We need to completely rethink the idea of productivity – the way it functions – what it indicates – and how we can influence it.
Many people know the quote from Paul Krugman who famously said “Productivity isn’t everything, but, in the long run, it is almost everything“. Fewer know Dr Krugman’s following sentence “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.
And whilst Federal Treasurers are saying things like “There is no more important structural problem in our economy than productivity” it’s not happening. Advanced economies 25 year average productivity growth sits stubbornly at under 1%. Yet, despite furious agreement on its importance, there’s been no new, plan, policy or prescription to lift economic and social productivity anywhere around the world.
A Federal Treasury observed that “95% of gains were coming from 5% of companies”. This shows that improvement is possible. But these successes haven’t been explained or influenced by current thinking or current policy.
We need to move beyond the belief that productivity is about pushing people harder—about unions, wages, and pay conditions. We can’t rationally expect to achieve the improvement that are possible by pushing workers harder. This is not going to match the gains we see in the best performers. And this is not going to give us what we need to support the future we want.
These ideas made sense in a factory-based economy, where workers on a production line were making more of the same products—increasing shipments of last year’s best-selling washing machine. And yes, some industries still operate this way.
But today, most of the economy is driven by services, digital products, and non-financial value, all of which follow very different rules. Many physical products now have digital, online components that change how we think about productivity. Advances are happening faster than ever. Market shifts, competition, technology, and the rise of AI are all changing the game, creating new opportunities, risks, and potential.
The latest research from Dr Davis explains how the outperformers are achieving their success. It shows what we can all learn to improve our productivity. And it shows how government policy can stimulate improvement at extremely low cost. And it explains why current efforts are making no difference.
The real focus should be on the rate at which your organization creates value – whether it’s financial, environmental, ethical, or community-driven. This is what matters.
We need to redefine productivity to focus on the creation of sustainable, long-term value – both financial and societal. It’s about what people working together, in companies and governments, operating in the context of volatility, can do to make their future better… and to live up to their full potential.