Mitt Romney last Fall: “‘Our productivity equals our income.”
Barack Obama in response on Wednesday: “… the notion was that somehow the reason people can’t pay their bills is because they’re not working hard enough. If they got more productive, suddenly their incomes would go up.” He went on to say, “Those of us who’ve spent time in the real world know that the problem isn’t that the American people aren’t productive enough – you’ve been working harder than ever.”
Romney is right when we slams Obama for blatant economic ignorance: “I’m amazed he doesn’t understand what productivity means.” He says, “Gosh, this is quite a revelation if you have the president of the United States that doesn’t understand the productivity is a measure of output per person in the nation as a whole.”
It gets at the whole idea of value adding and non-value adding. A central debate between liberals and conservatives is the size of the government. In the USA one fourth of us work for the government, which means one fourth of us create no value. So if there are 300 million Americans, and 200 million of them are working adults, and 50 million of them work for the government creating no wealth (value) then the quality of American life equals the output of 150 million people divided by 300 million people sharing it.
In this grossly over-simplified example there are two ways to increase overall productivity and the quality of life: Get the 150 million people to work harder and create more wealth for the 300 million; or keep the 150 million working at the same pace, cut the 50 million not adding value in the government to 25 million and have the rest add to the value adding bunch, then the 300 million enjoy the fruits of 175 million people’s wealth creation.
Lest anyone think this is just another anti-Obama, anti-liberal, anti-big government rant, please bear with me. Of course Obama is an economic idiot if he is surrounded by a bloated government full of bureaucrats, paper pushers, policy setters, regulation creators and auditors; but can’t see how productivity can be elevated by any means other than leaving them intact and pounding the actual value creating folks to work harder.
But it is hard to see how he is any more of an economic lightweight than Mitt Romney and the vaunted private sector executives who are supposed to be such greater authorities on the subject. Here is a photo of Staples corporate headquarters – the crown jewel of Romney’s Bain Capital escapades. Just how many bureaucrats, paper pushers, policy setters, regulation creators and auditors do you suppose it takes to fill up a building like this one? And like the government, how much of their rule, regulation and policy output does little more than interfere with the value adding work the people on the front lines are doing?
In fact, it strikes me as more than a coincidence that about 25% of working Americans are government employees – a 3:1 ratio. My experience in the manufacturing world is that a 3:1 direct to indirect ratio is about the norm. One out of every four not adding any value.
It is also my experience that just about every private sector exec is tunnel visioned on productivity, yet he walks into an office building full of non-value ceating folks every morning, blindly assuming they are somehow necessary, and spends his day figuring out how to beat on, automate or outsource the value creators – Obama’s “they’re not working hard enough” mentality.
Romney is right – greater productivity is the key and working smarter is the idea, rather than working harder. Working smarter means having a lot less people wasting their day doing work that does not create wealth and value.
He ought to apply that same principle to himself and his old cronies in American corporate leadership.
Original: http://idatix.com/manufacturing-leadership/it-all-comes-down-to-productivity/
eric landes says
Wow, how can you slam Romney based on a photo of Staples corporate office? I have no idea what Staples corporate culture is etc., but it seems really lightweight to go off on someone based on a photo, without stating facts about that company. I would suspect Romney might agree with you about the corporate productivity, but if he doesn’t you give no evidence to this. Poorly written argument which leads me to believe you just wanted to show how bi partisan you are. Please prove me wrong.
Bill Waddell says
Oh Eric, seems more a matter of your partisanship showing through then anything else. A little sensitive about any criticism of Mitt, are we?
As far as Staples is concerned I have no idea exactly how many people work in this building and what their job titles are – that’s why I phrased it as a question, rather than a statement.
However, I do know they have 1,200 employees in IT alone in this building, and they spent a million bucks just to landscape it. The average annual wage in the building is $64K+. They also run 70 distribution centers in the USA. IT, distribution and landscaping create absolutely no value for customers.
I also know they have 87,782 total employees, of which 41% are part timers working in stores and, therefore, not eligible for most of the benefits.
Thousands of full time, well paid, benefit eligible folks working in a 650,000 sf palace (43 stores serving customers could fit in it) in Framingham; part time, low paid folks facing customers in stores … didn’t seem like much of a stretch to cite Staples as an example of corporate addiction to non-value adding waste.
But you are free to defend Mitt on all subjects against all comer sas you wish.
Jeff Holloway says
I don’t approve of the current President’s policies, but I don’t know that we can assume his economic ignorance from the statement that you quote. He’s giving a speech he didn’t write that is designed to pander to what his audience wants to hear. That’s politics.
