Do not believe all that you read

Chicago economist William Strauss explains how rising worker productivity has led to the situation where manufacturing occupies much less of GDP than it once did.

"In 1950, the manufacturing share of the U.S. economy amounted to 27% of nominal GDP, but by 2007 it had fallen to 12.1%. The greater efficiency of the manufacturing sector afforded either a slower price increase or an outright decline in the prices of this sector’s goods. As one example, inflation (as measured by the Consumer Price Index) averaged 3.7% between 1980 and 2009, while at the same time the rise in prices for new vehicles averaged 1.7%. So while the number (and quality) of manufactured goods had been rising over time, their relative value compared with the output of other sectors did not keep pace. This allowed manufactured goods to be less costly to consumers and led to the manufacturing sector’s declining share of GDP."

Some go on to suggest that this rise in productivity also cost jobs ... but efficient productivity (as we see above) results in lower prices for goods ... which means that more people can afford them .. which changes the size of the market... which creates jobs.

I am not saying that there is not a link ... just that the link is complex and multi-dimensional

Don't believe all the blogs you read ! (Only this one of course)

Innovation Areas

It is obvious that some technologies lend themselves to, and lead to, innovation. Electronics, for example, has seen massive changes over the last couple of decades ... there are so many products available now that were not even conceived 20 years ago.

Yet, in many other areas the pace of change is astonishingly slow.

About 50 years ago, the internal combustion engine (ICE) and auto design led to fuel efficiencies of about 40 miles per gallon. Since then we have made improvements ... but incremental and evolutionary ... most cars are still in that 40 mpg ballpark.

Is this lack of innovation and change due to the existing technology being so good ... or a lack of enthusiasm by the manufacturers/designers ... or the fact that fuel has been relatively cheap and thus there has been little pressure from consumers for greater efficiencies.

Probably all of these have had an effect.

It will be interesting to see how the changing pressures and priorities (which themselves change the political and economic dynamics) will affect the rate of development of better ICEs ... or better alternatives with the current development of electric and hybrid vehicles.

I don't want to get drawn into the debate about 'better' (well not in this post at least)... here I am only interested in the development of more mpg (or some equivalent measure).

Let the innovation begin.

Of course its important ..

In Australia according to the third annual Telstra survey – the Telstra Productivity Indicator 2011 – 76% of organisations regard productivity as important, but only 24% actually measure it (and we all know that if you don't measure it you don't understand it, and if you don't understand it, you can't improve it.)

When it comes to the public sector, that 24% drops down to about 14% of senior managers measuring productivity.

I am not sure these figures require any comment .. they are simply too damning in their own right!

Population Grows

A higher population is not necessarily a more productive population.

Once, agriculture and industry needed labour ... and many developed countries imported labour to keep things moving forward.

Technology has changed all that. Now production rises as a result of better technology, better systems, creativity and innovation - not as a result of more labour.

In fact a rising population simply means more mouths to feed.

A number of countries with rising populations are about to face a crisis ... the next couple of decades will see them struggle to find enough food, water and shelter. They have to find ways of educating their current population to restrict the size of families ... and curb the growth that will undermine their growing economies.

The best way to do this is to 'emancipate' women, put them into the workforce, educate them, enrich their lives and make them wealthier.

In some countries, this doesn't seem too likely.

Can we have some more, please, Sir?

Food security is going to be a major global challenge over the next few decades. The world population is still rising ... yet the percentage of land given over to agriculture is falling.

For example, a recent policy summit in Melbourne was told that that while Australian farms are capable of feeding the nation until it more than doubles in population, agricultural productivity is in decline and the effects of a looming food crisis overseas are already being felt in rising grocery costs.

Many countries are in a far worse state than Australia ... and shortages are likely to lead to higher prices then perhaps political instability and even mass migration.

We (collectively) have to find ways of significantly increasing agricultural productivity. Our past record is good ... but the problem gets ever more acute.

In the meantime, perhaps you'd better put a few extra tins in the cupboard!

NHS crawls into the black

A report from the UK Office for National Statistics shows National Health Service productivity rose by 0.7% in 2009 compared with a 2.7% fall from 1995 to 2009.

Any commercial enterprise is likely to have 'gone under' given this record.

So, why is the NHS finding it so hard to be more productive.

I don't know ... but I do know from my experience across a whole range of sectors that it CAN be more productive.

Will the recession-induced cuts help? Possibly. A crisis can be a useful motivator ... but it depends on whether the will is there to identify and implement real productivity changes ... especially where these are potentially politically unpopular.

We all love the NHS .. but we could surely love an efficient NHS even more!

Is higher labour productivity always good?

Statistics New Zealand said labour productivity grew 3.7 per cent in the year to March 2010, the strongest increase in 10 years.

However, this was only because labour input dropped more steeply than output during a period of recession. (This is a common phenomenon which is why productivity figures are unreliable going into or out of recession.)

Paid hours, which Statistics NZ used to measure labour input, dropped 4.3 per cent, the steepest fall since 1992, while output shrank 0.8 per cent.

The drop in labour input was driven by the manufacturing and construction sectors as well as a substantial and widespread decline in self-employed hours, Statistics NZ said.

For the period 2006 to 2010, labour productivity growth was 0.9 per cent, less than half the 2 per cent average since 1978 and a third of the rate prevailing between the mid-1980s and the end of the 1990s.

However Statistics New Zealand notes that the 2006 to 2010 period does not cover an entire peak-to-peak business cycle.

The figures cover about 80 per cent of the economy. They exclude parts of the public sector where productivity is hard to measure, notably in health, education, government administration and defence.