Productivity, Productiveness and Personnel

One of my professional institutes, the Chartered Institute of Personnel and Development [CIPD], is holding its annual bash in Harrogate: a sign that the nights are drawing in and Christmas preparations should be made, Among all the stalls promoting clever systems for improving the efficacy of the personnel function and the the productivity of workers there will be the usual mix of 'motivational' and 'experiential' presentations from the stage. Employers will be encouraged to mobilise the funds that are grabbed by the government in the tax called the Apprenticeship Levy, and no doubt that will push along the trend to encourage 15-21 year-olds to undertake pseudo-apprenticeships as provided for in the state's heavy handed allocation of resources. Meanwhile the government remains deaf to requests that the support for vocational programmes that are actually sought for by people over 24 years of age, who have had time to learn on-the-job about work, and assess what they need to know and to understand to move to a better position for themselves and for their employers: a place where their productivity can really improve.

This whole structure of wasteful spending allocations and cuts is deeply depressing, and I have railed about it on many past occasions.

All I want to do in this piece is to reiterate a frequent assertion: that in Millicent Fawcett's brilliant little book Political Economy for Beginners [1870] the point is made, very clearly, that there is a link between productiveness and productivity. Productiveness is the capability of an installation - one work place, or a whole factory, or anything in between - to deliver output. Productiveness is increased by making relevant investment: in machinery, in staff training and development, in the selection of superior input materials etc. Productivity is the measure of the resultant output, stated in the cash return from the sale of the output as compared with the cash expended in wages [of management and of operatives] to achieve the output. It stands to reason that productivity can be increased by offering higher wages: sometimes. Or productivity can be increased by penalising 'slackers', as under some dictatorships: sometimes, for a short time. Or productivity can be increased [or be reported to have been increased, for propaganda purposes] by Stakhanovites: so called after a Russian worker called Stakhanov who was held up as an example by Stalin's publicists because he was alleged to have increased his effort and effectiveness out of sheer enthusiasm for the regime and its targets under the five-year-plan. The whole of the proletariat was urged to emulate him, and thus bring on the socialist paradise much quicker than could otherwise be done; and, of course, eventually the whole thing was exposed as a sham and was quietly shelved.

The most consistent and effective way to raise productivity is by increasing the productiveness of the plant that is provided for the workforce to work with, and by raising their own ability and willingness to use the a resourcesvailable optimally.

It is patently obvious that in many democracies, and especially in Britain, productivity has 'flatlined': it has hardly increased across the whole of industry and commerce, for the past decade; and, if anything, it is declining. This is because - again, over almost the whole economy - serious investment to improve the productiveness of plant and people has simple not taken place. Fake apprenticeships do nothing to relieve this situation: and companies sit on billions of pounds of profits because they do not have enough confidence in the future to apply that cash to new machinery and really deep improvement of their processes and their people.

So: what can be done about that? More next time...

The Very Basics

It is some time since I simply stated the basic assumption on which this blog is based. Although it was one of the earliest principles of Political Economy to be established, I have repeatedly cited Millicent Fawcett's introduction to the topic in her Political Economy for Beginners, which was published for use in the elementary schools which all children were legally enabled to attend under the Education Act of 1870. The book can be accessed on line via the Library of the University of California. I recently commented that it is highly appropriate that Mrs Fawcett is to become the first woman honoured with a statue in Parliament Square, Westminster.

It is a truism today that when the British economy comes under examination, there is a focus on the deplorably low productivity of employment in this country. Just scratch the surface of any such discussion, and the shocking fact emerges that productivity has scarcely improved [and in some sectors of the economy it has declined] since the financial crisis took hold in 2007.

When she mentioned productivity, Mrs Fawcett also dealt with productiveness; which is virtually never mentioned at all in the current discussions. Yet for Mrs Fawcett - as for me - it is the very key to understanding the basic economic problem that bedevils the country.

Productiveness means the extent to which any economic activity yields a surplus [of output, that can be converted to cash] that is used for investment. The investment may be applied to expanding or updating the plant that yielded the surplus, or to training the people who work there, or to recruiting better-skilled people; or it can be invested in other sectors of the economy. There are three main ways in which such cross-economy investment is facilitated:
1. by firms transferring profits from one part of the complex organisation to another, or
2. by the surplus being given to shareholders or bondholders as dividends or bonuses, which they can reinvest at their discretion,or
3. by firms that retain some profit as reserves or receivers of dividend depositing the money with banks, which the banks then lend to firms with ideas for expanding or improving production.

