Can we increase productivity and equality?

equality, gender, racial, economic

“Sustainable growth is based on increased productivity and equality”, Ben Bernanke once said. He is right and it’s essential to achieve in today’s world. In this short video McKinsey Global Institute partners James Manyika, Jaana Remes and Richard Dobbs look at the patterns of global productivity:

Some of you readers questioned if it’s possible to predict productivity. According to James Manyika: “It’s always very difficult to predict if you can predict productivity or not. But when we look at sectors across the world we do know what the enabling environment looks like”. He proceeds to say that technology is a big part of it as well as  competitive markets and labour regimes. And not to forget, rules on how you use land and equity.

Focusing on the short term is, according to Jaana Remes, dangerous because we need to put emphasis on long term growth. Above all providing a policy environment that encourages productivity, investment and avoids protectionism.

High productivity but lower wages

Dobbs correctly points out that in the past years of high productivity corresponds with high job creation. But that overlooks the fact that in the past salaries also rose during such years. That hasn’t been the case the last few decades because productivity has risen much faster than wages. And the fact that technology is taking over both blue and white collar jobs in the West has further increased the downward spiral of wages. And unless we want autocratic rulers in charge we need to increase wages.

Income gap increasing

According to Oxfam the 1 percent richest people in the world will soon own as much as the remaining 99% do. The main reason is what Thomas Picketty stated that return on capital is so much higher than economic development. Researchers are of the opinion that technology is a main reason for that. In the past increased productivity and higher salaries have gone hand in hand.

Basic income? 

One solution to make sure all human beings have food on their table and a roof over their head is an unconditional basic income in which all citizens or residents of a country regularly receive an unconditional sum of money. The concept is actually being discussed in countries around the world. The the European Union, Asia, North America, Africa, Asia, Oceania and South America are looking into that possibility. Implementing a basic income would make it easier to allow technology to take over jobs without poverty increasing drastically. And hopefully make it more difficult for demagogues so win elections.

Anger about inequality fatal

Throughout history anger about huge gaps between the haves and have nots has been one of the strongest political forces for change. An interesting aspect here is that equality between countries is increasing while inequality is on the rise inside all countries thanks to neoliberalism. Ben Bernanke was right when he said that sustainable growth is based on increased productivity combined with equality.  There are no easy answer to the problem of increased inequality. But it will definitely become an increasingly important issue all around the world unless it’s addressed. It’s hence high time that politicians and business leaders make an effort to increase equality. Otherwise we will move into an era of dictatorships.

Do you agree with Ben Bernanke that increased productivity and equality are necessary for sustainable growth? Should the world start focusing on long term growth again? How can we make high productivity create both growth and higher salaries again? Is an enabling environment, as outlined by Manyika essential for increasing productivity? Is it a good idea that the 1% wealthiest people own as much as the remaining 99%? Or, could that in the long run lead to instability? What’s your opinion on basic incomes to all citizens? Is that necessary in order to avoid poverty when technology takes over more and more jobs? Or do you have any other ideas that can make higher productivity and growth possible without increased unemployment and poverty? Do you believe it’s essential to reduce the income gap to save liberal democracy?

Video: McKinsey & Co. – Picture: Fibonacci Blue

55 thoughts on “Can we increase productivity and equality?

  1. Income inequality is growing and under the new administration in my country is likely to continue. Lowering taxes for the rich doesn't result in new investment in businesses that create new jobs. Instead, the rich save. Too many companies are investing in financial schemes that make money but do not add value to the economy. A big problem with no easy answers.

    1. That the new adminstration in your country will vastly increase inequality is an understatement. And it will probably cause another global economic crash as well which will increase inequality on a global scale. A very important issue is that CEOs should not earn tousands of times more than the lowest paid employee in the organisation. Nobody is that good. Pay packages for CEOs have jusgt been vastly inflated by corportate America and spread all over the world.

  2. Interesting post, Catarina, as I now answer your Q from the perspective of the world of chocolate and cacao. For years, cocoa farmers have been paid a pittance and there was no connect between the farms and the ultimate product. That has begun to change worldwide, as more consumers are wanting to know where the product is coming from and how it's grown/produced. So companies that has a supply chain that is clear and transparent are gaining more customers and consumers are willing to pay more for their products.

  3. If I knew the answer to ensuring each person in this world had the basic necessities in life, the world would be a better place. People should not be going to bed hungry and living in sub standard accommodation but this is the reality for many who have had a change in circumstances or a bad start in life.

