AKD’s challenge: Increasing national productivity in improving standard of living

President-elect of Sri Lanka, Anura Kumara Dissanayake signs official documents during his swearing-in ceremony, marking the commencement of his Presidency

In their campaigns, the candidates spoke little on the important aspect of improving national productivity. Now that he is in power, I hope that AKD will give it his highest priority. 

The role of Government in economic goals

 Governments, globally, have a responsibility to their constituents to maintaining law and order, ensuring physical security, influencing economic growth, providing selected public goods and services, representing the citizen’s interests, enabling opportunities of personal growth and producing a high and rising standard of living. Enhancing the standard of living is a nation’s principal economic goal. The standard of living is the extent of adequacy of material things such as food, fuel, housing, education, healthcare, transport, clothing, free time et cetera. These are things which matter, as a minimum, to all citizens, particularly to middle- and low-income earners.

Understanding productivity and its importance

The productivity with which the factors of production are employed is the pillar which buttresses the economic goals of a nation. After-all, movements in productivity cause the increase, decline or plateauing of a nation’s per capita income. Under the overarching dynamics of supply and demand, it is the productivity of human capital which determines the reward for its supply, it is the productivity of land which determines the rent and the rates the market is willing to pay for its use and it is the productivity of capital which determines the return expected by the market, and delivered, to its holders. Three decades ago, Paul Krugman, the renowned American economist and winner of the Nobel Memorial Prize Winner for Economic Sciences in 2008, stated that: “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

Current labour productivity in Sri Lanka

The utilisation of labour and the productivity of labour are the low hanging fruits which are pluckable and deployable in Sri Lanka in increasing its overall productivity and thereby the standard of living of its citizens. Labour productivity is the ratio of total output per hour worked. It measures how efficiently labour input is combined with other factors of production and used in the production process. Labour input is the total hours worked of all persons engaged in production. Labour utilisation is the ratio of time worked per capita. Growth in gross domestic product (GDP) per capita is the result of the extents of the growth in labour productivity and labour utilisation. 

As per an International Labour Organisation (ILO) Report, Sri Lanka’s labour productivity in 2023 i.e., Gross Domestic Product (GDP) per hour worked, was $ 15. Sri Lanka was ranked 103 out of 188. Luxembourg, the top ranked, was at $ 146 while Ireland the number two was at $ 143. Other notable, and relevant, comparators were Singapore, ranked 10, at $ 74, the United States of America (USA), ranked eleven, at $ 70, Malayasia, ranked 65, at $ 26, China, ranked 102, at $ 15, Thailand, ranked 106, at $ 15, Vietnam, ranked 123, at $ 10, India, ranked 132, at $ 8, Pakistan ranked 141, at $ 7 and Bangladesh, ranked 145, at $ 7. Burundi was the lowest ranked at $ 1.

Working days and productivity

GDP is an outcome of labour utilisation and labour productivity. As an indicator of labour utilisation, Sri Lanka’s working days in 2024, after allowing for weekends and 25 public holidays not falling on a weekend, is estimated to be 237, as compared to Singapore’s 252 with 12 public holidays, India’s 254 with 8 public holidays, Malayasia’s 248 days with 14 public holiday and the USA’s 251 working days with 11 public holidays. Whilst additional ‘free time’ and not overstressing in the quest of high productivity may have psychological advantages, it is imperative that there is an appropriate balance between hours worked and productivity in enhancing individual’s standard of living and the nation’s standard of living. You cannot improve the standard of living by being lazy!

Factors affecting productivity

Labour productivity may not always reflect the output efficiency or the capacity utilisation of individual workers or the intensity of their effort. The efficiency of output is, in addition to labour utilisation and productivity, dependent on the employment of many other factors such as capital, raw materials, intermediate materials, technology, organisational design, management practices, work ethic, innovation and economies of scale. Labour productivity is a key dimension of economic performance and an essential driver of changes in living standards. High labour productivity growth is normally indicative of the more efficient use of capital, increase in the number of high productivity workers, a decrease in the number of low-productivity workers, efficiency gains arising from use of modern technology, innovative practices, and output-oriented work ethic. Increasing labour productivity frees time. Individuals can use their freed time in indulging in leisure and 

pleasure.