In any of the above circumstances, there is a realistic prospect that many [though not all] of the investments will improve the productivity of the sector in which the investment is made. Sometimes an investment fails, because it is wrongly timed, or a mistaken choice of technology is selected, or inept individuals are selected to manage the investment; or for a dozen other reasons: and the more risky the investment is, while it may yield spectacular returns, it also carries a higher degree of probability that it will fail.

The crucial fact is that the only way to raise productivity [and production] in general is if the productiveness of the system is properly understood and a sufficient proportion of the surplus that is generated sector by sector is applied optimally to investment in those sectors that will contribute most to the  productivity and productiveness of the economy in the future. In simple terms, unless investment is the absolute focus of business thinking and of economic policy, the economy can not succeed optimally: because everybody in a decision-making role is looking in a wrong direction. Warren Buffet has become an international celebrity by persuading people to let him make investment decisions with their money; and by delivering excellent results [overall] for decades on end. Mrs Fawcett would have approved of him, strongly.

In Britain, especially since the crisis of 2007-8, profitable businesses have been piling up cash reserves and returning cash to investors [through special dividends and share buy-backs]. In the current circumstances, shareholders who receive these cash bonuses use them to meet current spending because real earned incomes have been tightening; rather than making their own independent investment decisions for the future. This situation has greatly been exacerbated by the combination of institutional and policy disasters that have meant that major investing institutions [such as pensions funds and insurers] are discouraged from making equity investments.

Economic policy has become a conspiracy against productiveness, rather than a stimulus to investment. That is contrary to the basics that Mrs Fawcett set out for elementary schoolchildren in 1870: and the shocking fact that cabinet ministers have no notion of the concept of productiveness is a wonderful measure of the intellectual regression through which Britain has descended since the nineteen-twenties, when fantasy Economics was allowed to supplant the truths of Political Economy: because simplified mathematical models were easier to teach than the complex inter-relationships that are exposed in Political Economy.

The Iron Lady Cast in Bronze?

In this blog a few weeks ago, I welcomed the report that a statute to Millicent Fawcett was to be erected in Parliament Square; the first woman so to be honoured. She was not a parliamentarian: her husband was, as a Liberal he was the Postmaster-General who made many innovations. The range and depth of Millicent's contributions to economic and social improvement, particularly during her long widowhood, more than justifies her place beside the Mother of Parliaments and Westminster Abbey.

It is now reported that the management of the Royal Parks, who manage the square, is minded not to allow the erection there of a larger-than-life bronze statue of Margaret Thatcher; on the grounds that Mrs Thatcher's family has not supported the project.

It is also  matter of open discussion as to whether the statue would become a favourite target for vandalism. Margaret Thatcher remains a highly contentious figure almost three decades after she tearfully quit the office of Prime Minister, after holding it for a decade during which her government had radically redirected politics and restructured the economy.

It will be obvious to anyone who has looked at this blog in the past [or who does a word-search on it at any time in the future] that I am of the view that Mrs Thatcher had no serious grasp of economic theory or reality, beyond the corner shop mentality of keeping the books balanced that she imbibed from her parents.

What was blindingly obvious when she became leader of the Conservative Party at the height of the inflationary crisis of the mid-nineteen-seventies was that the status quo was unsustainable. A Labour government that was dependent on votes in the Commons from minor parties went cap in hand to borrow a large sum of money from the International Monetary Fund in order to have a hope of stabilising the external payments position: and the conditions that were set on that loan would radically change the direction on national policy from that which had - generally - been followed by both Labour and Conservative governments for a quarter of a century.

Through the 'fifties and 'sixties a generation of Economists who could broadly be classified as neo-Keynesian had promised to be able to deliver policies that would give the country pretty-well continuous economic growth. When the politicians applied the policy, after twenty years it became a recipe for inflation of prices that stimulated increasingly vociferous demands for matching pay increases.

