PRODUCTIVITY, ECONOMIC EFFICIENCY AND EQUITY

A NATIONAL PRODUCTIVITY INSTITUTE (NPI) AND NEDLAC DOCUMENT

INTRODUCTION

Productivity is the new buzzword in the workplace. However, it is a word that is used loosely and often glibly by economists, business people and labour representatives. They all use the word with equal zeal, but as often as not, when they use the word, different meanings are ascribed to it. Consequently when discussions arise on this issue (for instance: the increase in productivity linked to declining employment rates, a well work place, the output of a particular enterprise or sector), they generally move in a circular route as there is no common agreement on the meaning of productivity or how to achieve it.

Government, business and labour have both similar and different interests in relation to the concept of productivity. The common interest is to increase productivity in order to promote and generate economic growth, but following this, their interests begin to diverge. For the state, the debate on productivity must include a debate on unemployment and employment creation. The most unproductive person is an unemployed person. In a developing country with high unemployment figures, this obviously resonates with the public. Consequently any accord or agreement on productivity must include mechanisms for job creation. For business, the debate on productivity is focused on the increase in profitability in order to interact visibly and meaningfully in the global economy. Any accord must therefore include mechanisms to measure productivity against global benchmarks. These benchmarks must then be linked to the overall economic growth of the country. Any accord must also seek to accommodate both large and small businesses, and allow for the introduction of sector specific productivity agreements. For labour, the word productivity evokes an almost unanimous response, this being, yes productivity must increase in order to grow the overall economy, but at whose expense must productivity grow? In this regard labour will cite the statistics on dismissals for operational requirements, which in South Africa are extremely high, and the constant battle with employers to develop a better working environment. A better working environment will include higher wages, shorter working hours and more social benefits.

This paper endeavours to generate a range of ideas relating to productivity that may be used by all parties. At the outset it must be stated that the needs of all of the parties may not be fulfilled. However a move away from the traditional definitions of productivity and the creation of a new discourse should go a long way in assisting the parties to find agreement on a way forward.

PRODUCTIVITY: GRAPPLING WITH THE CONCEPT

There is no single definition of the concept of productivity. In fact, attempts to develop a strict definition of productivity tend to be divisive rather than harmonising. The most well-researched definition of productivity to have emanated from South Africa appears to be the one that sees productivity as 'the ability to combine and convert inputs of labour, materials and capital into outputs of goods and services.¹ Productivity improvement would imply an increase in such ability and the same would apply to a decrease.

The above definition is an economic definition, which essentially characterises productivity as something that can be accurately measured statistically by calculating the output and input costs in a particular enterprise or sector. Economically a higher productivity rate will be achieved by doing more with less, or at least accomplishing more at a constant or improved quality, with the same amount of resources.

The statistics in South Africa reflect that in most sectors in the country, productivity is increasing. However in an analysis of these statistics what can be seen is that the increase in productivity is being achieved by a decrease in the use of resources, or a decrease in the cost of inputs, instead of using the same resources to achieve more. This in itself in not problematic in that it signifies a more efficient use of resources. However in South Africa, and this is borne out by the illustrations set out in the annexure to this document, productivity is being achieved by decreasing real wages and decreasing the number of people employed. In other words the actual productivity may not have increased in that the outputs remain constant, but the cost of inputs have been decreased substantially, mostly in the form of job losses, the phenomenon of "jobless growth". Consequently productivity is not being increased by managerial innovation, but by drastic cuts to the workforce.

In a developing country with a high rate of unemployment it is neither logical, not feasible to consider productivity only in relation to a decrease in the cost of inputs. The consequences of further unemployment, but with an increased rate of productivity, would, in the long-term only serve to increase the burden on the state in relation to the provision of minimum social services. High levels of unemployment and a vast disparity in the distribution of the benefits of economic productivity is not conducive to further foreign investment as this necessarily creates an environment that is unstable and volatile. In addition to this, the human cost, in the form of job losses, and the cost to the employees who work in a less innovative environment has social consequences that are not easily measured. Productivity must, therefore, also be considered qualitatively. The overall effectiveness of an enterprise, sector and in fact the country as a whole must be considered when analysing productivity and determining the results and consequences of increasing it.

