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The Productivity Myth

20 Aug 2012

Over the past few weeks, I’ve pointed out how often we have to try to challenge rhetorical nonsense about the economy that spills from the mouths of The Coalition and their business allies. Blinding rhetoric, too often, substitutes for truths about the economy. And one of the particular myths we hear, time and again, is the idea that workers are not productive “enough”. It’s not true.

Ian Verrender had a terrific column over the weekend that should not be missed. Titled “Lies, damned lines and productivity”, Verrender leads right off with a quote about the power of propaganda from Joseph Goebbels and, then, hits the issue:

For the past few years, we’ve been bombarded by a constant theme from the business lobby groups: Australian productivity is slipping and unless we have a more flexible labour market and governments reduce regulation, we’ll all be ruined.

There’s a sliver of truth to the argument. Productivity indeed has plunged. And labour productivity has slipped in recent years. But the real culprit in the great Australian productivity decline is capital, not labour. It is our managers who have let us down, rather than our workforce. And in any case, all the statistics have been thrown completely out of whack by the massive investment boom in our resources sector. [emphasis added]

That sentence bears repetition and should be branded on the chests of every politician or CEO who regurgitates productivity myths: But the real culprit in the great Australian productivity decline is capital, not labour. It is our managers who have let us down, rather than our workforce.
Verrender, then, goes on to explain what productivity actually means, coming to another golden nugget:

What is often ignored in this heated debate is that, outside of work hours, labour usually is referred to as consumers. Your workers are also your customers.

Reduce their income and eliminate their job security and you may well end up selling less product. On the other side of the ledger, productivity is also likely to suffer. Let’s face it, cutting wages and conditions is hardly an incentive to work harder.

This is a point that I have made in connection with the cries for austerity around the world: people are dead broke, or so stressed out over their future employment that they don’t want to buy. The problem is not government deficits or debt, another myth that has grabbed hold of brains of political leaders all across the planet. It’s that the Great Financial Crisis, and the years of greed on the part of bankers and other financial mandarins leading up to the Crisis, triggered a sharp fall-off in consumption. Leveraged to the hilt and with dwindling incomes, people pulled back—and stopped buying stuff.
Verrender’s point is right on the mark: if you hammer workers by cutting wages in some blind, and misguided, pursuit of higher productivity, you end up hurting the economy—and society as a whole.
Verrender, then, moves to the obvious culprit in any productivity debate:

Capital productivity on the other hand, has turned negative, wiping $43 billion from national income. Why? Well, a couple of reasons. One is that much of the enormous recent investment in new machines and building new mines has yet to generate an income. And so as that new plant and equipment starts churning out exports, a great deal of our productivity ”problem” – both for labour and capital – will be solved.But the report also highlights what must be an uncomfortable truth for Australian managers, particularly in our resources sector. It reckons a large portion of the cost increases in our mining sector is down to poor management. With a resources boom of unprecedented proportions, the scale and magnitude of the projects under construction has stretched management capabilities, many of whom have little experience with these mega projects. [emphasis added]

The workers are not to blame? Huh. Fancy that.Which of course leads to the obvious conclusion:

Our productivity ”problem” will best be solved through investment – in new and more efficient machines and in education to produce more skilled workers and better managers – not with a slash-and-burn approach to wages and conditions. That’s something you’re unlikely to hear in the coming propaganda war. [emphasis added]

It would be nice if we could have a realistic debate about productivity. Any takers?