The International Monetary Fund's conditions on the loan required the British government [of whichever party was in power] to introduce Monetarist policies. In the 1979 general election the Labour Party was riven between those who felt obliged to impose the policies required by the IMF and the mass of trade unionists who hated that policy. The Conservatives accepted the policy, and some of them embraced it. The consequences of the Thatcher 'revolution; in the economy were immense. Unprecedented wealth came to those who operated in the financial services, especially in the south-east; while whole swathes of the country faced mass unemployment and dereliction as long-established industries and their underpinning assets of coalmines, steelworks, shipyards and railways were shut down. Many areas still have not recovered from the devastation that the Thatcher pack caused, and the whole economy has been set back by the crisis measures that were taken in 2007-9 to save the overblown financial institutions that emerged from the 'big bang' of 1986.

Even in 2020 there is a strong likelihood that a larger-than-life-sized bronze image of Mrs Thatcher could indeed be the much-painted target of expressions of hostility to the entire policy direction that 'Mrs T' embodied. The family and the Royal Parks are right to have reservations. The first woman prime minister should be honoured, as should Mrs Fawcett; but felings are such that the statue could well have a very mixed reception.

A Board of Trade?

Fifty hours before the polling stations open for the General Election, I first heard the suggestion from the Tory party that the Board of Trade should be revived, with the intention to drum up trade for the UK after Brexit.

A Liberal Democrat source was reported to have given the snap reaction that this was a seventeenth-century 'solution' to a twenty-first century problem. That was a clever comment, and it shows a fair knowledge of history; but it also shows that that source has not yet caught up with President Trump's thinking. As I have pointed out in this column recently, the policies that secured Mr Trump's election victory can be characterised as reminiscent of some that flourished in the seventeenth-century. I have suggested that Mr Trump has thought on parallel lines to those of the great J-B Colbert, who built up in the French economy massively in the reign of Louis XIV. But I explicitly said that I had no apprehension that Mr Trump was consciously citing mercantilist writers: my view is that in the present conditions of global trade and technology it is entirely rational to form policies that have resonances similar to those that worked triumphantly in the mid-seventeenth century; and through the eighteenth century, in those countries where they were intelligently applied.

Britain had a Board of Trade for centuries. It was allowed to become dormant - as a committee - in the very early twentieth century, though it was not abolished; and successive Archbishops of Canterbury were surprised to find that they were members of the Board which never met. The title President of the Board of Trade was given to a member of the government who bore some responsibility for trade matters|, including the supervision of the insurance industry until Gordon Brown's restructuring of financial services when he was Chancellor of the Exchequer. Ancient titles, including Chancellor of the Duchy of Lancaster and Lord Privy Seal, remain to this day to be allocated to 'spare' ministers whose duties are determined on a short-term basis by the Prime Minister.

The new Board of Trade, if it is established, is seen as a body which will find customers for British products and services in the post-Brexit world; and seek 'inward investment' to the UK. The second of these objectives indicates that the little thinking that has been applied to the concept follows on from the second most destructive of the policy imperatives that was laid down by George Osborne. The ruinous policy of austerity [which Mrs May implemented at the Home Office in the reduction in the police force] was Osborne's number one priority. Osborne's number two objective was to attract 'inward investment' to the country; and its consequence was to sell infrastructure and the companies that operate it [such as water, power supply and railways] to foreigners. For a one-off sum flowing into the British economy, control of the firms and the income streams that they attract go to foreigners; and thereafter British consumers pay tribute to the alien owners. Even more damaging was the succession of innovative firms that had established now intellectual property that were sold to foreign owners before they had even begun to make significant profits for UK investors. Those investors, and the inventors themselves, were well-paid for surrendering their rights to future returns from the companies that could make vast amounts of money for their owners: to whom British users of the products and services would have to pay high retail prices.

Even the Econocracy* have recognised that Britain's economy is blighted by low productivity. This blog has repeatedly emphasised that productivity follows on from productiveness. As was emphasised in Millicent Fawcett's Political Economy for Beginners [1870] productiveness is the situation where firms make profits which they can invest in improving their products and processes and thus raise the productivity of their businesses. That key fact has been ignored by Economists since 1890, to the massive detriment of the economy. Selling the profit stream that comes into a business to a foreign firm gives the aliens the option to invest where they see fit, and often does nothing to enhance British productivity. So it looks as if the Tories have found yet another way of despoiling the economy, at no benefit to the population.

* For an explanation of ECONOCRACY, refer to the website of the Manchester Post-Crash Economics Society.

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!