Productivity

The term “productivity” is used a lot when discussing or reporting business results.  It’s an easy concept to understand when you realize it is reported in some form of revenue divided by an increment of effort, such as dollars per man-hour.  “Profit” over “labor,” if you will.  And this is the crux of the productivity problem.

America enjoyed a steady gain in productivity in both the manufacturing and agricultural sectors over the last century.  There are a lot of reasons behind this.  Automation, quality improvements, “design for manufacture ” and worker focused systems like “Self Directed Work Teams .”  This was fine as demand grew.  Not just American demand, but global demand.  In fact, demand grew so fast we found that we needed as much help as we could get to keep up.  And that came in handy, as it is a lot easier for many people to accept diversity when there is enough work for anybody will to do it.

But then two things happened.  First, profits began to take on unprecedented importance as a measurement of business success – especially against a backdrop of a global economic lull.

And there lies the second problem.  As demand flattened or even fell, we didn’t need all that output. But businesses did feel the pressure to prop up profits.  To keep the equation of profit over labor in balance, we had to get rid of some increment on the “effort” line.  The robots weren’t going anywhere.  We aren’t going to start hiring the middle managers and supervisors it would take to put a “command and control” management system in place.  And we weren’t going to roll back quality.  So production labor gets let go.  Many for good.  And those finding their way back into the business of adding value through honest labor are faced with the fact that their new jobs pay much less than their old careers.

Years ago I worked for a company that had its European headquarters in Denmark.  They ran a great operation.  Staffed with really smart, hardworking people.  During my visits, I came to the conclusion that it was one of the best atmospheres I have ever experienced in a workplace.  One little problem -  they never made money.

Like clockwork, our Danish operation finished every year within a few Kroner of break even.  One year up a little up, one a little down.  It was a conundrum for the American management, who saw the same positive things I did.

The secret was finally cracked when I began to delve a little bit into the Danish language.  It’s not an easy task, because it’s not just words you have to translate – it’s often whole concepts.  And that’s where the light bulb went on for me.  The Danish word for “profit” loosely translates to “the money you kept from your business partners over and above what you needed.”  What this meant is that the Danes could express good intentions of a “profit” in budget meetings,  but when it came to executing day to day business it became an impossible task in the “win – win” world that is Denmark.

The productivity concept is also at the root of the current debate over whether or not Michigan should become a “Right to Work ” state.  Under this designation, workplaces may organize, but individual membership in the bargaining unit is not required.

Many might believe the union debate has its focus on the factory floor.  The fact is the most energetic supporters of “Right to Work” are large construction contractors and those who would like to reduce the strength of the teacher’s union.  The ability to hire a larger percentage of non-union labor offers the chance to reduce their labor costs.  In practice this often is consummated by hiring a larger proportion of recent immigrants, many of them aren’t here legally, and almost all of which are willing to work for less than their peers.

A recent study called Michigan 10.0 , conducted by the Booth Newspaper Group summarized the “Right to Work” debate as a trade off – “more jobs at lower pay .”  That’s management’s offer here.  They are offering the possibility of expanding the number of people employed, as long as it doesn’t increase labor cost.  So down go wages.  It’s as cynical as “let them eat cake” in the history of labor relations.

The math of productivity is pretty straightforward.  The more profit grows and the more the cost of the necessary efforts decrease, the higher resultant productivity.  That’s the basic principle of our current system.  Profit over labor equals success.  It’s impossible to for the profit line to be “too much” and equally unimaginable for the labor line to be “too little.”  How does that sound to you?  It makes me wish we had imported a little more than a breakfast pastry from the Danish.

“Green Tea” – It’s a Better Alternative

I spent Saturday at a Tea Party Event in Burton Michigan .  This is the fifth Tea Party event I have attended during this campaign.  I like what they are doing, as grassroots political movements have a historical importance in shaping our democracy.

One of the things that often surprises the voters is how much sympathy there is between the Green Party and the tenets of the Tea Party.  Take a look that there Contract with America and my responses (in green) and see what you think.

The Contract lists 10 agenda items that it encourages congressional candidates to follow:

  1. Identify constitutionality of every new law: Require each bill to identify the specific provision of the U.S. Constitution that gives Congress the power to do what the bill does.

This request seems to presume that there is no current concern for the constitutionality of any new law.  I’m not certain that is a huge problem right now and justices vary on laws regularly. We don’t want to create a huge, slow bureaucracy that slows government action to a halt.  

In business we had to often identify the “authorizing authority” that we believe allowed us to approve a project or use company resources.  If we are talking about a simple audit as part of the process, I am in favor of this.  However, I think even the authors of bad legislation most of the time believe they are on the right side of the Constitution.

