Productivity and Its Role in Shaping Economies and Businesses

Introduction: Productivity and Its Centrality to Growth

We often hear the term productivity in many contexts and whether you are a student or a working professional, you are constantly exhorted to be more productive. In recent years, the dictum that do not work hard, but Work Smart, is often used by many of the opinion makers in society. Before we launch into the discussion of how this would really benefit us, it is important to realize what is meant by productivity and its centrality to the development of nations, economies, businesses, and individuals.

If we define productivity, it would mean that we are capable of achieving more with less. For instance, if a person works for an hour and produces 100 units of whatever is being measured, and over the years, develops enough competence to produce 200 units per hour, then for the same amount of time and labor, the output is more meaning that this person has become more productive.

Further, if you work 10 hours a day and your coworker works for the same 10 hours and produce 200 units of output, going forward, it you ramp up the output by producing another 100 units in the same time, then your coworker has to better catch up with your pace or risk redundancy.

In other words, productivity simply put is how much economic value is being enhanced for the same time and labor invested in the work. As can be seen from the examples cited above, productivity leads to more profits and profitability as the firm can now produce more at the same cost.

Apart from this, productivity can also be actualized by technology and technological improvements. For instance, if you produce 100 units of outputs in a day and if your firm uses technologies such as computers, assembly lines, and more automation that would help double the output, then the firm can be said to have reaped the benefits of productivity using technology.

This is the reason why productivity is so crucial to the economic growth of nations and businesses as well as enhancing the value of individuals who can demand more salary because they are producing more for less.

Indeed, in these recessionary times, when the market and the demand are depressed, one sure fire way of increasing profits without incurring additional costs is through productivity enhancements. This is the reason for many firms laying off the least productive workers and instead, retaining the higher productive ones when market conditions are bad as this would allow them to produce more at less cost and hence, benefit from increased productivity.

Economists often allude to the profitability dividend that firms and economies can reap from increased productivity. They point to the fact that ever since technology began to accelerate; economies and businesses have found an answer to the age-old question of how to increase output without incurring additional costs. This is also the reason why the west has been dominant in the global economic system as first, the industrial revolution and then the information revolution have both led to significant increases in the productivity of the western nations.

Further, the reason why the east has lagged behind is that they have been unable except for some exceptions such as the South East Asian Tiger economies to reap the benefits of productivity.

Indeed, even the Chinese with all their dominance of the manufacturing sectors need to enhance productivity if other emerging markets not take away their business from them. We shall explore this in detail in the next section. It would suffice to state here that in the same manner in which an individual gains by producing more at the same cost, economies, and businesses benefit from collective increases in productivity.

How Productivity Has Helped the West to Maintain Its Competitiveness

As mentioned in the last paragraph of the previous section, the industrial revolution was responsible for the ascendancy of the West and Europe and United States in particular. As the western nations pioneered several innovations such as the Steam Engine, automated vehicles, and railways, they found it easier to produce more, transport, and reach their destinations for the products in an efficient manner.

Further, with ammunition and munitions that benefited from these innovations, they were able to conquer and colonize vast tracts of land all over the world leading to captive sources of raw materials and a readymade market for their goods.

The next wave of productivity increases came in the aftermath of the Second World War as the developed world realized that it had the necessary economic base to catapult themselves into the dominant position in the global economy.

By pioneering the assembly line and the mass production of goods, they were able to harness technology for their benefit. Consider the fact that when agriculture was mechanized, the world was able to move beyond simple rural life to an urban based paradigm. Similarly, when industrialization happened, the world was able to move beyond urban life to suburban living and its comforts made possible through cars, construction, and cheap energy.

The next wave or the Third Wave of productivity enhancement came about through the introduction of computers and the rapid spread of desktop processing spurred on by innovations and breakthroughs such as the microprocessors and the personal computer.

Again, in a manner similar to the first two waves of innovation, the world and the west in particular benefited from the information revolution as routine tasks were automated leaving the workers free to indulge in higher value adding activities.

Now, we are witnessing another quantum jump in productivity because of the outsourcing and Offshoring of non-core activities by the western firms, which means that they are in a position to invent and innovate further rather than simply writing code, or handling back office tasks.

Indeed, as can be seen from each wave of productive increases, it is always the most smart, the most ingenuous, and the most innovative firms which reap the advantages and therefore, whether you are starting your career or are already in the workforce, it is important to remember that by being more productive, you would definitely have an edge over your coworkers.

The Flip Side of Productivity

We have discussed how we all gain from productivity increases. However, there is a flip side to productivity and it is that those workers who lack the skills to harness the opportunities fall by the wayside because of automation, Offshoring, and outsourcing. Moreover, this impact is felt most hard on the older workers as with age, we tend to lost the edge to learn new skills and because of limited cognitive development, we cannot match the pace of the younger workers.

Therefore, the lesson here is that it is better to keep reinventing oneself at each stage of one’s career and ensuring that one stays ahead of the curve and does not lose out in the race to the bottom that productivity increases often bring about.

This can take the form of learning how to work on computers for those who are old, and for the younger generation, ensure that they spend a few hours every week keeping abreast of the latest technologies so that when an emerging technology is adopted by the firm, you would be in a position to reap the benefits instead of losing out in the race.

For instance, for a long time, mainframe skills were much in demand and suddenly, new technologies such as Java and Mobile computing emerged on the scene. The programmers who were able to make the most of the new technologies were the ones who escaped redundancy.

Similarly, for many management grads, the shift from manufacturing to services, and the shift from specialization to general management consulting has meant that those who were not able to adjust to the changing trends, soon found themselves out of the reckoning in these new sectors.


At the risk of being repetitive, it needs to be emphasized that life and career should be seen as a continuous learning process and not as where one becomes complacent with one’s present condition.

The future is already emerging and it is that robots would soon take over the work of many workers in the global economy. Therefore, to avoid redundancy, you must make yourself valuable to your companies and be masters of your destiny instead of being felled by the shifting tides of fortune and fate.

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