Productivity has become a very confused and abused term. This paper starts by discussing the confusing definition of Productivity. It then goes on to discuss how the developing country views productivity, giving examples whenever appropriate. The article then discusses what lessons the United States can learn from the Developing Country approach.

The Definition of Productivity

What is the most productive nation in the world? Often I get answers like Japan, Taiwan, or Korea, but in fact, the most productive nation in the world is the United States. Unfortunately, we in the United States can't be too proud of our standing because a lot of the answer is based on the way I asked the question. If I had asked, which country is showing the most productivity growth, the answer would be completely different. The answer changes from year to year. Other countries, like Japan, ask the question differ­ently. They ask, which country has the highest total factor productivity or the highest value added productivity, or which country is showing the most growth in these areas.

Now that I have totally confused the definition of produc­tivity, let me try to clear it up by going back to the definition. Productivity equals Output divided by Input. Output, for most companies and countries, is total quality sales (or trade). However the definition of input gets extremely confused. For example, in the United States definition of productivity, the input is almost always labor. For example, how many eggs, or loaves of bread, can the average worker purchase for one hour's work. Based on this definition, the United States wins out hands down over the rest of the world. But if you compare the number of loaves purchasable this year verses ten years ago, you're not going to find much change. That's because we're showing very little productivity growth.

Other common definitions of productivity include total factor productivity, where all resource inputs including materials, energy, machine time, etc., and not just labor are included as inputs in the calculation. Value added productivity is where you are looking for value added content increases, and so the input factors focus them­selves only on those resources that record value added increases, for example research and technology.

The United States has the highest total labor productivity of the world, but it is losing ground. One of the reasons it is losing ground is because labor is now less than ten percent of the value added content of most of our manufac­tured products while the materials content ranges around 50 to 70 percent. Even though the United States looks strong in labor productivity, we have now come to the point in our development where further focus on labor is causing

us to become misdirected. Making the employee work faster and harder will not significantly improve overall productivity (total factor productivity). In fact, it may even worsen the situation. For example, if we develop materials or machine inefficiencies, like always having plenty of materials to work on, or plenty of equipment to work with, then we are reducing our resource productivity in 50 to 80 percent of our resources, in order to improve productivity in less then ten percent of our resources. In other words:

IMPROVING LABOR PRODUCTIVITY WILL MOST LIKELY RESULT IN DECREASING TOTAL FACTOR PRODUCTIVITY

In the past, when labor content was large, the focus on labor productivity was important. However, today, we want our employees to work smarter, not harder. We want our employees to focus on the productivity of all resources, not just on the labor resource. We want managers to view materials that are sitting around in the plant and not being worked on in the same frustrated and irritated light that they would view employees that are sitting around and not working. Other countries of the world have recognized this problem, and they are trying to adjust accordingly. Let's take a look at some of the things they have learned.

To Be Continued

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