director emeritus of the McKinsey Global Institute. “His recent book, The Power of Productivity: Wealth, Poverty and the Threat to Global Stability, is based on extensive economic, political and sociological study of thirteen countries over a dozen years conducted by the Global Institute. ”

productivity is the best single measure of what leads to differences in economic performance. Even though GDP per capita is the all-encompassing measure, GDP per capita is determined primarily, almost entirely, by productivity. People basically work in order to have a place to sleep and something to eat and so on and so forth. The huge differences around the world are the efficiencies with which they work — their productivity. So it is the power of productivity that determines what the global economic landscape looks like and because there are such differences, we have quite a number of severe issues that face us today.

what has happened over the last 60 years is that innovations have occurred in retailing and new formats of much higher productivity then these former formats have developed. The most obvious being the so called big box epitomized by Wal-Mart, which has productivity something like five times the productivity of a normal general store of the 1950’s.

But more importantly, you can take the US workforce and train it on the job with sufficiently skilled managers to reach within a hair’s breadth of the highest productivity in world in these industries. That pattern — and of course that conclusion back then coupled with the fact that the US wasn’t behind — really got a huge amount of attention and really undermined the initial economic platform on which Bill Clinton was elected.

And then, sort of the clinching evidence was we then looked at some other industries. We compared the construction industry in the US to construction in Brazil and found that in Houston, the US industry was using Mexican agriculture workers who were illiterate and didn’t speak English. So they were not any different than the agricultural workers who were building similar high rises say in Sao Palo. And yet they were working at four times the productivity.

The no man’s land that the poor countries have gotten into now is that they’ve gone to big governments before they can afford it and before informality [corruption] has been phased out or driven out by high productivity operations, so they have both big government and informality. And that’s a recipe for disaster for the reasons I have explained in terms of the competitive dynamics at the micro level.

There is so much here. Some of the ideas and takeoff points include:

1) The Japan supremacy myth of the 70s’ used as an example of averaging to misleading conclusions and also shows how people pick out things to support false conclusions. (China is now replacing Japan for those who like to promote this myth)

2) The US GDP, as a measure of productivity, also shows how the wailing and gnashing of teeth about the education system is misplaced. The ‘education system’ is producing what it is asked of it: productive workers. But this ‘productive worker’ is not what many seem to think it should be. So the problem is not in the education system but rather in the perceptions of those who don’t understand what is needed for a productive worker.

3) That productivity is a matter of structure and management. These start with a society of laws that respect and protect ownership and due process for everyone equally. It then goes to management and the perceptions of human values. Watch the Lord of the Rings DVD extended edition appendices for an excellent example of this, from New Zealand, even.

This seems to tie in with a recent Krauthammer column on immigration integration. What makes the US special is that it integrates immigrants into its culture. They learn the language of the land (English) and its values and its culture. That makes them more successful here than if they immigrated to any other country on the planet. The ability to integrate immigrants is a rather unique US attribute and it is perhaps one of those things that leads to the health and welfare of the country as measured by productivity.

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