In the contemporary economic literature, productivity has been described as the pass word to prosperity and the high road to economic and social development. It is also regarded as the ‘diamond point’, which cuts the vicious circle of poverty by providing the necessary and viable base to the planned economic development. It is unfortunate, however, that the meaning, the underlying philosophy and the application of productivity techniques are surrounded by a mist of confusion, doubts and even worse, indifference as apathy.
The biggest challenge that confronts a developing country like ours is the removal of abject poverty. And the only way to achieve it is:
These twin task, by no means, are the easy tasks. They would require massive outlays to be invested in new economic activities which alone can provide new job opportunities and capital and consumer goods. The moot question is that in a poor country like ours from where would such a huge amount of capital come?
The alternatives are not many but two: one, to take loans from the economically prosperous nations, and two, to generate our own internal resources. Since the first alternative cannot be demanded, it obviously cannot be relied upon as a viable source of our development –its political implications apart. Thus the real choice that is left for us is to generate our own internal resources. Thus the real choice that is left for us is to generate our own internal resources. And, it is here that the key lies in higher productivity because implicit in higher productivity is the availability of more realizable surpluses that can be reinvested into new economic ventures both for creating more job opportunities and more goods and services. Following is an over-simplified example to show how higher productivity generates higher realizable resources for reinvestment purposes:
It must be noted from the above that:
It must be clearly understood, at the outer, that productivity is not production and as such higher production is not necessarily higher productivity. Production denotes a physical volume of goods/services that have been produced during a specified period. As such, by itself, does not give any insight into the quantity of inputs that been consumed in the process of production.
Productivity, on the other hand, is the relationship between the outputs produced and the inputs consumed at any given point of time. It is the nature of this relationship between outputs and inputs that is called and understood as productivity.
Since productivity specifies an output-input relationship, by implication, it means optimum utilization of input resources that go into production. Only the efficient and effective utilization of input – resources world give an output input relationship that can be termed as higher productivity.
The difference between production and Productivity would be self-evident from the three every simple situations given below where two units have been assumed to be similar in terms of their quality of technology, raw materials and output.
Observe from the above, the following:
For higher productivity, the nature of output – input relationship must follow one of all or any combination of the following patters:
Needless to say that the three most important inputs for any production activity are: men, machine and materials. Accordingly, higher productivity is a function of the optimum utilization of these three resources. Theoretically, therefore, the productivity of each input can be measured by deriving the output-input relationship of the given input, by computing any of the following productivity indices:
These will, however, be partial productivity measures incapable of providing a total and realistic picture of the changes in the level of total productivity. For example, in a unit measure of labour productivity, i.e. output per worker/man hours might show an increasing trend. It will, however, be hazardous to conclude, on the basis of this index alone, that the labour productivity has been increasing in that unit, in real terms. It may happen that the increase in labour productivity is the result of the introduction of improved technology rather than the consequence of higher efforts of labour. Like-wise a change in the quality of raw-materials might also result in higher productivity without any specific contribution of labour.
In order to avoid such distortions, it is advisable to compute the total productivity of an organization by aggregating all the inputs against the total output(s). But it is easier said than done. The reason is that the difference in the unit of measurement of both inputs and outputs put a serious limitation in the aggregation of both. For example, it will be ridiculous to add man hours, machine hours and the quantity of various raw-materials in the physical units of measurement in one single denominator. Equally ridiculous will be to add various outputs that may be qualitatively different in a multi-product unit. One way to overcome these difficulties is to convert the values of both inputs and outputs inputs and outputs into one common denominator i.e. in money terms. But such conversion is rendered difficult by the changes in the unit price of both the inputs and outputs due to inflation or otherwise. For example, consider the following illustration.
Two opposite conclusions may be drawn from the above:
Converse would be the prices either of inputs or outputs have gone down between the two intervening periods. In either case, the productivity profile would be a distorted one and misleading, if the computation in done on the basis of current prices. As such, it necessitates a further conversion of current prices of inputs and outputs into constant prices by using inflators and deflators, as the case may be, by using their respective price indices. In the process, the whole exercise becomes very complex which is, however, unavoidable because the modern production system by itself has become very complex. What is to be appreciated, at this stage is that for monitoring and control of productivity, its measurement is a must. Fortunately, statistical tools and techniques are available for measurement of productivity. What is required is the realization of the need for measurement of productivity in the first place, and then the WILL to measure it.