Friday, November 13, 2009

The business of productivity

Recently, the Jamaica Productivity Centre released a productivity report on the period 1972 - 2007 in Jamaica, where it showed that over the 35-year period the labour productivity of the Jamaican worker declined by 1.3 per cent per annum. It further stated that at our current rate of growth it would take 40 years to get to Barbados' current per capita
GDP level.

What surprised me about the report weren't the findings, as anyone who is even slightly aware of what is happening in Jamaica will know that our productivity and growth levels are at the bottom of the pile. What I am surprised about is the reaction to the information, as if "Wow, I didn't know we were doing this badly". It seems as if everyone has forgotten that the last time the centre reported the results were similar.

Consistent decline
The fact is that Jamaica's productivity has always been in consistent decline since the 1970s, as I illustrated in my book, with the exception of the decade of 1980 to 1990, when the Total Factor Productivity (TFP) - productivity measurement factor - was 1.0. In the decade 1960 to 1970 the TFP was 2.4, 1970 - 1980 it was minus 3.8, and in 1990 to 2000 it was minus 1.7; all measured as annual averages.

During similar periods, this was reflected in the GDP growth numbers. These periods are 1962 to 1971, when accumulated GDP growth was 68.5 per cent (average annual of 6.9 per cent); 1972 to 1981, accumulated GDP growth of minus 9.5 per cent (average annual of minus 1 per cent); 1982 to 1991, accumulated GDP growth of 19 per cent (average annual of 1.9 per cent); 1992 to 2001, accumulated GDP growth of 8.9 per cent (average annual of 0.9 per cent); and 2002 to 2007, accumulated GDP growth of 9 per cent (average annual of 1.3 per cent.

One could ask the question why we had growth during the 1990s if TFP was negative. The answer is simply that we were able to grow because we borrowed to consume and create economic activity. So today we are faced with a situation where we have to pay back for all the money we borrowed to consume when we were not producing the means for our
own consumption.

This is at the heart of all our challenges. The question then is how we improve our productivity so that we can enjoy real economic development and all the benefits that come with it. First I think we need to get an understanding of what productivity is, as it seems obvious from the policies that our leaders have pursued that they really have no idea of what productivity really is.

So for the benefit of our leaders, productivity can be defined as "the rate at which a [country] produces goods or services, in relation to the amount of [resources] needed" - adapted from Encarta.com. In other words if someone employs $100 worth of resources and produces $200 worth of goods yesterday, and today can employ the same resource value and produce $250, then productivity would have increased by 25 per cent. What Jamaica has been doing is producing less with the same amount of resources, which means that more resources are needed to produce the same amount. But ironically our consumption has been increasing while our production has been falling. So in order to consume more we need to borrow from others who are producing more than they consume and end up with reserves. In effect Jamaica is a parasite on the world's production.

What of technological improvements?
But some may say that during the 1990s especially, we had improvements in technology, as more computers were put to use, the Internet came into being, and more persons had cellular phones. So if we saw an increase in the productive tools being used then obviously productivity must have increased. And some people have tried to argue with me in that manner, as Ripley would say "Believe it or not".

First, we need to understand that if we look at the use of technology in Jamaica, most of it is geared towards personal consumption, in my own informal analysis, rather than employed in productive use. And the reason why we are able to consume these productive tools is that we borrowed the money to consume them.

Secondly, and in my mind more importantly, we need to understand that a computer does not work by itself, nor does a new state-of-the art piece of machinery. All productive tools require a productive mind behind them in order to be the most productive they can be. So even when the police talk about the number of guns on the road, that is not what causes the crime. What causes crime is the number of criminal minds behind the guns. Similarly, when we talk about the absolute amount of debt, that is irrelevant without looking at how effectively each dollar of debt is used.

So the real challenge we have when it comes to lack of productivity is not how much foreign investment we attract, or how much agricultural land is in production, or how much money is pumped into the economy. The real problem of productivity comes back to the social issues. The problems relate fundamentally to how productive our people are. And so when we see a situation where 50 per cent of students leave secondary school without one subject, then is it any surprise that this translates into Jamaica having the lowest productivity rate in the region? Can we be surprised at our low rates of productivity when our citizens spend their days demanding justice from both the police and the criminals? How can people be productive if at a basic level they have to worry about their security? How productive can people be if their days are caught up worrying about their missing children?

And if our citizens cannot be productive, then what sense does it make to have the most efficient tools of productivity? We also need to remember, and everyone is seeing it now, that economies like Jamaica's thrive on consumer spending, and it is a known fact that most spending occurs within the lower-income classes, so that if they don't earn a decent wage the economy will stagnate. This is exactly what is happening as real purchasing power, particularly in the low-income groups has fallen significantly year over year.

So in the final analysis when we speak of productivity and growth it would do us well to understand that this is fundamentally a social problem. My own view continues to be that the failure of Jamaica's economy starts with our failure to protect and advocate for the fundamental human rights of our citizens, and unless we change this then we will persist on a path of economic and social failure.

The great USA that we look up to starts its constitution with the words "We the People of the United States, in order to form a more perfect Union, establish Justice." (You will note that Justice has a capital J). The fact is that unless we start to realise that all our economic and social challenges come from the inability to provide the Jamaican citizen with justice and a protection of his/her basic human rights, then I guarantee that next year this time, and into the foreseeable future, we will be talking about the decline of both the Jamaican economy and values and attitudes.

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