Wednesday, November 22, 2017


In the UK at the moment there is much talk about the problem of productivity.  The mainstream media has been repeating a message to the effect that the UK has fallen behind in its productivity.  But what is productivity, and why is it considered important to politicians?

A technical definition of productivity is 'the rate of output per unit of input'.  It leaves us none the wiser, because unless we define output and input, we have no idea what we are talking about.  Starting with input: let's imagine we are looking at a person's 'productivity'.  From the point of view of an employer, the 'input' is what it costs to employ and maintain that person; in other words, the resources that the employer has to pay for in order to have that person do their work.  Moving on to output: output is often talked of as the value of things produced.

This is one of those ideas that sounds great in principle, but in practice starts to fall apart.  If I tell you that Bert costs £10,000 a year to maintain, but produces £20,000-worth of goods, you might immediately see a ratio of 2:1, and say 'great: Bert is producing twice her cost'.

But we haven't analysed how Bert is doing this.  What if she is failing to see her family, failing to eat properly, and sacrificing her mental health in order to produce those goods.  None of this will appear in her productivity ratio, because it is hard to put an economic value on wellbeing.  So productivity cannot tell us anything about wellbeing.  Furthermore, our £10,000 only includes the direct costs of employing Bert.  We haven't taken into account what her parents spent in helping her to grow, what her friends spend in helping her to function: in other words, our direct cost approach completely ignores many of the real resource inputs for an activity.  And finally, what if Bert is producing guns for export to an oppressive regime?  Do we attach the same value to that?

The above highlights three problems with productivity calculations:

1. They ignore wellbeing
2. They ignore the true cost to society
3. They are amoral in that they can't discriminate between good and bad activities

Productivity calculations can vary.  National data, for instance, sometimes just calculates average output per individual.  On the most basic level, this is just estimating the total value of stuff produced (i.e. total national sales), and dividing it by the number of people. 

Imagine total stuff produced (economists call it GDP, Gross Domestic Product) is, say, $3 trillion (that's 3 with twelve zeros).  Imagine also that the total number of people is 75 million.  $3tr/75m = $40,000 per person.  Each individual 'produces' $40k of output.  This is roughly the position in the UK.

So when the government says it wants to increase productivity, assuming a stable population, it usually means it wants to increase the total stuff produced, or GDP.  To increase the amount of billing we all do to each other.

This doesn't take into account, as we mentioned above, wellbeing, or the true cost to society, or WHAT we are actually billing each other for.  As far as the government is concerned, we could all be drinking, smoking and gambling our way to higher GDP.

Those who say so, assert that higher productivity implies more successful economic activity, and more successful economic activity implies greater wealth, and greater wealth implies a better standard of living.

There are a host of assumptions implied in that conclusion, including the following:

1. When someone bills other people more, they are succeeding
2. Personal wealth is to be measured as success in gaining an inflow of money
3. Personal wellbeing is to be sought via wealth

If you happen to believe these three things, then productivity ratios are more likely to mean something to you.  You may wish to monitor them in order to control your wellbeing.

However, if you think success, wealth and wellbeing lie in places other than money, then you may wish to focus on other statistics.  Examples of statistics that take a different view of wellbeing are already produced by the Office for National Statistics.  Please see the following link:

When you review the data around the above link, you may notice something strange.  It goes like this: in the last year or two, while productivity may have been falling, wellbeing may have increased.

Perhaps this should make us think again about the assumption that higher productivity is good per se.

Think about it.  Are you at your happiest when you are working hard to charge other people for what you do (being 'productive' according to the government), or when you are giving, helping others, being creative and exploring your world?  I'm sure your view will differ depending on your life philosopy and politics; but it's a question worth asking.