Productivity in a services economy: It’s a myth -Opinion

Productivity in a services economy: It’s a myth -Opinion article image

As Australia and the western first world nations drift into becoming service economies and away from an Industrial “making things” form of economic organisation what are the implications for our standard of living and economic social structure?

An advanced export economy traditionally makes products and exports them. With services exports the equation changes as do the sources and expectations of productivity and the number of well paid jobs created.

To arrest Australia’s declining standard of living various politicians and numerous business figures claim “productivity” is the one and only answer if not a panacea. But what does this word productivity actually mean, what is its practical application? Is it a symbolic economic term or perhaps a form of neo code-speak or has it now morphed into a propaganda term to be used only in the abstract?

Increasing productivity in simple manufacturing terms refers to producing more goods for less effort/cost ie. producing more for unchanged cost or producing the same amount of goods for a lower cost.

There can be variations on this equation such as improving quality without increasing cost but the basic cost per unit calculation is the upfront prime consideration by which productivity is and has been measured.

However, that set of calculations is for a time based manufacturing economy where production processes offer a series of fixed planning points where, like a scientific experiment, outcomes can be replicated and adjusted by altering and tweaking inputs.

Under such production line circumstances waste in various forms can be reduced so that productivity increases as does profitability and general overall wealth. Service delivery is not the same, fixed points that can be fully replicated rarely present themselves in service delivery scenarios.

Fewer opportunities

The use of machines and factory automation generally were the big differentiators in the productivity explosion that accompanied the industrial revolution.

Britain for example increased its worker productivity more than thirtyfold during the middle of the 19th century through use of workplace automation and machinery and varied applications such as pumps as well as rail and sea transport.

Yet a services economy offers far fewer opportunities for the simultaneous increases in both productivity and community wealth.

In a services economy productivity increases typically can only come from lowering wages for the same number of hours worked or increasing hours worked for no increase in wages.

In such a scenarios productivity is technically increased but only by lowering community standards of living. Hardly a crowning achievement.

Similarly, the called new economy businesses such as a Google where a number of well-paid jobs can be found require far fewer workers per million dollars of revenue than does a manufacturing business. 

Wage purchasing power

The concentrated mass employment practices of a manufacturing intensive economy are dramatically lesser in number in a services economy where wealth concentrates around far fewer points and places in the economic chain.

In a manufacturing economy almost 25% of workers are considered to possess wage purchasing power above the upper mid-point range whereas this falls to less than 2% in a services economy.

Yet further structural changes occur to a services economy that negatively affects the fundamental mathematics of worker purchasing power.

As traditional sources of reliable profits and accumulation from production disappear mass capital and the well-connected rent seeker class look for reliable if not guaranteed returns elsewhere in the economy.

In turn they seek to gain control of monopoly revenues or cartel pricing power over living essentials such as power and water, food distribution, toll roads, housing.

Important question

They lobby for and get Government handouts and financial instruments devised solely to minimise tax payments.

None of these increase productivity but do increase return on capital and are minimally returned to the general economy by creation of well paid jobs and/or prices maintaining relativity to worker purchasing power.

The economic model and the export model Australia adopts going forward will decide the type economy and standard of living enjoyed by Australians.

It is far too important a question be left to Globalisations scriptwriters who our politicians seem utterly incapable of acting independently of. 

David Gray is lead consultant at BizTechWrite providing economic papers, research papers, white papers and geo-economic research all in multiple international languages. David can be contacted at 0458 701 990 or


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