Cooking the Books – What is productivity?

‘Productivity — the amount we produce per worker or per hour worked — is very important’, wrote David Smith, the economics editor of the Sunday Times. ‘It is the ultimate driver of living standards, a key determinant of real wages and a vital component of competitiveness’ (Times, 20 September).

On the face of it, this makes sense. If society can produce a larger surplus over and above current consumption then some of it can be used to increase what is consumed, whether by individual persons or as improved collective services and amenities. That is what would happen if the aim of production was to directly meet people’s needs. But it isn’t. It’s to make profits to re-invest to make even more profits. It is this that drives the economy.

But how is the productivity Smith talks about measured? He states specifically that productivity at the level of the whole economy is measured by GDP per total hours worked or GDP per total number of workers. In other words, you take GDP and divide it by the number of workers or by the number of hours they worked. In 2021 the increase was 2 percent per worker and 2.8 per hours worked.

Leaving aside how accurate (or not) GDP is as a measure of ‘what we produce’ over a period such as a quarter or a year, what about the divisor, the number of workers or the total hours they worked over the same period?

Smith’s namesake pointed out 250 years ago that there were two kinds of work and workers.

‘There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master’s profit. The labour of a menial servant, on the contrary, adds to the value of nothing’ (Wealth of Nations, Book II, chapter III).

Marx inherited this distinction between productive and unproductive labour but modern economists and statisticians have abandoned it; they regard all workers as productive. To divide the value added in a year by total number of workers is absurd as a measure of productivity. It is as if in Smith’s day the new value produced was divided by the number of ‘manufacturers’ (productive workers) plus the number of ‘menial servants’. Whatever this measured, its increase would not be a measure of the extra wealth available to improve living standards.

To measure productivity and its increase properly total value added should be divided by the number only of productive workers. This involves making a distinction between productive and unproductive workers. It is something national income statisticians are capable of doing but don’t because it is not considered useful for capitalism. For a start, they could take out the number of ‘menial’ servants employed by the rich and then the not-so-menial servants who work for the government and parastatal organisations at national and local level. Most of them are essential to the operation of capitalism (and some would be in any society); they are part of the incidental running costs of capitalism and are paid out of capitalist income taxed by the state. They work but they don’t add any new value.

What the statisticians call ‘productivity’ is still useful under capitalism as it is ‘a vital component of competitiveness’. In fact that, basically, is what it is measuring, a vital statistic for capitalism. It can be increased not just by making the productive workers more productive but also by spending less on ‘unproductive’ work. An additional reason why using any extra surplus to provide more and better public services cannot be a priority. Competitiveness is more important.

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One Reply to “Cooking the Books – What is productivity?”

  1. “[The aim of production] to make profits to re-invest to make even more profits.”

    I struggle to describe capitalism in one sentence, but you just nailed it.

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