In considering overall effectiveness, less tangible features must also be factored into the analysis. These factors include:

• improvements in the work environment, including:

• efficiency in the organisation of work;

• productive, safe and maintained machinery or equipment; and

• low cost welfare facilities;

• the development of a skilled labour force to ensure faster and more effective work performance;

• a higher morale of workers to achieve:

• fewer work stoppages;

• a high level of initiative;

• a faster pace or work; and

• a lower rate of absenteeism;

• improved communication and labour management relationships;

• enhanced customer satisfaction; and

• improved image of the enterprise.²

As a consequence of the inadequacy of the purely economic definition, a multifaceted definition of productivity has been determined.³ This definition states that productivity is creating wealth through generation and application of knowledge to make available products and services that meet the needs of the user and are consistent with social, environmental, and economic goals of the society. Recognising that the human mind is the source of productivity, endeavours to create a mind-set that continuously seeks improvements and reacts effectively to change are fundamental. To achieve this, management dynamism is required to inspire people to accelerate economic and social development to provide material wealth.

However, despite differences in defining productivity there is general consensus amongst different productivity commentators about the measurement of productivity as a ratio of output over input.

Productivity =	Output
	Input

(In this definition output refers to the goods or services produced by an enterprise and input refers to the resources used to produce the outputs, including capital expenditure, raw materials, energy, information and labour costs.) ⁴

In a given context, for one to appreciate productivity fully, one needs to look at three essential elements:

• Firstly, the nature of the production system that is dealt with must be characterised appropriately; be it international, national, regional, an enterprise or individual. At the enterprise level the system may be a goods or services production facility for profit, a government department, an NGO, a school or any other unit at which some resources are mobilised and organised to generate certain output.
   

• Secondly, the fact that productivity needs to be measured as a ratio of output over input strongly suggests that it is equally important to understand the desired outcome of the process in order to measure the right outputs.
   

• On the input side, an important consideration is what criteria one uses to decide which resources to account for when measuring productivity. To the extent that productivity is the ability to mobilise and use resources well in order to achieve specific outcomes, any resource that has the potential of being used towards the desired outcome (available and relevant to the production process) should be considered. This is notwithstanding the possibility that at the time of measurement, the resource may be 100% under-utilised, if it's potentially usable then it is important. In fact, the exclusion of a resource that is completely under-utilised but relevant and available for use towards specific outputs will inflate the productivity measurement thus distorting the picture.

Government, business and labour have the common interest to increase productivity in order to promote and generate economic growth, but government diverges with more emphasis on employment creation as the unemployed are the most unproductive.

Labour agrees that productivity must increase in order to grow the overall economy, but at whose expense? In this regard labour will cite the statistics on dismissals for operational requirements, which in South Africa are extremely high, and the constant battle with employers to develop a better working environment, which features higher wages, shorter working hours and more social benefits.

For business the debate on productivity is focused on higher profitability to meet or beat local and foreign competition and global benchmarks are thus important. The accommodation of both large and small businesses is vital and sector specific dynamics must feature in the measurement system.

To ensure the active participation of all contributors and beneficiaries to productivity growth, the following guidelines can facilitate the process:

Accepting that productivity is measured as the quotient of output divided by input, it follows that productivity may be improved in five different ways:

 

The first three options imply reduced inputs. This is associated with cost-cutting exercises, and the most vulnerable resource in this regard is labour. Option 4 implies an increase in output while inputs remain stable, and Option 5 implies an increase in both output and input. However, the increase in output should exceed the increase in input. Option 4 and especially Option 5 represent the most effective ways of sustainable productivity improvement and it is suggested that these approaches to increased productivity should be followed.

• As high output growth will need accelerated input growth it is necessary to select output generation methods that would not involve job losses because productivity has improved.
• The third prerequisite for sustainable productivity growth is that customers, providers of capital and employees should benefit from the additional wealth that is created.

Understanding how to measure productivity is not a substitute for the theoretical grasp of the concept. Ideally such understanding should precede and predetermine the measurement issues. Conceptually, there are certain salient features of productivity that have become apparent over the years:

Productivity has a holistic nature characterised by the fact that the different production factors that impact on the total productivity of a system are also interdependent on each other. Such factors include behaviour, methods of production, technology, values, management systems, products, and training/skill etc.

BARRIERS TO CREATING A PRODUCTIVE AND EFFICIENT ENVIRONMENT

A: Productivity and the Management of Employment Equity and Diversity

Employment Equity in South Africa is, for obvious reasons, a political necessity in that the inequalities of the past must be addressed so that people have the opportunity to participate equally in both society and in the workplace. There are those that argue that legislation regulating employment equity in the workplace is an unjustifiable restraint on the freedom to contract and will be both costly and burdensome. This will therefore have an impact on productivity and will restrain economic growth. At the same time it has been argued that discrimination is both unproductive and costly. Discrimination results in a loss of productivity rather than its increase.

