Austerity and Productivity

Separate words often mean pretty much the same thing, with the only difference being the emotional reaction they tend to generate. Austerity and productivity are two such words.

Austerity sounds bad, and productivity connotes good things.

The word austere is usually associated with the public sector while productive generally refers to private sector initiatives.

In the public sector, austerity frequently conjures up sacrifice, unnecessary severe cost cutting and unfair treatment which favors not taxing the 'wealthy fat cats' to the detriment of the discriminated against public sector employees.

On the other hand, in the private sector, productivity means ongoing and necessary improvement measures. Productivity gains are recognized as both essential and beneficial to a specific company's and overall economy's well being.

In my view, the two words austerity and productivity stand for the same thing and should be viewed that way. Private sector shareholders embrace productivity; public sector taxpayers should as well.

Thus, we need to adopt the habit of improvement--productivity-- as an important element of the public sector employees' behavior every bit as much, if not more, as we do in the private sector. That said, try telling that to public sector union officials as well as many public sector employees and bystanders.

Unions traditionally have opposed progress, but they oppose dues reductions and job eliminations even more. Union dues come from jobs. Without productivity jobs are at risk in the private sector because of competitors and customer choice.

Accordingly, unions tend to acknowledge the need for continuous productivity improvements in the competitive customer choice driven private sector. Otherwise the companies will go out of business and the jobs will go away. That in turn means no dues, the unions' source of revenue.

Unlike the competitive private sector, the monopolistic government sector has no such customer choice or other competitive threats to its survival. Hence, productivity measures are treated as bad things, and the word austerity is often trotted out by unions when public finances require cost savings and productivity gains.

Unlike its connotative meaning, in economics austerity is simply a policy of deficit cutting, lower spending, and a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to reduce their deficit spending. In other words, at some point we stop spending money we don't have to spend and begin to live within our means. Those measures are deemed austere.

On the other hand, productivity can perhaps be best described as realizing more output for the same input, or in the alternative, achieving the same level of output while requiring less input. It's the simple relation of output to input, sometimes called the habit of improvement.

Thus, if 10 workers produce 10 products in a given amount of time, that's 1 unit produced per worker. If those same workers become more productive, and learn to make 11 in that same amount of time, that's 1.1 unit per worker, or a productivity gain of 10%.

By the same token, going from 10 to 11 units with 10 workers is essentially the same as producing 10 units but only needing 9 workers to do so. The extra 10th worker can then be available to do other necessary work.

So let's continue.

U.K. Suffers Public-Worker Strike and Britons Strike as Government Extends Austerity Measures both discuss yesterday's widespread public sector strike in Britain.

The "Britons Strike" article says this in part about the public sector work stoppage:

"The government says its reforms are necessary to reduce the country's £32 billion ($50 billion) annual pension bill and reflect that people are living longer, but unions say they are unfair and unnecessary. . . . The government said British households, which are already squeezed by higher food and electricity prices, would have to endure an additional two years of austerity measures, now until 2017. The economy is growing slower than forecast, hurting chancellor Osborne’s initial 2010 plan to eliminate the budget deficit within five years.. . .

The British economy will grow 0.9 percent this year, less than the 1.7 percent predicted earlier, and 0.7 percent next year, the Office for Budget Responsibility forecast Tuesday. The agency predicted that the economy would then pick up and grow 2.1 percent in 2013. Debt as a share of gross domestic product would peak at 78 percent in the fiscal year ending in 2015, higher than the 71 percent initially predicted.

Amid fierce criticism from the opposition Labour Party, Mr. Osborne said Tuesday that he would stick to his austerity plan, which includes more than 600,000 job cuts in the public sector and other spending curbs, but that it would still take longer for the debt load to shrink.

Because of that, the government said it would cap pay increases for public sector workers at 1 percent for two years after the end of the current pay freeze. . . .

But it added to the anger of workers’ representatives, who said the government was now not only “raiding” pensions but wages as well."

The "U.K. Suffers" article said this about the nature of the strike, "Thousands of teachers, passport officers and other public-sector employees staged what unions said could be the U.K.'s biggest strike for a generation Wednesday to protest plans to make them retire later and pay more towards their pensions.

Although contingency plans helped minimize the disruption to services, the strike means the U.K. joins the list of European countries including Greece, Spain, Portugal to face mass walk-outs in response to government efforts to cut spending and budget deficits.

Prime Minister David Cameron stressed that reform of public-sector pensions is essential, while Chancellor of the Exchequer George Osborne said the stoppage would weaken the economy and could cost jobs."

What is left unsaid by the public sector union leadership and strikers is that without cost reductions sufficient to bring the budget into balance over time, taxes will have to be raised dramatically on the British people. And tax increases in lieu of requiring public sector productivity gains would make an already way too slow economy even slower. That would be a demonstrably wrongheaded approach and totally unfair to U.K. citizens.

So what? Should Americans care about what's happening in Britain and elsewhere in Europe? In a word, yes.

This British situation bears careful watching as we in the U.S. are being forced to come to grip with our many underfunded public sector promises with respect to pensions, health care, compensation and employment levels. Will we opt for implementing much needed productivity gains as opposed to requiring across the board tax increases? Or will we call productivity measures unfair austerity and demand tax increases instead?

One way grows the economy; the other way grows the public sector.

Asked another way, will we put in place the same productivity mindset and programs in the public sector that private sector employees implement and improve upon routinely? Or will our president choose to continue to vilify the private sector 'fat cats' while expressing total support for the non-productive public sector system embraced by public sector union officials?

Unfortunately, the president, public sector unions and the Democratic Party are not exactly boosters of private sector performance and productivity measures. They'd rather tax the rich or borrow instead.

That said, change is coming soon to the U.S. public sector, if for no other reason than because it has to. And that will be a good thing for America. Maybe even for the president, his cronies and supporters.

Thanks. Bob.