I do disagree with the correlation between working harder and being productive. You can work really hard and still not be productive if you are not also working smartly.
Gordon Hardwick says
I always read your posts with great interest. They are perceptive, occasionally cutting, always challenging. But here’s a challenge back. You write “So if there are 300 million Americans, and 200 million of them are working adults, and 50 million of them work for the government creating no wealth (value) then the quality of American life equals the output of 150 million people divided by 300 million people sharing it.” My challenge is that a lot of government employees deliver a lot of value to us in the form of quality of life: Defense, Police, Fire, Water, Sewage treatment, Health, Schools, Universities, Roads, tax collection to fund these etc. (I am in the UK; my apologies if some of these are privately funded in the USA.) Without these services there is anarchy. Unless you want anarchy, the challenge should address not WHETHER to deliver productivity in government, but HOW. And I applaud your point that just because people are working the private sector, that does not make them automatically productive!
John Fleck says
Great post Bill. This is becoming more and more of a discussion within my organization. I always laugh when the guy in the cube next to me complains about the size of government. Does he realize that he works in government, or at least governance? Plus try having a dicussion with a corportate support function about the productivity of their team. The concept never even occurs to them.
We are now finally starting to apply PDCA to corporate processes, most of which exist to support operations. Step one, is making sure this concept is understood. Then ask, do we make it as easy on them as possible, so they can focus on their operations, or there value add?
We are finding processes, that were designed to make it easier on the corporate support. For example, “They must fill out this form, so I can order them a new laptop. But they always complete the form incorrectly. Then it takes 2-3 more emails to get it resolved.” My response is “why can’t they just call you, and you complete the form for them? You can ask the relevant questions, since you are the expert on laptop specifications.”
They often don’t have the visibility to understand just how many forms an operations manager needs to complete, then deal with multiple follow-ups. Plus, would we treat an external customer this way?
Bill Waddell says
Gordon,
Good question and not one with a clear answer.
I view economics in a pretty simple-minded fashion. I envision it as a big pie, and economics needs to deal with the pie from two perspectives: (1) how to bake a bigger pie so there is more for the folks in the USA (or the UK) to share; and (2) what is the most appropriate way to divvy up the pie the people in the country have baked.
This simple view is the prism through which I view whether something creates wealth and value – or not. It seems to me the roles of the military, police and fire protection don’t make the pie bigger – they exist to keep evil forces from shrinking our pie (whether the evil force is a person, an accident or natural event). In fact, they actually consume a lot of resources – steel, plastic, chemicals, etc… – that could be used to make good things for our lives if we didn’t have to dedicate them to preserving what we do have.
Health and education don’t add to the size of the pie either – they may or may not be assets in eventually growing the pie. It all depends on what the recipient does with their health and education. It is the same as company training – to me a non-value adding expense. Again I fall back on simple visual analogies. If there are two identical objects for sale at Walmart, am I willing to pay more for one than the other because the company has to cover its cost for training or healthcare benefits? No. I am only going to pay for those things when the trained, healthy employees turn those attributes into better quality, more reliable, more useful products – making one of those two objects better than the other.
It seems to me to be important to point out that, whether it is with government services or company spending, ‘good’ and ‘necessary’ are not the same thing as ‘value adding’. A company may have to pay for auditors to make sure no one is stealing, or for a security system – but that doesn’t make their products any better in the eyes of customers. The point is that some non-value adding expenses may be necessary, or they may be good investments for the sake of the longer term value creation goals. Roads and the transportation network are a good example of this. In and of themselves they add no value whatsoever. They are often a good investment, however, because they enable the country to create wealth – but only when wealth creating / value adding processes use them.
In terms of utilities, in the USA it tends to be a mixed bag – some government and some private sector. Whether it is private or public, the operations of utility distributors at the tail end of the utility supply chain is generally value adding. The question is whether the government is any good at it, or of it would be better handled by a more productive private sector organization. Value adding, but probably not something the government should be doing.
Most of what the government does has nothing to do with growing the pie. Instead, they are in the business of distributing it. Taking tax money from everyone, and passing it back out, generally to other people. In the USA, the Democrats tend to be big on pie distribution schemes, but miserable when it comes to growing it. The Republicans, on the other had, are all about growing the pie, but leave a lot to be desired when it comes to equitably sharing it. My sense from long distance is that the Labour and Conservative parties in your place can be described about the same.
Bill Waddell says
Jeff,
I guess I don’t let politicians off the hook quite as easily as you. He said it – he lives with it in my book. The fact that it was for political gain is not an excuse for either ignorance or dishonesty.