Globally, employment equity is in fact now widely recognised as a fundamental human right, employees have the right to achieve their maximum potential at work. But it is also recognised that equity in the workplace is more than just an issue for the proponents of human rights and freedoms. It is no longer an issue for the social activists. In fact the achievement of employment equity and diversity in the workplace is more than just the achievement of human rights in the workplace, it is now widely recognised as being a competitive necessity and a strategic business response to the multiculturalism of the global economic environment and marketplaces.⁵ Diversity in the future will be driven by the imperatives of competitiveness, demography, immigration and globalisation.

Discrimination is both costly and economically inefficient. It costs employers to discriminate in a number of areas, these include:

• in the language of economists, in order to sustain a workforce that is not diverse, or where there is persistent discrimination against a particular category of employees, for instance women and black people, an employer must be prepared to pay for his or her "taste in discrimination"⁶. In other words an employer must pay, either indirectly or directly, to continue to be associated with some persons rather than others.⁷
   

• in a discriminatory environment where there is less possibility of promotion, partial and unequal wage levels for different groups of people and a failure to accommodate the needs of diverse groups there is generally a higher turnover of employees, greater absenteeism, low motivation among employees to be productive and a difficulty in recruiting the best employees.⁸

In relation to the productivity and effectiveness of the enterprise or sector more generally, a diverse workforce is necessary for the following reasons.

A business must anticipate the needs and aspirations of a diverse customer or client base, whether this is in relation to services or goods produced. The nature of the workforce, whether this is in relation to management or any other employee must reflect the market which that particular business caters to. This is essential if the needs of the customer are to be translated into either products or services, which in turn is essential to make the business more profitable. In relation to services, employees must understand the needs of the customer in order to serve them better.⁹ An organisation with a diverse workforce is therefore better able, at a strategic level, to make fundamental decisions based upon their in-depth understanding of how different people perceive the world and what their particular needs are.

In an organisation it is also imperative for business efficiency to maintain effective linkages with all in the value chain, including suppliers. In a global economy where suppliers of raw materials come from different communities and in some instances different parts of the world it is necessary to anticipate the way in which the suppliers interact with the world and how they do business. In South Africa where the development of small business is emphasised, a relationship with a diverse set of suppliers is essential, an understanding of this is therefore essential.

In order to assess whether to invest in a country, foreign investors often look at the reputation of particular businesses. The achievement of a better reputation for diversity and tolerance may attract investors in the particular enterprise or sector in both the local and the global context. In South Africa this is of particular importance given its history of intolerance and discrimination.¹⁰

The ability of both management and employees more generally to comprehend and respond to an increasingly multicultural world is essential to increase productivity.¹¹ It has been argued that a global company, which is essential for economic growth, cannot be run solely in terms of the values of a particular community. This is of particular importance in South Africa where managers and strategic decision-makers are often drawn from a particular race and gender. It has been argued that it is impossible for this particular group of people to understand and be sensitive to other global and cultural values.¹²

B: Productivity and Social Equity

In order to achieve a higher rate of productivity a more efficient use of resources is required. These resources include capital, land, raw materials, information, energy and, most importantly, labour. It is easy to identify the cost of "hard' factors in relation to productivity, for instance technology, equipment and raw materials. It is not as easy to identify the cost of the "soft" factors, for instance work organisation, work methods, environment and management style. Productivity is not, as it is sometimes thought, the intensity of the labour or the speeding up of work for less. Productivity is about working more intelligently, or creating an environment conducive to more intelligent work, rather than simply making employees work harder.

Employees, who are the principle resource in relation to productivity, have a key role to play in increasing the productivity of the particular business or enterprise. This role may be analysed in terms of both application, and the degree to which people apply themselves to their work, and effectiveness, this being the degree to which people are applying themselves in relation to the quality and output of their work.

Motivation plays a key role in creating a productive environment. Employees who are dissatisfied and unhappy at work are less likely to be productive employees. It is obvious that in order to achieve a productive workforce, the quality and environment in which people work must be conducive to a higher level of motivation and a concern for the output of the particular enterprise. Attempts to decrease inputs in the form of social benefits, lower wages and the provision of a safe working environment must necessarily decrease the motivation of employees. Employees who are poorly paid or not remunerated appropriately are generally less productive than those employees who are relatively satisfied with their remuneration. In order to increase productivity it is necessary to introduce creative pay systems through which employees feel that they have a stake in the business or enterprise. The payment of ordinary wages cannot in itself be sufficient to motivate employees.¹³ Having no stake in the productivity of the enterprise ensures that employees are not motivated to work better or more efficiently.

