Production and Productivity

What will happen if the massive global production divorces productivity?  The two concepts have coexisted for a long time in a marriage of reciprocal interests that has resulted in extraordinary results.  Now, a usage/USURY crisis is contaminating those that have benefited from this pragmatism more than anyone: developing markets, whether they be emerging, emerged, or in formation.  Non-industrialized countries—according the OECD’s criteria—are registering an alarming decline in the growth of productivity, which is to say, the contribution to each individual citizen’s accumulation of wealth.   The Conference Board, one of the most authoritative research centers providing analysis of macroeconomic variables since 1916, reveals the phenomenon in a recent study.  Its latest report notes that productivity increased by 3.3% in developing countries in 2013.  In absolute terms, it’s a relevant figure, but it denotes a decrease compared to the 3.7% rise in 2012, and especially compared to an average oscillation between 5 and 7% in the preceding five years.  Among all the countries affected by the recession—China, India, Mexico and Brazil comprise the most important—the Red Dragon has had the best performance.  Even the predictions for 2014 are not negative (+6.7%), even if a far cry from the average of 9.6% from 2007-2012.  Regardless, the changes in percentage points can seem marginal, but the results are important for the countries and international investors.  The latter reason less based on the situation and more on expectations.   The index’s differential is, in fact, thinning because the decline in growth is coupled with a rise in industrialized countries, which registered at 0.9% in 2013 and will be 1.5% in the current year.  It’s possible that the chase will slow down, that the recover in North America and Europe will be more consistent, or even that the growth will not last too long in general.  All of this entails investment decisions that privilege industrialized maturity rather than third-world immersion.  An even more worrisome result derives from the decrease in the productivity of capital, which exceeds the rise in the productivity of labor.  Consequently, total productivity (labor + capital) experienced an absolute contraction in 2013.  Despite the diverse distribution of assets, alarm bells sound.  The economy trusted that productivity would increase in emerging countries to compensate for the inevitable slowing in industrialized nations.  Globalization found accelerated production factor yields, particularly in Asia.  First the Asian tigers, then the tiger cubs, and finally China took advantage of production increases to escape from underdevelopment.  They all became global factories that satisfied the necessity of growth while they supplied the world with low-cost goods.  At the same time, those countries grew and improved.  Farmers became factory workers and their productivity soared, similar to when technicians transformed into engineers or when electronics joined mechanics.  Now, the crisis has reduced consumption, credit is languishing and innovation is suffering the effects: the huge wave of unhindered growth has probably lost momentum.  Labor productivity is not supported and production is left alone to drive growth, just when the supply of goods—to not be approved—needs to liberate material and intellectual resources.