Productive and Destructive Productivity

I’m a Canadian who got tired of listening to economists telling us how unproductive was our economy. This was going on while our economy was doing exceptionally well, thank you, far better than the exceptionally productive American economy. Can there be something unproductive about productivity?

Yes there can. I came to the conclusion that there are two kinds of productivity, one productive, the other destructive. The problem is that economists can’t tell the difference.

Economists measure the ratio of production outputs to labor inputs, and when that looks good, they declare an economy to be productive. The assumption is that workers have been better trained, superior machinery has been purchased, improved practices have been introduced in company operations, and so on. This is no doubt the case for a certain amount of productivity. But not all, not by a long shot: the unproductive side of productivity has been on the rise for years.

While economists study statistics in the air, companies engage in practices on the ground. As I shall discuss in a later TWOG (about the soft underbelly of hard data), statistics can be dangerous when their users don’t understand where they have come from. Consider this not-quite-hypothetical example.

You are the CEO of a manufacturing company, determined to make it the most productive one around. Here’s what to do: fire everybody in the factory and ship customer orders from stock. Sales will continue while working hours go down. Ask any economist: that’s productive! It’s great for the company too, until, of course, it runs out of stock.

You may find this example a bit extreme—accountants do, after all, keep track of inventories, for all to see. Well then, consider all those big companies that have fired thousands of workers, not in fear of going bankrupt, but because they did not make the numbers that the stock market analysts expected. For these companies to maintain their sales, and keep those inventories up, the workers left behind have had to work that much harder, and probably for lower wages at that. Productive this is too, on the backs of those workers. (More on this “downsizing” as bloodletting in next week’s TWOG.)

There are other ways to realize this kind of productivity, which are less likely to be noticed, let alone measured, by accountants, economists, and stock market analysts: cut research, reduce maintenance, diminish product quality. All save money immediately even if they trash the company eventually.

Add up all these schemes by so many companies and you have an economy that is running out of stock. And a society that is running out of time.¹

Remember those downsized employees, even if the companies don’t: out of budget, out of mind. They are not out of society. These are human beings, not just human resources. They did nothing wrong—except to be in the wrong place at the wrong time. In an economy that is so productive, many of them can’t find new jobs, and some of them get sick, and families break down. That’s hardly productive. (Economists have a fancy word for this: externalities. The companies create the costs; the society pays the consequences. More on this too in a later TWOG.)

And how about those human resources left behind in the companies, who have to make up for their departed colleagues? Who are they to complain: they should be thankful that they have a job in such an economy, even if it was brought to its knees by these very practices. So the best thing for them to do is lay low—after all, they could be next. Can you think of a better way to kill culture and community in a company?

Why, then, do such companies survive? Well, if their competitors are doing the same thing, there’s no problem. (An awful lot of companies are doing the same thing.) And if they are not doing the same thing, then these companies can use their new found money to buy these competitors—imagine all the productivity that can be squeezed out of them. Apparently monopolies are productive too.

And when such companies run out of such gimmicks to make themselves more productive, they can turn to a whole host of political activities—for example, lobbying governments and bribing politicians to enact legislation that can save them from their own productivity. Remember “too big to fail”? (The Supreme Court of the United States has now declared bribing through political donations to be legal.)

Let me tell you: all of this is a lot easier—and quicker for executives hot for their bonuses—than investing in workers and improving processes. Thus do productive companies survive while productive societies collapse.

© Henry Mintzberg 2015. HM is co-founder of CoachingOurselves, a positively productive way of developing human managers. (http://www.coachingourselves.com)