In an environment that is hostile, or an environment where it is unpleasant to work, employees are more likely to be persistently absent from work, thereby costing the enterprise. For instance, where there are no welfare provisions, childcare facilities, water or canteen facilities, employees will constantly take time off work to attend to legitimate needs. Unsafe machinery not only leads to accidents that may cost the enterprise in terms of sick leave and compensation payments, it also de-motivates employees. If they are constantly aware that they are unsafe they are reluctant to work with the identified machinery. In addition to this, unsafe machinery and the lack of maintenance of machinery leads to breakdowns and therefore loss of the productive time of employees.¹⁴

The monotony of unskilled work leads to poor organisational design and development which is less productive than an efficient organisation in which there are more trained and skilled employees who are able to undertake a diverse nature of work.¹⁵ In addition to this, organisations need to be dynamically operated and reorganised to meet new market needs. This includes introducing more flexibility in relation to the actual work people are engaged in and therefore the creation of a workforce that has diverse skills. The legacy of apartheid in South Africa has left us with a skills backlog. In order to create a more productive environment one of the key challenges is to ensure that employees are skilled. Productive employees work with management to innovate and develop productivity.

International evidence suggests that productivity must not only be the responsibility of the individual employee, the key to improved productivity lies in the innovative management of employees. In order to improve productivity, improved management is required to lead, innovate and respond appropriately to changes in the market for goods and services, as well as the labour market.

THE SOUTH AFRICAN CONTEXT

Understanding how to measure productivity is not a substitute for the theoretical grasp of the concept. Ideally such understanding should precede and predetermine the measurement issues. Conceptually, there are certain salient features of productivity that have become apparent over the years:

• Productivity has a holistic nature characterised by the fact that the different production factors that impact on the total productivity of a system are also interdependent on each other. Such factors include behaviour, methods of production, technology, values, management systems, products, and training/skill etc.
   

• As has been observed¹⁶ a general perusal of the list of countries conquering world markets today indicates that these are countries with the highest levels of total productivity. A much closer look reveals not only the highest levels of labour productivity but high levels of materials productivity as well. This has been achieved through 'a keen interest in technological development and large investments in Research and Development. South Africa is still far behind these countries in terms of its relative investment in Research and Development and thus its ability to create more efficient materials for its industry.'
   

• An integrative understanding of productivity also implies a conceptual approach that does not simply emphasise cost cutting on the input side but also recognises the great importance of output factors.
   

• As both local and global circumstances change, different factors assume different levels of importance in terms of their contributory role towards total productivity. Whilst appreciating productivity in its totality, when developing strategies for productivity improvement, the current importance of each factor needs to be appreciated. The need to adopt an integrated approach should therefore not negate the imperative to prioritise.

In addition to the above points the following two considerations may be particularly relevant to the South African situation:

• For a country with the type of skewed socio-economic development patterns that South Africa has, productivity needs to be integrated with sustainable development. This should include an understanding to promote and reward products and technologies that are environmentally friendly, low or no wastage (including re-useable and recyclable goods). Integrating productivity with sustainable development should also imply the encouragement and reward for the type of productivity that is progressive in terms of labour retention and absorption rather than regressive in terms of job losses. The former increases wealth over time, the latter increases poverty and inequalities.
   

• As has been the case in most countries with successful productivity accords, the workplace should evolve into a participatory environment focused on the creation and equitable sharing of wealth created through productivity improvements. This should include the recognition of all the players (customers or consumers, management, labour and government) and the vital role fulfilled by the partners in enabling accelerated productivity growth. It should also include the equitable distribution of the rewards of productivity in an open and transparent manner that stimulates further improvements in productivity.

THE INTERNATIONAL CONTEXT

In the international context, productivity accords usually arise as a result of national development crises that involve transformation in the economic and social sectors.

The Japanese accord, the most publicised and well-known accord, emanated in the context of economic restructuring following World War II. From 1945 Japan suffered from high inflation, poor economic growth, and continuous and often brutal labour conflicts.¹⁷

In similar fashion, when the Australian accord was introduced, that economy was not functioning an optimum level. "At this time the practice of monetarism proved disastrous, leading universally to spiralling unemployment and interest rates, low or negative economic growth, stagnant or declining living standards and continuing high inflation. This is similar to those countries where inflation and interest rates have fallen, but the cost has been further rises in unemployment and falls in growth and confidence, thus reflecting characteristics of a depressed economy. The Fraser Government's adoption of monetarism has, despite the offsetting influence on economic activity of the resources development in recent years, produced similar results in Australia -we enter 1983 with official predictions of negative growth, double digit unemployment, double digit inflation and no sign of recovery on the basis of the continuation of current policies".¹⁸

In Ireland the economy was opened to free competition in the 1950s. There was particular anxiety when the country entered the British Free Trade Area, because it was thought that it would mean the influx of cheap British industrial goods after three decades of highly protected industrial development.¹⁹