    The gap between rich and poor is ever growing. Poverty brings great social problems which the world will be forced to deal with. Poverty affects most people whether directly or indirectly.

  4. You expressed the basic concept of the conflict of inequality and productivity and growth. We should strive to eliminate the inequalities of wealthy and poor, especially in these emerging markets. However, there is a major push by some corporations to keep the low wages, poor environmental controls and conditions in some counties; this is so those corporations can maintain a higher profit.

    1. Glad you agree with me, William. Don't forget that inequality in the US is so bad a lot of people don't earn enough to pay for food and a roof over their head even though they have two jobs. Thankfully it's not like that in Europe.

  5. As developing countries productivity and earnings increase at rates that far surpass established countries, that still only takes peoples pay scale from pennies a day to a few dollars a day. Technology is causing two revolutions. The first has already happened as productivity has increased 10x+ and the second revolution is going on in small batches through violence in the Middle East and Eastern Europe. Wait until the second revolution occurs in the U.S. or China. People will not stay sedated by streaming videos and Facebook games forever.

    1. Exactly, raising productivity is easy, Kire. Increasing equality though is difficult because the principles of globalisation and neo liberalism have been implemented in most parts of the world. They have never worked anywhere but are still being implemented mainly because they are favoured by leaders of corporate America that donate money to members of Congress. Remember the Supreme Court decision that said corporation = person. How can you get elected to office in your country without donations from corporate America?:-)

  6. I certainly think everyone should have a roof over their head and food to eat. And there should not be a big gap between the rich and the poor. Whether that is important to sustainable or growth or not I do not know, but it decent and right. I have no idea how we go about getting there. I think both business and governments need to take a longer-term focus, but our systems are set up to reward for the short-term.

  7. Thank you for raising all these critical issues. Productivity to create sustainable growth is a big feat although necessary. Who is responsible anyways for productivity? Where is fairness and objectivity in this issue or we're just creating dependency globally?

    1. Thank you for stopping by and asking some more questions, Mahal. It's not only about productivity though but equality as well. Increasing productivity is easy but increasing equality is really difficult at the moment. Am sure you have witnessed that first hand in your native country, The Philippines.

  8. This is really tough thing to read and (for a person like me ) understand. Who do not know the A,B,C of Business. What I feel as I look into this post. There is a desperate need for the introduction of a new system, that will make the wealth circulate in the world and not let it to accumulate in few hands. It is a critical and alarming situation that in future, wealth will accumulate in 1% hands.
    Food, cloth and shelter are basic needs of a person , but after the use and increase in technology there are many such things that are needed as well like education, conveyance etc.
    Wages are not increasing and there is rise in prices of everything in market and there is no balance between the ratio of two. It is a sad fact and the people who live on pension and less salary are getting caught in debts and world is depressed and the we can see the consequences around as everyone is trying to snatch from other person almost everything.
    There is need of time that Leaders of the world come closer and stop the war and work on things that are important. Increase productivity, produce more jobs and bring a balance in world so everyone can get his/her share of happiness and peace in this world.

    Thank you for introducing me to this topic. I will try to read more about to to improve my knowledge.

    1. Thank you for stopping by and giving us your thoughts, Andleeb. The reason inequality is rising like this way is because of neo liberalism. Those economic principles have been tried for 50 years and never worked. Despite that they are still being implemented not for better, but for worse:-)

  9. It should be possible. It is possible, if people understand the root causes of inequality first. In my view, people who generally lament over inequalities end up barking the wrong tree for solutions.

    1. That's true, Have written several articles of the consequences of globalization and neo-liberalism. But how do you propose to put a stop to that phenomena? US politicians are dependent on donations from the people who reward themselves at the expense of others. How would you stop that? Easier said than done isn't it?:_)

  10. Catarina, I don’t know if a basic income for everyone is the answer. As Guy stated in countries that have it there is growing resentment over people that work the system and refuse to do any real work. But 1% of the population owning more than the other 99% is not good. They don’t trickle down their wealth to help the rest of the world, they just keep lining their own pockets. What is the answer, I surely don’t know. It seems no one else does at the moment either. But I hope they figure it out soon.

