If services are the key productivity driver, then human-to-human interactions imo need greater consideration as a driver for productivity growth. The extensive work done by Bloom, Van Reenen, Sadun etc al and the WMS show that, as one example, that manager effectiveness makes a greater contribution to firm productivity than even a firms R&D investments. Yet what is the average score for ME among advanced nations? Below 3/5. Put another way, would you take your family to a restaurant rated 3/5 on TripAdvisor? Yet we need to work with managers of this calibre for large parts of our lives.
We cam also frame this as skills. The OECD did a comprehensive study into the influence if skills (and skills gaps) in 2023 and the difference between frontier companies and even the middle runners are off the charts.
My guess is that we never like to consider these factors and instead spend our time writing about a) AI, b) renewables / nuclear and c) infrastructure is that these are voguish. Also, our grasp of psychology / reality is parlous as is our understanding of how to achieve behaviour change. But it's in the amazing technology of our biology where the greatest productivity gains lie.
I think this is spot on. Too many firms promote the wrong people to the wrong jobs and succumb to the Peter Principle. If e have more effective managers, we could boost prouctiivty by miles.
Thank you Joachim, maybe this could be a theme for a future post. The multi-decade work done by the folks at LSE/Stanford mentioned above found that a 10% increase in manager effectiveness equates to 14% in gained productivity, in turn worth 0.7% of revenue. 0.7% revenue for multinationals can be as much as $100m or more. Then let's consider what a shift of 40 or 50% in manager effectiveness can look like (the team undertook their own experiment in India and achieved a 20% shift in a year).
We fixate on potholes and trains with leaves on the track... but what about all the unseen canyons and quagmires invisible to the eye? £400m on Rwanda here, £1.4bn on HSE there, £92bn on HS2, and on. The human capital factors imo far outstrip the physical contributors to TFP. Companies also experience this (employee attrition is rarely measured yet has eyewatering costs, as does half the rest of nonsense in companies, Peter Principle you mentioned, parochialism, silos, fiefdoms, egos, top-downism)... all of these are drains on productivity. Imo the dignity of being human is where the opportunity for growth lies, and the only way to escape the Gordion Knot of deficits and debt.
If we were to start linking these intangible factors to actual numbers, perhaps that's another way to unlock the productivity puzzle. At any rate, thank you for the thought-provoking post Joachim!
If services are the key productivity driver, then human-to-human interactions imo need greater consideration as a driver for productivity growth. The extensive work done by Bloom, Van Reenen, Sadun etc al and the WMS show that, as one example, that manager effectiveness makes a greater contribution to firm productivity than even a firms R&D investments. Yet what is the average score for ME among advanced nations? Below 3/5. Put another way, would you take your family to a restaurant rated 3/5 on TripAdvisor? Yet we need to work with managers of this calibre for large parts of our lives.
We cam also frame this as skills. The OECD did a comprehensive study into the influence if skills (and skills gaps) in 2023 and the difference between frontier companies and even the middle runners are off the charts.
My guess is that we never like to consider these factors and instead spend our time writing about a) AI, b) renewables / nuclear and c) infrastructure is that these are voguish. Also, our grasp of psychology / reality is parlous as is our understanding of how to achieve behaviour change. But it's in the amazing technology of our biology where the greatest productivity gains lie.
I think this is spot on. Too many firms promote the wrong people to the wrong jobs and succumb to the Peter Principle. If e have more effective managers, we could boost prouctiivty by miles.
Thank you Joachim, maybe this could be a theme for a future post. The multi-decade work done by the folks at LSE/Stanford mentioned above found that a 10% increase in manager effectiveness equates to 14% in gained productivity, in turn worth 0.7% of revenue. 0.7% revenue for multinationals can be as much as $100m or more. Then let's consider what a shift of 40 or 50% in manager effectiveness can look like (the team undertook their own experiment in India and achieved a 20% shift in a year).
We fixate on potholes and trains with leaves on the track... but what about all the unseen canyons and quagmires invisible to the eye? £400m on Rwanda here, £1.4bn on HSE there, £92bn on HS2, and on. The human capital factors imo far outstrip the physical contributors to TFP. Companies also experience this (employee attrition is rarely measured yet has eyewatering costs, as does half the rest of nonsense in companies, Peter Principle you mentioned, parochialism, silos, fiefdoms, egos, top-downism)... all of these are drains on productivity. Imo the dignity of being human is where the opportunity for growth lies, and the only way to escape the Gordion Knot of deficits and debt.
If we were to start linking these intangible factors to actual numbers, perhaps that's another way to unlock the productivity puzzle. At any rate, thank you for the thought-provoking post Joachim!
Already working on it but any paper recommendation welcome
Will do later today or tomorrow