Critical Issues of National Productivity

• Author: Courtney Blackman
• Pages: 314-329

THE PRACTICE OF ECONOMIC MANAGEMENT

314

When Governor Francis invited me to organize a seminar on

‘productivity’ some time ago, I detected a distinct passion in his

voice. You may very well ask why a central bank governor should

feel so strongly about productivity. The Economist explains it well:

‘Productivity growth is probably the single most important indicator

of an economy’s health: it drives real incomes, inflation, interest

rates, profits and share prices.’1 In fact, Dr Alan Greenspan,

Chairman of the US Federal Reserve System, has no doubt that it

was the sharp rise in productivity, arising from revolutionary

technologies in computers and telecommunications, which

underpinned the longest economic upswing in US economic

history (1992–2001). People spoke then of the ‘Goldilocks

economy’, characterized by high economic growth, low

unemployment, low inflation, and a strong currency. There is

obviously an element of self-interest in the Governor’s sponsorship

of this seminar: a sharp surge in the productivity of the Bahamian

economy would transform his presently strenuous job into a ‘cake-

walk’.

My presentation seeks to illuminate important issues related

to productivity in the national economy. We begin with a basic

definition of productivity. This is followed by a discussion of the

dynamics of productivity. Thirdly, we focus on the grave

responsibility of management for the continuous increase in

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CRITICAL ISSUES OF NATIONAL

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CRITICAL ISSUES OF NATIONAL PRODUCTIVITY

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productivity. Fourthly, we examine the critical role of trade unions

in the drive for greater productivity. Fifthly, we explain

government’s special responsibility for creating an environment

that nourishes productivity growth. Finally, we demonstrate the

central importance of productivity as a factor in macroeconomic

policy making.

What is Productivity?

‘Productivity’ is a slippery but indispensable concept in

economic management, and is widely used by economists and

managers. Professor Solomon Fabricant describes it as follows:

Productivity refers to a comparison between the quantity of goods

or services produced and the quantity of resources employed in

turning out these goods or services. When the same resources that

were employed in the past now produce more than they did before,

we agree that productivity has increased.2

Productivity then is measured by changes over time in the

ratio of two indices — output and input. Using this statistical

technique, economists are able to track the efficiency of a

production system over time or compare the efficiency of one

production system with that of another. Diagram 2 shows a simple

model of the production process. Note that if the quantity of inputs

used is doubled and this results in twice the quantity of outputs,

there would have been no change in productivity.

Economists have traditionally treated land, labour and capital

as the basic factors of production. ‘Land’ subsumes natural

resources such as mines, rivers, arable land and, in the case of the

Caribbean, sun, sand and sea. In the preparation of national

statistics ‘labour’ usually refers to hourly paid workers, the reason

being that the hours worked by salary owners is less responsive to

changes in output than that of wage-earners.