A wide range of public institutions with tripartite governance was established in Ireland in the sixties. The success of institutions dealing with remuneration was minimal. Economic prospects were dim as the ratio of national debt to GDP was 57% (1974) and rose further to 117% (1987), employment was falling, and unemployment was 8% (1980) and increasing sharply..²⁰

In the Netherlands the rate of unemployment rose to more than 10% in the 1980s and reached 15% in 1983. In Ireland and Denmark unemployment soared, in particular after the second oil crisis in the beginning of the 1980s and again in the early 1990s. It peaked in the Netherlands at 12% in 1982, 17% in Ireland in 1985, and 10% Denmark in 1993. Austria experienced rather stable rates at around 4% during this period.²¹

A NATIONAL PRODUCTIVITY ACCORD - THE PROCESS

The 1947 Japanese constitution guaranteed the right to organise unions, to bargain and act collectively. This period also saw the dissolution of big financial institutions (Zaibatsu) and the introduction of a system of free competition.

After 1950 the unions began to focus increasingly on improving working conditions, and industry-wide union federations were formed. European approaches to management started to become the model. The first step to initiate a productivity movement was to use the US as a model of modern management. Many study missions were undertaken overseas, and modern, Western-style management practices were introduced in Japanese enterprises on their return.

The Japan Productivity Centre (JPC) was founded as a central agency to organise the joint efforts of the public and private sectors in addressing the tasks facing the productivity movement. Three guiding principles were established to promote the productivity movement:

• Expansion of employment

• Co-operation between labour and management

• Equitable distribution of the gains of improved productivity.²²

General plans subsequently announced by the JPC every five years served to augment, reinforce and systematise these three principles, and they were referred to time and again whenever the productivity movement faced difficult situations, for example when the economy needed some revitalisation to create jobs and simultaneously enter the arena of international trade.²³

OPINION:

A CONDUCIVE ENVIRONMENT FOR PRODUCTIVITY ACCORD.

Most of the set of circumstances that led to productivity accords in other countries such as non-competitive interest rates, high unemployment and until recently, high inflation rate are prevalent in South Africa.  A low skill base, low technological output as well as other factors that impact negatively on productivity and competitiveness compound the South African situation.  Under these circumstances, it is possible to surmise that the country is ripe for a productivity accord.

As alluded to already in the document, factors that impact on productivity are various yet interdependent.  In addition, the factors that impact negatively on the country's ability to improve and sustain a better life for the majority are beyond the control of a single social grouping, constituency or institution.  Co-operation by the different players and constituencies therefore is an imperative if total productivity improvement is to occur in the country.  The process of developing a productivity accord in South Africa appears to be a prerequisite to job creation.  It calls upon the parties to identify areas of commonality and minimise areas of disagreement and conflict.  Whereas the process itself may be used as a basis to minimise disagreements and maximise co-operation, extra efforts may be required to create an atmosphere that is conducive to the thriving of such an accord.

In most countries where such accords succeeded there was no need for such extra effort since the society was relatively homogenous and had a history of less conflict in the period immediately preceding the development of a productivity accord.

SOCIAL DIALOGUE

The social dialogue between the government, workers and employer organisations may be regarded a crucial factor in the relative labour market success of the above-mentioned countries. Social dialogue lies at the core of social partner institutions in particular and industrial relations in general.

Social dialogue may be considered the fuel and institutions as the motors for such social partnership - and both are important to progress. In other words, a social partnership without dialogue is condemned to stagnation. Dialogue is conducted at many levels and in different degrees: from the national to the local level, and from an exchange of information and consultation to co-determination, bargaining and contracting.

Social dialogue often extends to the administration of certain elements of the social security system and/or the employment services run by the social partners. However, a clear distinction should be made between social consultation (social dialogue at the highest level, where information is exchanged and a common view of the state of affairs may be developed) and bargaining over costs and benefits - the distribution aspect of dialogue.

Different types of agreements apply, including "social partnership", "tripartism" and "corporatism". These social institutions were designed to deliver efficiency and equity, and back up political stability.

Corporatist governance relies on all these elements together, namely bipartite and tripartite consultative decision making, tripartite policy formulation and implementation through bargaining, and even the tripartite (or bipartite) administration of institutions.

In the 1980s and early 1990s, insufficiently developed social dialogue in Western Europe contributed to the employment crises. Social dialogue experienced problems at the time, and the approach was often adversarial and ideologically charged. However, when an approach became more pragmatic and inclined towards solving problems, it contributed significantly to employment and productivity successes.

