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Wednesday, 17 May 2017

Productiveness, Science and Politics

In the book that is promoted in the strapline of this blog, I emphasise the difference that several great nineteenth-century political economists made between productivity and productiveness. Millicent Fawcett, whose statue will soon be unveiled at Parliament Square [the first woman to so be honoured] was an advocate of the distinction, though it is not for her achievements in economic science that she is to become a permanent feature of Westminster.

Productivity means the measured output achieved in a set time from a defined economic activity, set against the cost of the measured inputs: for example, the cost of one hour of one worker's time, plus all the resources required to enable that worker to be effective, set against the estimated 'value' of the output achieved in that hour. I have often pointed out, that a high level of productivity can be achieved by workers who unpack and sell cheap imported clothing: but their work serves to increase the balance of payments deficit and, insofar as the shop's customers borrow money to buy the clothes it increase net personal debt. The turnover of the business that employs these people is included in the national income statistics, and if that turnover increases year after year this shows 'growth' of the business [and is a potential contributor to claimed overall 'economic growth'] while its long-term detriment to the economy is obvious.

Many modern Economists argue that it is not detrimental to an economy if the country buys cheap clothes from other countries, provided it sells them high-tech exports: and that can be true, provided the overall balance of trade is favourable. When the balance of payments is adverse to a country, however, as is the case of the UK, every extension of the deficit is potentially painful [and eventually some trivial import could trigger a catastrophic recognition by global commentators - perhaps in a rating agency - that the country's situation is irrecoverable under the present regime].

Hence comes the importance of productiveness, the business outcome that meets all the costs actual production, plus providing a significant surplus to fund expansion of the factories that produce the surplus, and/or t fund research to devise even better and more innovative products by the firm, and/or to pay high returns to banks and other investors in the firm who can allocate their enhanced income flow to investments in other firms that can have innovative new products and techniques to offer, and/or some of the surplus can be paid as higher workers' wages and increased shareholders' dividends, giving individuals the power to buy the new and improved products. The more money consumers can use at their discretion to buy the products that they most prefer, that will help to steer the next generation of investment into the most lucrative channels, leading to the most successful firms in the market to have the highest level of productiveness.

Most innovation requires scientific input: new applications of proven techniques, modification of techniques, new computer applications, and new materials. A country must have a sufficient output of science graduates and high-level technical experts to serve these activities; and that must be backed up by the highest level of research.

In the current UK election, some lip-service is paid in passing to a perceived need to maintain the science base on which much of Britain's surviving material export industry depends [and which could be threatened by massive tax increases on both firms and on key employees]; but there is a tendency by politicians of all parties to put in the 'too difficult' tray the whole issue of how badly the scientific community can be harmed by a crass approach to Brexit. This key aspect of achieving greater productiveness is not at all understood, anywhere in the political class. Oh dear!

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