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PRODUCTIVITY
Cost, productivity and impact on society
Cost, productivity and impact on society are all related. Cost is a very important parameter of economic
performance. Cost is a derivative of productivity. If cost is low ... it is a proxy indicator that productivity
may be high ... but not always.
Productivity is the single most important reason that modern society has potential ... modern society can
do things today that were impossible only a few years ago.
In numerical terms, I suppose this means that productivity went from one over
infinity (infinitesimal) to something measurable.
Cost has a relationship with productivity but is not a good proxy for it. There are several elements to a
cost calculation, including these:
- What was consumed
- How much was consumed
- The unit costs for items consumed
Some of the consumption may be labor, some materials, some equipment and capital. Productivity is a
function of the amounts of these things consumed for a unit of output. Cost is the derivative when the
amounts consumed are multiplied by their respective unit costs.
Low productivity low wage areas may have lower costs than high productivity high
wage areas. Corporate profits ... which are determined in large part by costs ... are
maximized by focus on production in the lowest cost areas. Social value, on the
other hand, may or may not be optimized by corporate profit maximization.
Agriculture is one of the few industries where the United States has retained a
position of global competitiveness. The productivity of American agriculture is
impressive, though there may be important questions about its environmental
sustainability. That aside, American agriculture produces enough food for all of
America, and enough for massive exports and does it using only 3% of the
population. In contrast most of the countries that are poor have a large proportion of
their population working in agriculture and not very much is produced ... not even
enough to feed the country's population. This is a crisis of productivity ... which
should not go ignored.
COSTS AND PRODUCTIVITY
Costs
Corporate profit performance has been optimized by a deep understanding of the behavior of costs. Cost
accounting and the analysis of cost behavior has a very long history in corporate management ... but its
equivalent is practically non-existent in the public sector and in the international relief and development
arena. Understanding costs is essential ... and simply this will materially improve profit performance in
the international relief and development industry.
The TVM Value Accountancy system provides a framework for understanding the behavior of cost. It can
show what costs are in a specific set of circumstances, and compare this with what might have been
expected and what has been achieved in other places, or at other times.
Productivity
Productivity is a function of cost ...
For many years low unemployment was seen as a way to improve economic performance and reduce
poverty ... but it rarely achieved much of either. The jobs that were created were unproductive jobs that
did nothing to create incremental value, rather the work diverted people from more useful activities to
absolutely useless activity.
Cost is a determinant of productivity ... or is it productivity that determines cost. This is more than
semantics and goes to the heart of the management of society and the effective use of science and
technology for the benefit of society rather than only being used for proprietary wealth gain. A strategy
that optimizes the former may well be different from one that maximizes the latter.
Cutting Grass
When I was in Ethiopia (in the 1980s) I observed women being employed by the
government to cut grass in the public areas of Addis Ababa using hand scissors. Very
many women were paid tiny wages to do this work and did it laboriously and with
great inefficiency. One person and a lawn mower could have done the work of 1,000
of the women. The value of the work would have been the same.
In one case one person was the labor cost. In the other case, 1000 people was the
labor cost. In a case like this there is the potential to improve the grass cutting
productivity by 1000 times ... but the productivity gain does not become a priority.
What are the reasons?
Perhaps it is because the leadership is using employment as a measure of success ...
and by doing this ensuring that the economy remains unproductive.
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