Government as an enabler

Governments do not control the competitive advantage of a nation. It is the firms within the country which do so. However, the Government is a key enabler, and influencer, of national circumstances which facilitate the competitiveness of the constituent firms. As was elucidated by Tom Peters in his seminal publication: “The Competitive Advantage of Nations,” the central goal of Government policy is to deploy a nation’s resources with high and rising levels of productivity. When this happens, it can be considered that the economy is continuously upgrading itself. The role of Government is to stimulate such dynamism by influencing business formation, skills development, and use of advanced technology. The Government plays this key role by creating and upgrading factors such as infrastructure, a pool of advanced and specialised human resources, scientific knowledge, a repository of economic data and information, et cetera. For example, in a highly connected, technology driven world such as what exists today, a workforce with only basic literacy no longer represents a competitive or other advantage. Sri Lanka’s literacy rate in 2024 is estimated as 93.6%, male and 91%, female. But its Information Technology literacy rate is only 36.0%. Education must be relevant to the needs of the day. The factor enhancement initiatives of Germany, Japan, South Korea, and Singapore in the second half of the 20th century yielded extraordinary rewards and are models for Sri Lanka to emulate. Factor creation must not be left just to the Government. The Government must enable synergy by enticing firms to be involved, too.

The importance of education

Improving the skills and abilities of human resources is key to the continuous upgrading of a nation’s economy. Education and training are the most potent leverages available to the Government and firms in upgrading industry. Improving the general education system must be the topmost priority of the new Government. Sadly, the monies allocated in previous national budgets to the upgrading of education has been woefully inadequate in bringing about the sorely required paradigm shift. Admittedly, the upfront investment will be heavy, and the gestation period may be exceedingly long. But given the societal impacts/overtones of education, the Government is likely to attract willing sponsors/donors if it displays commitment. We must start today. Procrastination is the thief of time.

Essential features of education

An effective education system must have the following essential features. 

• The goals, objectives and benchmarks must be set very high. They must be world class. They must not reflect lowest common denominator thinking.
• A universal language, such as English, must be revived as a medium of education.
• Private Universities must be allowed to co-exist with appropriately resourced and professionally managed State Universities. State Universities must not be perceived as providing sub-standard education. They must be the equals of their private counterparts and must be accessible to all citizens. Admission must be driven by merit. 
• Teaching must be positioned as a prestigious and valued profession. Reward and recognition must be at levels which attract qualified, well-trained and competent teachers.
• A ‘big bang’ correction in salary levels plus a coordinated mile-stoned strategic action plan must be established as a matter of priority.
• Greater practical orientation must be blended into the teaching of theory in preparing students to be meaningful participants in the economy.
• Outstanding students, handpicked on the basis of merit, must be gathered into a pool of experts and thinkers, a pool which conceptualises the nation’s upgrading and innovation
• Vocational institutes and technical colleges must be set up as alternatives to university education. In Germany and Japan, technical colleges are more prestigious than regular universities.
• There must exist strong links between educational institutions and employers. The leading firms in an industry often have strong ties with universities and technical colleges. Anglo American Corporation (Anglo), the global mining giant, was actively involved in designing the syllabi of mining degrees in the world’s leading universities. Anglo was also the driver of the national apprenticeship programs conducted by the Governments of the countries they operated in.
• Firms must be incentivised to offer continuous training and development to its employees through programs designed in-house or crafted jointly with industry associations. Incentives can range from tax deductibility to elevated membership in national research and development initiatives
• Immigration policies must allow the easy infusion, and propagation, of specialised skills. The USA, Canada and Australia are examples of countries which have immigration policies designed to attract skills which are short in supply and/or skills of the future.

Infrastructure development

Increasing a nation’s productivity is impossible in the absence of supporting infrastructure. Although Government is the principal provider of infrastructure particularly in areas impacted by free rider effects and other externalities, firms, too, can play a role in creating and upgrading infrastructure either individually or through alliances. Many Sri Lanka based firms engaged in the hotel, information technology, garment manufacturing and logistics businesses, just to name a few, have established their own infrastructure in delivering their core products and services to their customers.

