It’s neither more employment nor a panacea. Productivity implies doing more with the same or the same with less and the current Presidential rhetoric makes the mistake of linking productivity with several economic problems that affect the country.
Myth 1: An increase in the productivity growth rate in Mexico will generate more jobs. At least in the short term, an increase in the productivity growth rate won’t result in a rise in employment. In fact, if we observe certain industrial activities we can find quite the opposite. In the state of Puebla, an increase of over 50% in productivity within the textile industry from 2004 to 2009 was accompanied by a decrease of a total number of companies and, thus, of a total number of workers in the sector. Likewise, an adjustment on the plant of workers in the agricultural sector in corn and bean products, by shifting to crops of higher aggregate value, has created substantial increases in the labor productivity of the aforementioned products.
Myth 2: The Federal Government is focused on measuring productivity. Certainly the “democratization of productivity” is one of the cross cutting themes of the National Development Plan. Nevertheless, the government has focused solely in measuring work as a production factor, leaving behind the productivity of capital or absolute productivity of factors.
Let us observe, for instance, the key indicator of the cross cutting theme of the “Democratization of Productivity”: the global index of labor productivity. The Index proposed by the government – elaborated by INEGI and the Employment and Social Prevention Secretariat – is a reason between an index that measures production (real GDP) and other index that takes into account the amount of hours worked within the economy. Regardless of the fact that a drop in the number of total hours worked due to high rates of unemployment in the country would be a mirage of an increase of labor productivity, this index does not take into account the capital factor. As several economists have argued, investors and public officers should observe the total productivity of factors or multifactorial – composed by capital and labor – instead of only labor productivity, given that the former is a better approximation for the return of capital to the economy. On that regard, OECD conducts a calculus of multifactorial productivity, however, Mexico is not part of that study. It should be said that we are not claiming that the index itself is worthless, we just argue that if productivity in the country is measured, more complex indexes will be essential.
Myth 3: Productivity is everything. Even though in the long term productivity is pretty much everything, it clearly can’t measure all factors. Unlike the previous government, where competitiveness was everything and nothing all at once, it is necessary to establish that productivity is related to an economic issue and a specific product: productivity implies doing more with the same or less. In economic terms, productivity is an efficient combination of productive factors using technological and creative processes.
Presidential rhetoric regarding productivity, however, makes the mistake of attributing the cause of several of the economic issues that affect our country. The President argued that whenever productivity rises poverty is diminished, inequality among general population is decreased and there’s even a lesser impact of economic development on the environment. A simple graphic look to three indicators will show us that there is correlation among those variables, not causality. A country with low labor productivity (regarding the top ranked spots of this list) such as South Korea is less unequal according to the Gini Index than Ireland (the country with the greatest labor productivity in our list). Likewise, USA, which is a highly ranked country when it comes to labor productivity, is one of the most unequal developed countries in the world. When the relation between labor productivity and GPD per capita is analyzed, one can find a lot more similarities with the Gini Index but we can also find Italy, which has higher labor productivity than USA, Germany and the United Kingdom but has an average income closer to that of Spain. That is why members of the current administration should not use the productivity concept when describing just about every economic phenomenon or describing aspects unrelated to it.
Myth 4: The National Productivity Committee will positively impact Mexico’s productivity rate. The decree through which the Committee is formed, establishes that it will act as an advisory and auxiliary body. This implies that recommendations issued will have a limited or at least undefined impact as long as there are no political orders coming from the Secretary of Finance and Public Credit or the President’s Office. It’ll be interesting to observe whether the suggestions made by the Committee will only concern private-owned companies or will they issue recommendations on how to improve the productivity of public companies, particularly those who are “strategic” for the country and which have unions that successfully combat efficiency.
If you would like to know more about productivity in Mexico, log into the website that CIDAC has specifically created on the matter.
Rafael Ch y Miguel Toro
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