    1. Susan, I don't know why everybody believe I'm for basic income? Just find it difficult to find other ideas that would be suitable for the West. From what I understand, basic income is given to ALL citizens in a country to cover basic needs i.e. it does NOT work like social security and can hence not be abused. Somehow we need to stop the way the top people in corporations above all in the US reward themselves at the expense of the rest of the employees. Alexis de Tocqueville wrote in the 1830's that it's fantastic how important equality is in the US. That's very different from today. And your leaders have managed to export the concept on earning at the expense of everybody else to the rest of the world.

  11. I don't know enough about the theoretical underpinnings of this field to comment; I wish I did. In addition, I don't know how the term "productivity", is operationally defined or what constitutes "high productiviy".I do have two questions: Is there a relationship between outsourcing jobs and productivity? And, How is, "equal pay" defined? I am assuming it has nothing to do with gender or ethnicity equality.
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    1. We are not talking about equal pay, which is neither possible nor desirable, Pamela. Look what happened to communism because of that. We are talking about the gap between the haves and havenots increasing rapidly i.e. the 1 percent richest people in the world are getting richer while the rest of the population are getting poorer. Nothing to do with gender or ethnic equality. Productivity is rate of output per person. You can increase productivity by outsourcing but mainly you save money.

        1. Not only. We are talking about wealth as a whole. Nowadays wealthy people get a higher return on capital than employees get salary increases which makes the gap between rich and poor even wider. In the 60's and 70' a CEO earned 30-40 times as much as a worker. Today, above all in American companies a CEO earns thousands of times more. Walmart is probably the worst example. And the majority of US employees have not had a rise in salary since the 80s..No wonder 1 % of the population will soon own as much as the remaining 99%. It's Milton Friedman's gospel of economics that has been tried for half a century and never worked. But despite that neo liberalism is still being implemented.

  12. An important dilemma. I think we have clearly seen in the U.S. since the recession in 2008 that the economic recovery has not been accompanied by growth in wages. But if people have less buying power how sustainable is that recovery. Technology may be increasing productivity and improving margin but real growth requires a healthy consumer base to buy the fruits of that productivity.

    1. Ken, the decline in wages for the US middle class started in the 1980s when Reagan was president. He started implementing Milton Friedman's ideas i.e. the CEO of a company should increase his/her pay package at the expense of the rest of the employees. In the 60s and 70s a CEO earned approximately 30-40 times what a worker earned. Nowadays in your country it's of thousands of times higher. Walmart is probably the worst example. The purchasing power of the US middle class has been diminished to put it mildly. Unfortunately Friedman's ideas about de-regulating the markets and gettinig that kind of pay packages have been forced upon most countries in the world by the United States through the IMF. The countries, such as India and China that didn't de-regulate fully were less hit by the 2008 meltdown.

  13. Ah yes… This issue is one that many have been grappling with for some time. Unfortunately no one seems to have a good answer, at least none they are willing to share. I have to agree with the general consensus here that providing a basic wage is probably not a good answer. I understand why it is suggested, I just don’t think it is the answer.

    1. Yes, it's complicated to solve this issue. But we have to find a way considering that it' most likely the most important problem facing the world, Cheryl. Basic income is strange, but what's the alternative when more and more people are becoming unemployed all over the world?

  14. This is a difficult and complex subject Catarina. Some points to consider:
    – A basic income – such as that in the UK, a country from which I have returned to South Africa after a few years – might seem like a good idea, but does not work in practice. There is growing resentment there of the people that work the system, rather than doing any proper work, and live very well on social benefits. The current government has tried to cap benefits to encourage people back into work, with limited success. There is work, but immigrants are doing many of the lower-level jobs as they are prepared to work for lower wages.
    – There's no question that inequality leads to problems. Look at South Africa, for example, where crime is a huge issue. This is certainly exacerbated by the fact that there is a substantial body of people that have little or nothing to lose. Having said that, there should be more than enough work, and wealth, for everybody, but the kleptomania evident in the government is diverting resources into the pockets of politicians and their "close friends.' This issue alone would be the topic of a long essay…
    – I agree with Jacquie (above) that we need less government, not more. In fact, I think the reason for many of the world's problems today are simply that we have too much government. Politicians, to retain their jobs, create huge bureaucracies. It's sobering to think that more than half the workforce in the UK today is employed directly by government, for example. In Zimbabwe, I believe that it's closer to 80%… In my view, the role of government is basically to be a 'board of directors' for the country, and so be a fairly small body of people, with the citizens/residents being the shareholders.

