Productivity puzzle

LAHORE: Productivity is the only source of sustainable long-term growth, evident from the fact that at least two-thirds of global GDP growth since the beginning of the first industrial revolution stemmed from improvement in workers output.

There is no simple method to increase productivity. Factors considered to enhance productivity in one scenario may not work in some circumstances. Generally, aggregate productivity growth will only rise if the winners gain more than the losers give up. To enhance productivity we must allow failure to create success.

Government alone could not enhance productivity. The private sector through manipulation also lowers productivity. Failing or incompetent enterprises in every sector of economy are supported either by the state to save jobs or by the cartels that benchmark prices that are viable for the most inefficient company in their sector. In the process the most efficient companies in that sector earn insane profits.

Global research has shown that 75 percent of the productivity gains could be achieved by simply following the existing best practices.

In cement industry we see some units emitting dust in the atmosphere. These are in fact particles of cement that are lost in the atmosphere and pollute the environment. These particles account for 5 percent of the total production. Some mills recapture these particles within the unit and enhance their production by five percent. If all the cement units adopt this technology we will enhance the annual cement capacity by about 2.5 million ton. The units that let this cement go to waste are not bothered because the rates of cement are managed through the cartel. If the state uses its muscle to close down dust emitting units (as they pollute environment) all the units would be forced to adopt the productivity enhancing technology.

Governments can support basic research to strengthen innovation, but after that, the best thing they can do is to get out of the way. Even successful innovations often do not translate immediately into productivity gains. The state should let the entrepreneurs do the rest. They will optimise productivity by experimenting, learning, and implementing the innovation.

Increasing the participation of women will lay a foundation for economic prosperity. Women account for half of the global labour supply and about 70 percent of global consumption demand. Greater gender equality in educational and employment opportunities fosters faster, more inclusive growth, not only because women are half of the world’s population but also because they are more likely than men to invest in the human capital of their families. Pakistan unfortunately is placed among countries with a huge gender gap.

Human capital will be both a key source of challenge and of opportunity for enhancing the prospects for long-term global prosperity. There is a dearth of highly skilled human resource globally. The developed countries do not have enough youth to train as their population is aging. Majority of population in Pakistan is under the age of 35. We have enough young population that if properly nurtured could encourage investors to set up high-tech industries.

The rest of the properly skill population would be gladly accepted by countries with aging population. The educated graduates and masters we are rolling out in large numbers are neither required in domestic nor in global markets.

Societies that fail to raise their game for the productivity needed to sustain growth will find it harder to achieve a host of desirable goals, such as reducing poverty in developing economies and meeting current social commitments.

Productivity in agriculture, which accounts for about 40 percent in Pakistan, has the potential to double in 5-7 years through mechanisation. More advanced practices in applying fertilizers, herbicides, and pesticides—further gains are available from technology, including the use of precision sensors and satellite data to increase crop yields. Food processing units complying with global best practices could usher us into high value-added food exports.

Total healthcare spending is growing faster than global GDP, heightening the need to deliver healthcare as efficiently as possible. India has promoted health tourism through its state-of the-art health facilities in private sector. When our relations were normal many Pakistani patients got treated in India for heart bypass and liver transplant. The cost was much lower for the families even after paying for the travel, boarding and lodging expenses. After Covid-19 the affluent in Pakistan were forced to get treated in Pakistan. Post covid-19 the enhanced facilities should be used to promote health tourism in Pakistan as well).

According to Catherine L. Mann, former chief economist at the Organisation for Economic Co-operation and Development, productivity growth is necessary but not sufficient to support broad-based well-being, which also depends on quality of life, health, and environment.

Thus a pursuit of productivity alone will not maximise potential economic gains nor ensure shared prosperity. Even as we redouble our policy efforts to promote economic activity, we must deepen our understanding of how policies can improve the relationship among workers, working, and change and how regional and international policies affect individual economies.