Productive and Destructive Productivity

(Adapted from mintzberg.org/blog, 26 March 2015)

I’m a Canadian who got tired of listening to economists telling us how unproductive was our economy. This was going on while our economy was doing exceptionally well, thank you, far better than the exceptionally productive American economy. Can there be something unproductive about productivity?

Yes there can. I came to the conclusion that there are two kinds of productivity, one productive, the other destructive. The problem is that economists can’t tell the difference.

Economists measure the ratio of production outputs to labor inputs, and when that looks good, they declare an economy to be productive. The assumption is that workers have been better trained, superior machinery has been purchased, improved practices have been introduced in company operations, and so on. This is no doubt the case for a certain amount of productivity. But not all, not by a long shot: the unproductive side of productivity has been on the rise for years.

While economists study statistics in the air, companies engage in practices on the ground. Statistics can be dangerous when their users don’t understand where they have come from. Consider this not-quite-hypothetical example.

You are the CEO of a manufacturing company, determined to make it the most productive one around. Here’s what to do: fire everybody in the factory and ship customer orders from stock. Sales will continue while working hours go down. Ask any economist: that’s productive! It’s great for the company too, until, of course, it runs out of stock. You may find this example a bit extreme–accountants do, after all, keep track of inventories, for all to see. Well then, consider all those big companies that have fired several thousand workers, not in fear of going bankrupt, but because they did not make the numbers that the stock market analysts expected. For these companies to maintain their sales, and keep those inventories up, the workers left behind may have had to work that much harder, and perhaps for lower wages at that. This, too, can be productive, on the backs of those workers.

There are other ways to realize this kind of productivity, which are less likely to be noticed, let alone measured—by accountants, economists, and stock market analysts: cut research, reduce maintenance, diminish product quality. All save money immediately even if they trash the company eventually.

Add up all these schemes, by so many companies, and you have an economy that is running out of stock. And a society that is running out of time.