    The solution? I'm afraid there is nothing simple. I do believe that less government and more privatisation of functions would benefit everyone in the long term. I also believe that a basic income grant will discourage work. It's a fact of life that most of us have to start "at the bottom" and will try to work out way up the ladder, but if it's unattractive to get on the ladder, people won't bother.

    Can we increase global productivity? Certainly, it is increasing all the time as we saw from last week's post.

    Can we increase equality? This is really the tricky one. Governments have tried to increase employment at various times in various ways, and this is probably what the global 'boards of directors' need to think about: how to increase employment by making work attractive…

    1. It's the most pressing and difficult issue facing the world, isn't it, Guy. And unless we address it unrest will follow. Productivity that leads to unemployment and poverty may be worse than no increase in productivity at all.

      By the way, did you know that Basic Income is given to ALL citizens of a country. If it's implemented social security will be a thing of the past which will effektively stop benefit fraud.

  15. I think we can all see that real wages are not increasing but the 1% stat shocked me. When people such as Bill Gates and William Buffett are saying the rich need to be taxed more I think it’s clear than it’s more than a pull up your bootstraps attitude that is needed.

    Yet competition does make people up their game. The real question becomes how do we make it so that people have enough to live comfortably while not developing a welfare mentality.

    1. Yes, it is shocking isn't it, Pat. Personally know a lot of people that are as rich as Buffett and Gates, mainly in the Middle East, and they also think the wealthy should be taxed more.

  16. I have mixed feelings about a basic income. On the one hand, I think it is horrible when people fall on hard times that food might not be able to be put on the table. It is especially heartbreaking when children are involved because they are innocent, and their parents' financial situation can influence the type of future they have. On the other hand, there are people that would not work were there not an incentive. Alternatively, it is sobering to think that the top 1% have more than the other 99% in the world. This is a very complex issue and there certainly isn't an easy answer.

    1. It's enormously difficult to solve this issue. But we must since it's the most important issue facing the world. What, apart from a basic income, can be done to make sure people have food on their table and a roof over their head? As it is, top management get bigger and bigger compensation packages at the expense of all other employees. In the 60s and 70s a CEO earned roughly 30-40 times more than a worker. Today, in the US, it is sometimes thousands of times more. Seriously nobody is that productive and efficient.

  17. Seriously, Catarina? You ask If it is a good idea that the 1% wealthiest people own as much as the remaining 99%? Hopefully you were just looking for a reaction. Of course it isn’t and the chasm just keeps getting wider. I can’t imagine a basic income for everyone happening in the US anytime soon but it is the decent thing to do.

    1. The odd thing, Beth, is that quite a few members of the middle class defend it. Presumably they wrongly believe they are part of the 1%. They are also keen on lowering taxes for the 1% even though it has been tried for half a decade and never worked out the way intended i.e. create jobs.

  18. One post to tax the mind Catarina! You're brilliant with this and this post, no exception.

    When you ask about increase global productivity and equality, I think your operative word is global.

    Manyika clearly expresses the 4 or 5 major components to consider. Remes, hmmm, not so sure about too much focus on the near term – my case in point is for decades here in the USA we didn't keep near enough of an eye on what was happening in our banking sector with all the deregulations – then crash, crash and crash again. Dobbs encourages a global dialogue between private and public sector. So maybe part of the solution lies in some intersection of their expressed thoughts? I don't know.

    One thing I do know, or at least believe, is that this "unconditional basic income" money, while on the surface sounds good, may not happen in reality. I remember hearing once that no matter what level you raise people up to in their occupation/wealth/societal status, there will always add another level below them. It's nature, it can only be that way. So while it's kind, and socially responsible, and certainly in the short term sounds good, I can't help but believe, it's a never ending proposition. How can that be helpful?
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    1. Thank you, Pat. To sort out the world economy and both increase productivity and equality is complex, to put it mildly. We need to look long term and solve problems instead of hoping they will go away. As for the banking sector there may very well be a crash again because it has not been regulated to avoid another meltdown. Basic income is not something I'm into but it ma,y if technology takes over too many jobs and salaries don't increase, become a necessity. What else can be done to make sure people can eat and have a roof over their head? We really don't want more unrest which will happen if we don't prevent it.