Access to capital

The availability of ample capital at a cost which enables net present value growth opportunities (NPVGO) in areas with high productivity potential per an effective banking system and other capital markets is necessary in growing the national economy. Effective mechanisms for allocating capital are as important as the supply of capital. Government policies and Government actions have a major impact in influencing both the cost and supply of capital. The size of Government budget surpluses or deficits, the personal savings rate, foreign capital inflows and their effect on the exchange rates and direct/indirect taxation have a significant bearing on building a pool of investible capital. 

The role of technology

The giant strides made in information technology and connectivity have enabled nations to collect and store information and data in enabling data driven decisions. The collection of information and data in a nation is enabled by a myriad of sources. Company documents, central bank surveys, data gathered when issuing birth certificates, national identity cards, and driving licenses and when paying utility bills and taxes, technical publications, patent records, chamber and trade association data, stock exchange disclosures, the formal press and social media are examples of information and data origins. Such data are vital in enabling the formulation of Government policy, signalling Government intent and as foreboders of emerging threats and opportunities to firms and individuals. However, the significant growth in information and data does pose challenges. Studies indicate that an average enterprise uses 1,061 different applications with less than a quarter being integrated. This leads to considerable time being spent on retrieving and collating data. Thankfully, the advent of artificial intelligence and retrieval augmenting technology are spearheading the emergence of efficient search engines.

Science and Technology hold the key to the progress and development of any nation. Technology plays a fundamental role in wealth creation, improvement of the quality of life, real economic growth, and societal transformation. Technology complements the application of man’s knowledge, skills, tools, and materials. It encompasses the use of scientific knowledge to develop and produce goods and services useful to man. Technology is today an indispensable tool for enhancing production efficiency. Stimulating improvements in science and technology is a key role of Government. Businesses can streamline their operations, reduce costs, and achieve higher levels of productivity through automation, data analytics, collaboration tools, and supply chain optimisation, to name a few. Technology is the trump card in commanding higher prices through higher quality and in penetrating new industries and segments.

Collaborative research and development

Advanced nations do not leave research and development to firms only. Technological progress enabled by research and development remains not just with a subject industry but spills over to other industries too. The primary objective in establishing a science and technology policy is to catalyse innovation. High productive nations have been astute in ensuring that the technology pursued by them is commercially relevant. As was the case for upgrading human resources, the Government must identify ways and means of encouraging and incentivising firms in spending on research and development. Cooperative research between Government and firms is a concept successfully employed in Japan. The justification for such research was based on three premises, those being:

• Independent research in most firms is wasteful and duplicative. 
• Collaboration leads to the reaping of the benefits of economies of scale.
• Firms acting individually will usually underinvest in research and development because they are unable to appropriate all the benefits. 

As much as there are roles to be performed by the Government and firms in improving national productivity, there is also a vital role for individual citizens. Citizens of Sri Lanka must free themselves from the bondage of ‘handouts’ and ‘entitlement thinking’ which has grown, unabated, particularly in the last five decades. Sri Lankans were well known, reputed, and globally recognised, for their positive work ethic till the 1960s. The traits of personal responsibility and accountability were in our DNA. Our work ethic was intrinsically intertwined with our heritage and culture, and it shaped our moral values, societal norms, and economic management paradigms. Sadly, Sri Lankans have forgotten the merits of individual productivity in the face of diminishing meritocracy, increasing bribery and corruption and growing nepotism. It is time we realised that “there is no sweet without sweat.” It was Thomas Edison who remarked: “Opportunity is missed by most people because it is dressed in overalls and looks like work.”

The National Productivity Commission proposed by the outgoing President, Ranil Wickremesinghe, as a part of the Economic Transformation Act, may not be perfect in its structure and model. But it is a right step in the journey to enhancing national productivity. Whatever it may cost, the creation of factors which contribute to the enhancement of national productivity must start today. The investment will pay for itself. 

(The writer is currently, a Leadership Coach, Mentor and Consultant and boasts over 50+ years of experience in very senior positions in the Corporate World – local and overseas. www.ronniepeiris.com)