In the countries under review, a concerted effort involving consultation and debate was concluded with a number of social pacts: the first in 1982 in the Netherlands (the Wassenaar Agreement), followed by the Declaration of Intent in Denmark and the Programme for National Recovery in Ireland, both signed in 1987.

New, concerted efforts by governments and social partners to tackle outstanding problems such as inadequate competitiveness and deteriorating employment situations finally allowed some countries to emerge from the crisis. However, the system was confronted by new challenges such as the privatisation of the nationalised industries or social security reforms.

WHAT WAS ACHIEVED

During the period 1980 to 1996, GDP in Austria increased by 40,8%, in Denmark by 38,5%, in the Netherlands by 42,2% and in Ireland the economy grew at an exceptional pace and increased by 106%.

Growth patterns have become more diversified in recent years and average annual GDP growth rates over the period 1994 to 1997 were 2,1% in Austria, 2,7% in Denmark, 3% in the Netherlands and 9,9% in Ireland.

Employment performance varied even more as Austria's employment declined by 0,2%. However, increases occurred in Denmark (1,7%), Ireland (4,4%) and the Netherlands (2,2%).

Economic growth in Austria may be ascribed to increased productivity and not additional jobs, whereas the Dutch economy grew through jobs. Its growth is consequently associated with lower productivity growth. Ireland enjoyed both high productivity and employment growth, and Denmark showed both productivity increases and considerable employment growth.

Pacts expressed the desire of partners to co-operate in order to solve problems facing the economy. A concerted approach was based on wage moderation and a boost in competitiveness, while maintaining but reforming the welfare state. Concerted action between social partners and the government has been the traditional way of governance in Austria and no new pacts were concluded.

In Australia a set of eight accords have been compiled since 1983. These accords varied in terms of their contents and approaches over the years, to the extent that some policy directives in the most recent accord are contrary to those in earlier accords, indicating evolving policy dynamics as circumstances change and as experience is derived from successful and disappointing outcomes.

In the first accord, mention was made that with inflation being high when unemployment is high, sustained economic recovery sufficient to restore and maintain a situation even remotely resembling full employment is not possible whilst reliance is placed solely on conventional economic weapons of fiscal, monetary and exchange rate policy, however varied and applied.

Accord VIII had the same objectives as the Accord partners reaffirmed their continuing commitment to the creation of jobs and sustained reduction in unemployment, and long-term unemployment in particular. Accord VIII had as a goal the net increase of a minimum of 500 000 jobs over the life of the current parliamentary term. The extraordinary strength of the recovery, the efficacy of labour market programmes and the responsible role played by workers and their unions have surpassed this target after only two years.

The 1999 OECD economic outlook recorded the unemployment rate in Australia as 9,9% in 1983, declining steadily to 6,1% by 1989 and increasing again to 10,9% in 1993. A steady decline in the unemployment rate occurred during subsequent years, ending at 7,5% in 1999. What is more important is the substantial increase in the labour force participation rate which started at 69,8% in 1983 and increasing to 75,2% in 1996 whereupon it dropped slightly to 74,8% in 1999.

The average annual increase in GDP from 1984 to 1999 was 3,7%²⁴compared to 3,2% from 1971 to 1981. The growth rate was a negative 1% cent in only a single intermittent year, namely 1991.

In the Netherlands, on balance, only private sector jobs appear to have been created, and the number of public sector jobs stagnated. In Ireland an overwhelmingly number of private sector jobs were created, whereas the opposite happened in Austria where private sector jobs decreased and public sector jobs expanded. Denmark created more jobs in the private than the public sector, but public sector job creation was considerable.

PRODUCTIVITY GROWTH IN SOUTH AFRICA

South African labour productivity statistics show remarkable increases of 6,5 per cent for 2000 in the private non-agricultural sectors. Among the main sectors, the best performance (13 per cent) was in the transport, storage and communications sector (which include the so-called New economy) followed by the electricity, gas and water sector (11,8 per cent), the finance, insurance, real estate and business services sector with 9,1 percent and the commerce sector with 6 per cent. Although output growth contributed to higher performance in all sectors except the mining and construction sectors, where declines in output were recorded, all the sectors achieved increased labour productivity by also reducing employment. Capital productivity increased in all sectors at rates varying between the 6,9 per cent of the manufacturing sector and the 0,4 per cent of the construction sector, except in the electricity (-2,1 per cent) and the mining sectors (-1,3 per cent), which recorded declines. Capital stock increases occurred in most sectors, the exceptions being mining (-0,5 per cent) and electricity gas and water (-2,1 per cent). All sectors posted multifactor productivity growth varying between the 8,7 per cent in the electricity, gas and water sector and the 0,7 per cent in the construction sector. The only decline in multifactor productivity was the -1,6 per cent in the mining sector.