I would prefer that we focus on stricter interpretation on existing regulations and laws.  For instance, we need to go back to the requirement to declare war, rather than authorize emergency appropriations and deployments.  

  1. Reject emissions trading: Stop the “cap and trade” administrative approach used to control carbon dioxide emissions by providing economic incentives for achieving reductions in the emissions of carbon dioxide.

I agree “Cap and Trade” is bad policy.  I don’t see any reason to put a traded commodity in the middle of this solution.  Regulations will work fine in this area.  When we reduced Freon or VOC’s  or heavy metals, we found benefits to our business as we implemented the regulations.  Cap, no trade, is the way to go.  There is no need for a “market based” solution.

  1. Demand a balanced federal budget: Begin the Constitutional amendment process to require a balanced budget with a two-thirds majority needed for any tax modification.

Agreed.  The single biggest issue confronting America is the size of the national debt.  We need to begin to address this immediately to ensure the continued viability of our country.

  1. Simplify the tax system: Adopt a simple and fair single-rate tax system by scrapping the Internal Revenue Code and replacing it with one that is no longer than 4,543 words – the length of the original Constitution.

As I have posted before, I for a transition to consumption taxes, as they reflect the resources utilized by the individual.  Income taxes are a tax on productive behavior and are counter intuitive.  By transitioning to consumption taxes, we would also gain access to the increasingly large gray market economy, which is estimated to be 12% of the total earnings in the US.  When those who work for cash – legally or illicitly – spend this money, we would capture a new tax stream.  A graduated scale for different classes of goods could ensure the tax scale stays reasonably progressive.

Where I probably differ with the Tea Party is on the issues of Capital Gains and Estate taxes.  I believe both of these represent windfalls that should be treated differently that “earned income.”  Rates on these income streams should be higher than the basic rates for consumption taxes.

  1. Audit federal government agencies for constitutionality: Create a Blue Ribbon taskforce that engages in an audit of federal agencies and programs, assessing their Constitutionality, and identifying duplication, waste, ineffectiveness, and agencies and programs better left for the states or local authorities.

I would first audit departments and agencies for obsolescence and necessity.  Many services, such as Education, are best delivered at the local or State level and the money spent in this area would be best left in the local community, rather than taking a detour through Washington, DC.

  1. Limit annual growth in federal spending: Impose a statutory cap limiting the annual growth in total federal spending to the sum of the inflation rate plus the percentage of population growth.

This does not go far enough.  As proposed earlier in this blog, we need to commit to a 15% cut in Federal spending, with much of that coming from the Department of Defense.

  1. Repeal the healthcare legislation passed on March 23, 2010: Defund, repeal and replace the Patient Protection and Affordable Care Act.

The problem with both of these proposals is that they entrench the big insurance companies and it creates new profit streams for private sector players.  My second issue is that is continues the idea that businesses are most responsible for “quality of life” benefits, like health care.   When you look at two competing business plans and one has a big “$0” under “Employee Health Care,” you have a big hint on which location is going to win.

  1. Pass an ‘All-of-the-Above’ Energy Policy: Authorize the exploration of additional energy reserves to reduce American dependence on foreign energy sources and reduce regulatory barriers to all other forms of energy creation.

 

I agree we need a balanced energy portfolio.  This is a national security issue, an issue of economic viability as fossil fuels become increasing scarce or prohibitively expensive and an issue of environmental stewardship.  We need to benchmark our farmers.  They have been employing a variety of energy technologies for generations.  

In terms of fossil fuels, we need to adopt a “Grandma’s Best Perfume” approach.  My grandmother always had one bottle of really nice perfume.  And she used it sparingly and dolled it out only on special occasions.  We are never going to find something a portable and energy packed as gasoline.  We need to conserve this resource so it is available to us for as long a period as possible, rather than burning it up as fast as possible, assuming the market will deliver a replacement when the need arises.

  1. Reduce Earmarks: Place a moratorium on all earmarks until the budget is balanced, and then require a 2/3 majority to pass any earmark.

I would go with a provision like we have in Michigan, which requires amendments to be germane to the original bill.  No more pork on the back end of a roads bill.

  1. Reduce Taxes: Permanently repeal all recent tax increases, and extend current temporary reductions in income tax, capital gains tax and estate taxes, currently scheduled to end in 2011. (53.38%)

I disagree on this.  Again, a combination of consumption, capital gains and estate taxes will provide balance, allow workers to keep the fruits of their labor and help ensure that we do not form the privileged classes that drove most of our original immigrants to find an a land where opportunity is more equally distributed and where hard work is the best route forward to an individual who takes responsibility for their own economic prosperity.