Hope I’m wrong!

The Taiwan government is planning to spend NT$36 billion (US$1.12 billon) over the next nine years as part of its Productivity 4.0 project to elevate Taiwan’s status in the global supply chain, Taiwan president Ma Ying-jeou said recently.

Over the period, the government will spend NT$4 billion (US$124.4 million) each year on electronics/information technology, metals, transportation, machinery, foodstuffs, textiles, distribution and agriculture, helping to build smart factories to realize massive but diversified production, Ma said.

It is hoped that by 2024, the per capita productivity of Taiwan’s manufacturing industries will have grown 60% compared with last year to NT$10 million (US$310,900), said the president.

Now, if I were a betting man (which I’m not) I would put money on failure … though I hope I’m wrong. Government’s job is to build infrastructure (especially the right macroeconomic climate) and then ‘get out of the way.

Choices

All companies have limited funds to invest in new projects. (Well, perhaps Apple has all the money it needs.)

And this inevitably means that those companies have to prioritise certain projects over others.

Unfortunately too many firms seem to concentrate on physical assets -new buildings, new technology, new equipment – and forget about new knowledge and new skills.

Too few business leaders believe what they say when they utter those words “Our people are our greatest asset”.

Start investing

Businesses seem to be unwilling to invest in new facilities and even new skills for their employees.

I think part of the reason is that investors have become used to the rollercoaster of the tech boom and bust cycle. 

On the one hand, many expect new technology to keep arriving and providing them with relatively cheap productivity gains.

Others are reluctant to invest as they see new tech as a ‘fad’, rather than as a proper contribution to improved performance. 

It is time to see productivity improvement as a ‘journey’ not a destination. Like all journeys, it needs planning snd preparation … but above all it needs a clear route. It also needs energy and focus – it won’t just happen.  And it needs resourcing – in needs the development of infrastructure and skills, of thought and ideas.

Let’s focus our energies, and our investments, on improving productivity – we can make the difference.

What about Google and Yahoo?

Last week I talked about the problem of national productivity measurement when we fail to count lots of ‘intangibles.

Musing further, I got to thinking  about companies like Google and Yahoo who give away many of their services for free (at least to the end user at point of use). Google and Yahoo put lots of energy and resources into these services – and they clearly benefit the US economy – but they don’t get counted in the official GDP figure.

This situation clearly affects the US – but also lots of other developed countries.

We need to think again about how we measure national productivity.

Balance the right factors

When coming up with the Balanced Scorecard concept, Kaplan & Norton reminded us of the need for balanced measurement – focusing on a number of important factors.

Yet when we measure and discuss national productivity, it is almost always in the context of a single measure – GDP per employee or employee-hour.

There is a growing view that this measure is not just ‘unbalanced’ but out-of-date.  It is a measure very suitable for older, manufacturing-based economies but fails to recognise the nuances of knowledge-based economies.

It ‘counts’ tangible assets within GDP (cars, widgets, fridges, etc) but does not gather data on intangible assets like patent portfolios, bright young people and so on.

Financiers and investors have moved on.  When they value a start-up, they do not value the physical assets –  but the intangible, intellectual assets and intellectual property – the ideas.

So, perhaps we need to catch up – and establish measures of national productivity that are suitable for this – and future – centuries.

Good for whom?

China and India are arguably the world’s best performing economies over the last decade – both have seen large productivity gains.. Yet, China has managed to address poverty more effectively than India.

According to the World Bank, the rate of extreme poverty in Chinas declined from 84% in 1981 to just 12% in 2019.  The comparable decline in India during the same period was from 60 to 33%.

India’s population have put great confidence in Prime Minister Modhi.  He has talked up good solutions – nut now is the time to execute. India’s poor are relying on him to turn higher productivity into a fairer society.

Do more than ask!

Lots of national governments – and other agencies-  make calls to their populace for a productivity revolution.  They are simply urging people to work harder.

Bu we know that productivity revolutions do not occur because people work harder or when people work longer hours (despite what Jeb Bush might think).

So, a ‘call to arms’ is unlikely to be effective.

Governments need to do more – to build  a strategy (or at least a plan) for productivity development involving policy and infrastructure elements (macroeconomics, regulation, transport, telecoms, education, skills). They need to build a potential for higher productivity which enlightened firms can exploit. Individuals might then respond with higher productivity.

A Greek Tragedy?

If Greece is forced out of either the Euro, the EU or both – there are clear implications for theGreek economy. But will there be any implications for underlying productivity. 

Well, there is some evidence – ironically from Greece itself – that national confidence and national pride do have a significant impact on the productivity of workers.

When Athens hosted the Olympics in 2004, there was a surge of national pride and of ‘engagement’ of the workforce with their country.   This resulted in both a sense of well-being for the workers and in a boost to the economy.

This suggests, unfortunately, that  exit from the Euro might have a negative effect on productivity and the economy – perhaps resulting in a kind of ‘vicious spiral’ of decline in the economy and national confidence.

Where did it all go wrong?

When I was a teenager (warning – ancient history lesson coming up!), we were regaled with promises of the paperless office and factory automation – leading to a life of leisure (and luxury).  Now people work longer hours than ever before – and many are never really off duty – being permanently connected to the office network.

Where did it all go wrong?

This is one of life’s great productivity paradoxes – increasing automation results in more work for people, not less.

The long-term picture

There are often ‘quick fixes’ we can apply to problems. There are also often improvements we can make to get yield up or improve throughput.  The problem is that some of these can have negative impact over the longer-term.

Global agriculture seems to be caught in this trap.  Yields per hectare are rising.  Good!  With a growing global population, this is not only desirable – but essential.

However, there is increasing evidence that underlying soil performance is falling.  This means we need more and more ‘treatments’ to maintain yields (putting costs up) – but it also means that there might come a time when the soil refuses to support effective growth.

So, though we might want to improve agricultural productivity, we need to be wary of the timescale over which we expect improvement to occur – and be sustained. Traditional agricultural practices managed to maintain soil quantity and slowly improving yields over centuries; our need for growth has resulted in massively increased yields – but for how long?