I agree with your second point and raise you one. No matter how hard – or smart – one is working, they are not productive at all if they are working on something that doesn’t need to be done at all.
Bob Emiliani says
Bill – I understood the President’s comment to refer to rising worker productivity yet stagnant wages over the last few decades. Worker productivity results in higher incomes for workers only if management is willing to share the gain with workers through wage increases. Then, yes, productivity = wealth, as Art Byrne, retired CEO of Wiremold, would often say (where they had profit sharing). If management is unwilling to share the gain with workers through wage increases, or share an amount less than inflation, then productivity = (worker) poverty.
Robert Drescher says
Hi Bill
The real problem is not value creation in our society, though I do agree that governments often do a poorer job of it than the private sector does. What we lack is wealth creation in most western societies, we have been out sourcing it around the globe for the last several decades. Basic Economics requires the understanding that wealth creation comes from the extraction and conversion of resources. Services private sector or public cannot create wealth they can at best only help preserve it and at worst serve only to re-distribute it.
North America and for that matter all western economies, are in trouble today because less people create wealth as a way of life, than there are people providing services. The bulk of those 150 million people working in the private sector are doing nothing that in and of itself can create added wealth for the economy. Until we expand our ability to produce actual products our economies will not be able sustain any type of economic stability.
The biggest advantage many Asian manufacturers have over North American and European ones is that they have a higher percentage of their employees involved in wealth creation (actually making products). The few truly successful North American and European companies that I know of have the same advantage; the majority of their staff is actually involved in direct wealth creation. No head office or service has ever created one cent of actual wealth.
lawrence says
In the USA one fourth of us work for the government.
Is that really true? Seems a bit high, unless you gonna count people who do compliance to the laws of the nation.And even then it still may be high.
Bill Waddell says
Robert – you are absolutely correct
Lawrence – actually it is down to 24% in the latest BLS statistics. Government employment has been steadily (slowly, but steadily) declining over the last year or so. The 24% figure includes everyone getting a government paycheck – bureaucrats, military, police, fire, teachers, politicians … local, state, federal … the works.
See my comment in response to Gordon’s question. Many (most probably) of the government employees do work that is good for us or at least necessary. Good and necessary, however, are not the same things as value / wealth creating and it does not mean they add to our overall productivity and wealth. In fact, government employees most often detract from our national wealth.
Jeff Arnold says
In a free market economy, Staples can be as wastefully unproductive as they like. They are not using force to take my money in order to offset their poor decisions. They’re no General Motors, yet.
I love your observation “that just about every private sector exec is tunnel visioned on productivity, yet he walks into an office building full of non-value creating folks every morning, blindly assuming they are somehow necessary, and spends his day figuring out how to beat on, automate or outsource the value creators.”
Birds of a feather…
Train Shane says
Bill,
Stop it, you are going to get us all fired. haha
In all honesty one can turn to you and say you are not adding “value”. Even if you save the company you are consulting money, the results are unlikely it will save the customer money in the long run. You are waste, Bill! Just kidding.
lawrence says
http://www.bls.gov/news.release/empsit.t17.htm
This shows 22million out of 132million non-farm jobs or about 17%.
I am not denying your main idea about non-value added government expenditures, but 1 in 4 is approaching Swenden.(33%)
Bill Waddell says
lawrence,
That figure does not include public employees in education and health care. When you add them we get to Sweden levels – 23.69%
Bill Waddell says
No argument from me Shane. When I meet with companies I start by pointing out that the only thing that clearly adds less value than an executive is a lean consultant. We only justify our existence when we help the real value adders do their jobs more effectively.
Tony Czarnecki says
Great post, Bill. Some time ago either you or Kevin Meyer had a post discussing productivity vs. throughput rate which went into detail about how things like rework are included in, and inflate, productivity calcs. It was so eloquently written. Could you please find it in your archives and repost or send it to me? Thanks, Tony Czarnecki
lawrence says
As I said before, I’m in agreement with your main point butthe chart I sited includes state and local education employees.
What’s your citation for 24-25%?
Bill Waddell says
Lawrence,
My source is basically the same as yours – BLS data for April. As I said, however, the BLS public sector employment data does not include education and health care. You have to get that seperately and add it to the data you cited.
Doug Hudgeon says
I love this comment thread. The transition from Bill’s original post about reducing non-value added work to the comment thread dissection of the underlying numbers is mirrored in many back office improvement projects. I’ve recently worked one project where people were pulled off value added work just to participate in the discussion about the percentage of non-value added work being done!