IMPROVING PRODUCTIVITY - MECHANISMS TO ACHIEVE THIS

Productivity accords do not seem generic or similarly applicable in different countries. Unique problems in each country play an important role in determining the relevant dynamics. The European countries have ageing populations with sophisticated education and social security systems and highly evolved manufacturing and service sectors. In a developing country like South Africa almost the opposite applies. The population is relatively young and the unemployed received inadequate education. Education systems and social security provisions are less sophisticated. However, the same symptoms of inadequate economic growth and high unemployment with a threat of inflationary pressure apply.

However, processes towards reaching amicable solutions seem more generic, namely choosing certain aspects of the economy to address (high unemployment, poor economic growth or a high inflation rate). International experience indicate that social dialogue around the chosen economic targets and the required instruments seems to ensure a higher success rate and higher returns in almost every sphere of activity, than when individual social partners pursue their own-segmented interests.

Social partners in this instance should be widened to include representatives of consumers, the unemployed and possibly even foreign investors.

The social partners should fully debate and agree on the formulation of common targets and policy objectives and instruments to achieve these targets. Periodic reviews of these objectives and instruments are called for and adjustments should be negotiated from time to time.

In summery the following issues must be considered in developing any productivity accord:

• Develop co-operative structures, if ones do not already exist, where the issue of productivity may be negotiated and agreed upon. Where structures already exist, for instance bargaining councils or workplace forums, these institutions should be used.

• Define the term "productivity" so that employees and employers have the same understanding of the concept.

• Ensure that the products or services are improved by better design and specification, including the availability of the product at the right place and time and at a reasonable price for the right market.

• Ensure that the plant and equipment are properly maintained.

• Adapt to and develop technological innovations.

• Ensure that the sources of productivity, including material and energy, are available.

• Create a diverse workforce in which employees feel that they are able to develop in the enterprise or sector, in this way they will be more motivated and therefore more productive.

• Remunerate employees adequately in relation to the economic environment in which they live.

• Introduce innovative pay systems in which employees benefit from increased productivity, for instance employee shareholder schemes and collective productivity bonuses.

• Enhance and develop human resource systems in order to create a work environment conducive to work.

• Reduce the costs of products or services so that the consumer shares equally in productivity thereby increasing broader social benefits.

• Measure, monitor and motivate employees' performance by introducing agreed upon performance management systems.

• Develop micro productivity accords at enterprise or plant level, which accords must be negotiated in terms of a macro productivity framework.

• Develop macro productivity accords at national and sectoral level, which can establish appropriate frameworks for accords at enterprise or plant level.²⁵

ANNEXURE "A"

SOME SOUTH AFRICAN EXAMPLES

In South Africa, at present, it is impossible to correlate employment equity data and productivity as employment equity legislation and the obligation to report on employment equity has only been enforceable for a period of two years.²⁶

In the mining and quarrying sector the graph below illustrates that productivity has increased. The increase in productivity may be linked to two factors, namely the decrease in the number of people employed and the decrease in the real wages of employees. Taking these two factors together it may be concluded that there has been no real increase in productivity as all that has occurred is a decrease in the inputs of the sector.

In the manufacturing sector the opposite has occurred, namely the real wages of employees has increased, even though the number of employees has decreased, thus indicating that wages may be an incentive to increase productivity.

 

MINING AND QUARRYING

Labour Productivity Index and Employment figures
Year	Labour	Number of	Real earnings
	Prod Index	employees	per employee
1990	77.4	775 413	26 820.00
1991	81.6	719 752	27 301.00
1992	90.3	660 829	27 681.00
1993	99.0	616 546	29 369.00
1994	100.9	607 735	29 527.00
1995	100.0	594 406	31 043.00
1996	104.1	566 428	32 830.00
1997	109.5	547 388	34 569.00
1998	129.7	459 755	39 537.00
1999	136.3	433 500	41 115.00
Summary: Percentage changes 1990-1999
	5,9% p.a.	-5,6% p.a.	4,9% p.a.
	76.1%	-44.1%	53.3%

MANUFACTURING

Labour Productivity Index and Employment figures		and Employee Figures
Year	Labour	Number of	Real earnings
	Prod Index	Employees	per employee
1990	92.6	1 598 936	36 630.00
1991	90.4	1 562 753	35 977.00
1992	89.8	1 522 821	35 069.00
1993	91.5	1 491 941	35 959.00
1994	93.2	1 503 454	36 683.00
1995	100	1 491 862	37 862.00
1996	103.9	1 456 393	38 342.00
1997	110.9	1 396 429	39 024.00
1998	113.9	1 335 682	42 590.00
1999	116.9	1 303 388	43 616.00
Summary: Percentage changes 1990-1999
	3.2% p.a.	-2.1% p.a.	2.2% p.a.
	26.2%	-18.5%	19.1%

