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Productivity as a Measurement of Well Being Recent experience with a broad range of business activity in different Indonesian industrial sectors has prompted a realization of just how valuable productivity improvement systems are, and can be, in individual company environments. Of even greater social significance is the role of productivity in the national economy. Just as with companies, the extent to which a given economy reaches its full potential – and therefore is able to provide happiness and well-being for its citizens – depends in large measure on the trends and levels of productivity of the national workforce. Productivity is the cornerstone of economic growth. In a developed country, the population often becomes richer than its grandparents and the average person in an emerging market primarily because they are more productive. Productivity also effects a country’s competitive position. The more productive we are, the better we are able to compete in world markets. Productivity is the source of the high standard of living enjoyed in the many of the developed economies. For economists, productivity is the key indicator of economic progress, and it is closely associated with the real income of workers and the prevailing standard of living. A rising level of productivity can result in increased wages and in lower prices, to say nothing of the increased profits that accompany growth. Possibly the most striking facts in economics and politics concern the enormous cross-country differences in productivity and income per person. The World Competitiveness Yearbook recently stated that at the beginning of the Asian financial crisis, people in the United States were, on average, three times richer than those in Mexico, fifteen times richer than people in India and almost 15 per cent more affluent than the Japanese. The disparity may be greater now as a result of the regional economic upheaval. Economists tell us that the level of productivity in each of those countries is almost identical to per capita gross domestic product and to measures of individual and family income. What we know so well from the productivity business is that productivity gains are very often directly related to increased investment in education and training of the workforce. While improvement resulting from wise use of capital and new technology is also important, the greatest gains consistently come from changes in the work environment and from encouraging initiative and ingenuity as well as increasing rewards to workers, supervisors and management. There is also a direct relationship between an economy that educates and trains its labor force and one in which levels of technology are high and rising. An economy with a well-educated workforce and advanced levels of technology will likewise be one that often takes advantage of economies of size and smart methods of mass production. At the macro-economic level, we can see that the performance of a country’s economic system is closely related to the total productivity of its resources. The low per-capita incomes of less-developed countries are closely linked to low total productivity, while the opposite is true for developed countries. Rising total productivity is essential to economic development. In any economy, a recession is accompanied by falling total productivity, but during recovery and expansion, total productivity is consistently rising. What we observe in individual company environments – improvement in labor productivity – can also be seen in the larger arenas of nations and over historical periods. The large increase in wage levels that have occurred in the United States, Germany and other advanced countries can be directly attributable to gains in labor productivity. Generally this stems from increases in the quality of the workforce performance, but also from advances in technology and the quality of capital investment. During the past century productivity measurements registered huge gains in the United States, Western and Eastern Europe and Japan. Since World War II, rates of increase in Western Europe and Japan exceeded those in the United States. During the 1990’s, all advanced industrial nations became increasingly competitive amongst themselves. Significantly, they also experienced increasing competitive pressure from traditionally low income countries, in particular countries in East and South East Asia and Latin America, which made substantial progress in raising productivity levels over the past two decades. Meanwhile, the developing economies continued to lag far behind in the output of the workforce. These figures are mirrored in the income levels in each of these societies. By turning from the microeconomic lessons faced each day within Indonesian companies, to the economics of countries around the world, one can gain useful insight into the vitality of productivity enhancements for society in general. Not only does the productivity industry make crucial contributions to the well-being of its clientele, but when its technology and insights are applied across national economies, it can make the difference between wealth and poverty. James Irwin is Chairman of the Board, Integrated Control Systems, Inc. (IMPAC) and David Finneren is Senior Advisor to the Board. IMPAC is a leading global specialist for productivity and efficiency solutions with guaranteed performance and sound investment returns to private and public enterprises (www.impac-systems.com). Mr. Finneren focuses on corporate sustainability initiatives that impact company and national competitiveness and productivity. He can be reached at finnindo@cbn.net.id
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