  19. Catarina — you make a good point that while productivity and hiring are both increasing, wages have stagnated. Middle income earners in the U.S., taking inflation into account, are earning less than the did in 1980. Several states here have cut taxes — which benefits the wealthy — while increasing consumption taxes — which in effect raises taxes for the poor. Whether you're rich or poor you pay the same price to buy a loaf of bread. But the increase in the consumption tax hits the poor buyer much harder.

    The trickle down theory that by lowering taxes you will spur investment by the rich and create new jobs hasn't worked. Kansas, which did that under its conservative governor, is now facing billions of dollars in debt. The rich don't invest in business, they invest in complex and lucrative financial schemes that makes them richer but does nothing to help the economy.
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  20. The idea of across the board basic incomes is completely appalling to me as it casts asunder any human aspirations to succeed. I think we need less government, rather than more; fewer regulations rather than more. What we need more of is opportunity. I love all the railing against the rich…everyone hates the rich until they become rich. Then they become silent.

    1. Agree with you that we need more opportunity, Jacqueline. But how do we get that in a world with an aging population, where techology is taking over more and more jobs and poverty is on the increase? How are people with an low IQ going to support themselves? Especially if they are born in the West. By the way, some of the super rich that I know are against the growing gap between the haves and the havenots for the simple reason that they know that eventually it will lead to unrest. it's not about envy but being realistic. We don't want the rest of the world to have a prison population the size of the US (the highest per capita in the world). Unless we want huge political upheaval in the future we need to find solutions that enable both productivity and equality. Easier said than done, isn't it.

      1. In the US, there is a lot of debate about the reasons that poverty is on the increase…the break-down of family values; a form of welfare that was all but banished not that long ago with the Welfare to Work program that seems to have fallen by the wayside. We're backsliding into a welfare that bears no social stigma. Backsliding into system of an entitlement nature. Our prison system is overcrowded largely due to the prosecution of petty drug crimes. That will decrease as drugs like cannibis are made legal in more and more states. Now that should increase productivity, right? Our health care system is in meltdown partially due to the fact that it became a benefit for workers. Had we all carried our own insurance and paid for it, the costs would never have skyrocketed as they have. There is evidence in that in procedures that are NOT covered by healthcare insurance that are subject to free market principals…they are way lower and vary with the economic climate. l know super rich folks that are against the growing gap as well. Isn't practially everybody? But they don't feel that the answer is to penalize the super-rich and entitle those who are not. I see it everyday in all walks of life…. People don't respect what they don't pay for. People have more pride in seeing the result of things that they have earned.

        1. True, but how are we going to increase productivitly and equality in, not only the US, but the world? It's essential because of how the world economy is developing. Increasing productivity is easy but then unemployment and poverty will increase as well. So it becomes a catch 22 that we have to find a solution to or there will be huge long term problems. The economy in the US is increasing now so that's good. But in other countries that had a meltdown after Lehman Brothers collapsed unemployment is 25% and the problematic situation will continue. Desparate people do desparate things. Dealing in drugs is a typical one and that's on an increase on a global scale. People need to have food on the table and a roof over their head. If they haven't and there are no jobs they do what it takes mainly theft and drug dealing. This is not to be confused with organised crime which is a completely different thing.

  21. I like the idea of a basic income for all citizens, but would suggest a clawback for anyone with an income over a certain threshold. It saddens me that wealth is so polarized in most countries, but unfortunately it has been that way since the beginning of time. There have always been the haves and the have-nots, but I am happiest in a place where the middle class is large and strong as that includes most of us small business owners.

    1. Basic incomes may actually become essential in the future. We did move to a smaller gap between the haves and havenots after World War II until the 1970s. Then the gap started widening again.

  22. Great piece Catarina! Global discussions often miss important points. The first is whether all societies seek or should seek the same things. If the values of a society lead to a path of greater social cohesion at the expense of productivity – Does it make sense to benchmark them from a free market economics point of view? Should they benchmark themselves that way? Similarly, while performance differences may narrow, as long as productivity depends on the thinking that creates the technologies, then those who don't actively engage in their creation will continue to lag behind. I don't know how to cure this problem. Structural problems like markets and competition can be improved and strengthened, but again, they may create severe social problems with traditions. Ditto judicial reforms where foreigners and foreign capital are deal with fairly(?!), i.e. By whose standards?

    1. Thank you, Ozzie. Also thank you for making this issue even more complicated by posing more questions. Simplifying the qustions you make leads to the headline for this post "Can we increase global productivity and equality?" Would be interesting to know if you have any ideas.

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