Is it production or productivity?

By Admire Mavolwane



ZIMBABWE’S financial, economic and political commentators and “analysts” have, in recent times, been engrossed in a number of debates.
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On the political front one of the topics that have taken centre stage is the Constitutional Amendment No 18 Bill, with various conjectures being proffered as to why the opposition party and the independent member of parliament found themselves willingly in bed with the government.


The latter was the promoter of this piece of legislation, and the opposition was widely expected to vote against it.


The debate is still on-going and a number of conspiracies are being put forward, including South African involvement and influence on the opposition.


On the economic front, press headlines have been dominated by the launch of Phase II of the “apolitical” farm mechanisation programme on Monday afternoon.


We are made to understand that this phase of the programme will see A1 and communal farmers receive 50 000 animal-drawn ploughs; 70 000 animal drawn harrows; 70 000 knap-sack sprayers; 45 000 scotch carts; 20 000 animal drawn cultivators; and 1 000 animal drawn planters.


A2 farmers are also expected to benefit with 1 200 tractors; 50 combine harvesters; 800 ploughs; 800 disc harrows; and 300 planters being available for distribution.


The mechanisation loans will be repaid over three years with one year grace period. However, figures of the full cost of this phase of the programme were not at hand.


At the same occasion, it was announced that the programme will be conducted in 10 phases up to 2010.


As the ululations and adulations were going on, investors were falling over each other in their quest to buy shares. The scramble ensured that the shares were bid higher but with very little scrip changing hands.


Consequently, the industrial index opened the week firm, gaining 10,39% on the Monday, before momentum eased to 8,35% on Tuesday and the trend continued as the week progressed.


As alluded to by the governor the central bank Gideon Gono in his mid-year Monetary Policy Review Statement, the short-term prognosis is that the multitude of facilities and concessions, farm mechanisation included, which are primed to enhance productivity will result in enhanced inflationary pressures.


This has seen investors taking preemptive measures aimed at preserving value by channeling funds into the stock market, abetted obviously by the sub-inflation deposit rates obtaining in the money market.


Arising out of the farm mechanisation debate are the issues to do with production and productivity, and effective utilisation of resources.


There has been a lot of confusion arising out of the rather inappropriate use of the two terms — production and productivity.


Almost all the media houses and even those expected to know better have acquired a tendency to use the terms interchangeably. Consequently, those who know the real meanings of the two words are lost as to the real thrust of the current policies.


Are policies aimed at boosting production or productivity?


In theory, and by economic definition, production refers to the physical output of a production process. Volume is the term commonly used.


For instance, the fact that the total tobacco output for 2007 marketing season was approximately 71 million kilogrammes is just an absolute production figure and reveals nothing about the number of farmers involved, nor the quantum of the land mass utilised.


In other words it does not say that 71 million kilogrammes were produced by how many farmers or on how many hectares.


On the other hand, productivity is production with respect to factors/resources applied such as time, people, money, land etc.


It is a measure of the rate at which output flows from the use of given amounts of factors of production.


For example, 10 000kg/hectare or 150 00kg/farmer is a more informative statistic and economic variable.


Production and productivity may not be linear in relationship.


If 50 million kilogrammes are produced in a season against 50 million kilogrammes in the previous period that may be higher production but if 1 million as opposed to 100 000 farmers are needed to achieve this result, then it may be described as much lower productivity.


However, there is a positive causal relationship in that if factor productivity increases, production also increases. The reverse is not necessarily true.


Perusal of a number of recent policy documents would suggest that the national emphasis is on more production with lesser emphasis on productivity.


In classical economics, drivers of growth in an economy are natural resources, investment, policy, productivity, geography, institutions and competitiveness.


Production is conspicuous by its absence from the list. In any case, production is not a very important economic variable.


The growth of the American economy in recent times has been attributed to the rapid increase in factor productivity — not production per se — at about 3% annually.


A report by the New Zealand treasury in December 2005 showed that improved productivity had contributed significantly to economic growth.


In most cases including Japan and Asia, it would appear that expanded production output and consequently positive economic growth is coming on the back of improved productivity.


There are several sources of productivity improvements which include the efficiency of resource allocation — in line with the central economic tenet of optimising the use of scarce resources, the exploitation of economies of scale, positive externalities and technological progress to mention only the major ones.


Public policies matter a great deal, particularly in generating non-climatic positive externalities and fostering the exploitation of the other three factors.


It would appear that as things stand, the country’s latest dose agriculture policy seems to be targeted mainly at technological progress, with the aim of expanding production, but does not sufficiently address the other three factors.


Although it has not been proven beyond doubt which policy thrust works between targeting production and productivity in developing countries, evidence from China and India overwhelmingly suggests that the productivity route is the way to go.


In these two countries, all the four major factors which positively impact on productivity have been at the forefront of economic planning and policy.