Friday, July 14, 2006

On productivity: a short note

Over lunch I was reading the latest issue of Australia's Business Review Weekly. Lunch, by the way, was salad with fish sauce. I have very little time, but I do try to do some things outside especially gardening. And lettuce is easy to grow!

Back to the point. The BRW had a short comment on decline in productivity in Australia's electricity industry. All very serious. But, and as the few readers of this blog will know, I actually believe that history is important. And history provides a very useful corrective to the view expressed in the BRW story. In doing so, it also demonstrates the need to look at key measures like productivity change in a longer term context.

I have been monitoring performance in networked industries like telecoms or electricity for the best part of 30 years. There is no doubt that there have been huge productivity gains, although those gains are not associated primarily with new technology (the common assumption) but with new work structures. However, some of the gains can be transitory.

Corporatisation and privatisation of Australia's electricty industry saw large productivity gains. However, some of those gains were due to unsustainable cost cutting on the staff side.

In 2004 I chaired a seminar trying to attract trades people to consider employment opportunities in regional NSW. One of the speakers was from the electricity industry. He said in part that cut backs across the industry in the recruitment and training of linemen had created a major shortage. The industry was now struggling to catch up.

Link this to the productivity question. The initial cuts led to substantial apparent productivity increases. But the industry then had to pay lot more to try to attract immediately available linemen and to train new one. So productivity turned negative.

The point? Beware of apparent trends unless you understand what had happened before.

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