BIBLIOGRAPHICAL REFERENCES

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http://www.actu.asn.au/national/about/accords/ .5/17/01.
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Advanced Productivity and Quality Centre Australia. Sydney. ISBN 0646 30801 7.
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OECD. 2000. Unemployment. Economic Outlook 68:231-232. Paris.
Pant D (ed.). 1999. Current issues on productivity. National Productivity and Economic Development Centre. Kathmandu, Nepal.
Marcel P. 1991. The heritage of Belgium's 1954 Joint Productivity Declaration. Paper presented to a meeting of the All-Union Productivity Centre, Moscow, 16-17 October 1991. In: Europe Productivity Ideas 1(92).
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Footnotes

1. Orbach E, The Nature of the Beast. 1995
2. Shaheed, Z: Some General Trends in Relating Pay to Productivity in Western European Countries ILO, 1994
3. R. C Monga, R C  (1997:130)
4. National Productivity Institute (NPI) Productivity Statistics, March 2001
5. The Conference Board of Canada: Dimensions of Diversity in Canadian Business: Building a Business Case for Valuing Ethnocultural Diversity. 1995
6. Becker G S The Economics of Discrimination  Chicago and London 1957
   The most often quoted empirical example of this "taste for discrimination" is the case study on American basketball. American basketball before 1950 was segregated into two leagues, one black, and one white.
   The black league had in it highly talented players who could be bought for a fraction of the price of comparable white counterparts. Bill Veeck saw that black players could be extremely profitable. He tried to buy the franchise of a white basketball team in order to recruit black players to it. The owners of the franchise, who then sold the team to another buyer for a fraction of the price that Veeck was willing to pay, resisted this. They therefore paid for their discriminatory preference. Veeck subsequently bought another team and filled it with black players. This team came to dominate the basketball league and made huge profits. Veeck had therefore an economic advantage over others in the basketball business.
7. Hepple B Equality and Discrimination in Davies et al European Community Labour Law: Principles and Perspectives Oxford 1997
8. Lepovsky M D Understanding the Concept of Employment Equity in Canadian Labour Law Journal, Volume 1, 1991
9. Martinez M N Equality Efforts Sharpen Banks Edge HR Magazine. Vol. 40, 1995 An example of this is the Bank of Montreal hired a diverse workforce including Asian employees. The Asian employees, particularly the Chinese employees who were able to communicate with Chinese communities in the country as well as with businesses in China. This increases their business by 400% in five years. 
10. Raia P D Why Manufacturers that Export Choose California World trade Vol. 5 1992 In a study done in California it was shown the diverse workforces were paramount in ensuring sales to foreign countries. California is the primary export state in the US; it is also a favourite with foreign investors.
11. Gandz J A Business Case for Diversity Paper for the Richard Ivey School of Business, the University of Western Ontario, Ontario, Canada
12. Woolf M ( Director of Diversity Strategies at Merrill Lynch) fortune Magazine  1996
13. Shaheed, Z: Some General Trends in Relating Pay to Productivity in Western European Countries ILO, 1994
14. Shaheed, Z: Some General Trends in Relating Pay to Productivity in Western European Countries ILO, 1994
15. Shaheed, Z: Some General Trends in Relating Pay to Productivity in Western European Countries ILO, 1994
16. Orbach (1995:7)
17. JPC 1989:1
18. ACTU 2001 Accord 1:2
19. Prokopenko 1987:254
20. Auer 2000:21;43
21. Auer 2000:21
22. JPC 1989:3
23. JPC 1989:1
24. OECD 1999:227
25. Shaheed: Z: Some General Trends in Relating Pay to Productivity in Western European Countries ILO, 1994
    Inouye S: Productivity Gain Sharing Systems: The Japanese Experience Report of the Asian Productivity Organisation, Workshop on Linking Wages with Productivity, 1994
    Dong T J: a Flexible Wage System: the Singapore Experience Report of the Asian Productivity Organisation, Workshop on Linking Wages with Productivity, 1994
26. Section 21 of the Employment Equity Act, No 55 of 1998. The Department of labour has data relating to employment equity for the period 1999 only. Consequently the relationship between employment equity and productivity cannot, as yet, be correlated.

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This paper endeavours to generate a range of ideas relating to productivity that may be used by all parties. It does not, in any way, reflect the opinions or views of the Nedlac constituencies.