Productivity is a complex concept. Simply, however, it refers to the effectiveness in which a company or country can transform its resources into goods, potentially creating more from less. Improving productivity means getting greater output from the same amount of input.
Perhaps, the simplest way to measure productivity is to divide the output by the input. Labor productivity is often measured by dividing the total output by the number of persons that produced the output. To get the per capita labor productivity in the Philippines, simply divide the total gross domestic product (GDP) by the population.
Importance of productivity
Countries and businesses alike want to see improving productivity. Improved productivity can raise standards of living by decreasing the required monetary investment to produce products and services, thereby making consumers save more in their purchases and allowing businesses to make more money.
Increased productivity enhances the power of a country by driving economic growth that help satisfy more human needs with the same amount of resources. Generally, increasing the GDP will drive economic growth and improve overall economic output, usually benefiting the participants within the economic system.
As explained by my friend Cielito Habito, GDP (“Gawa dito ‘Pinas”) is the sum total of all economic activities within the Philippines — production, consumption, one Filipino selling to another, repair of infrastructure affected by calamities, building of skyways, cost of hospitalization, funeral or cremation, etc. As long as they are done in the Philippines, they’re part of GDP. On the other hand, gross national product or GNP (“Gawang Pinoy”) is the sum total of all economic activities done by Filipinos, including those residing or working outside of the Philippines.
World Bank report
The World Bank Group (WBG) released its latest (2019) comparative report on the labor productivity of countries in the East Asia and the Pacific. From that report, I came up with comparative data for Association of Southeast Asian Nation (Asean).
Here are some of the highlights of the WBG report:
1. The Philippines ranks fifth among 10 Asean countries in per capita labor productivity.
2. Brunei leads all Asean in per capita labor productivity with $170,536, followed by Singapore ($153,852), Malaysia ($60,187), Thailand ($31,007) and the Philippines ($20,671).
3. Indonesia ($25,805), Myanmar ($14,095), Laos ($13,353), Vietnam ($11,757) and Cambodia ($7,334) make up the lower five Asean countries.
4. Although Timor-Leste (not a member of Asean) had a negative (-0.4 percent) growth, its per capita labor productivity is at $30,470 — higher than that of the Philippines’.
5. Hong Kong ($114,264), Japan ($77,384) and China ($31,380) — not Asean members — grew their per capita labor productivity by 2.6 percent, 1.3 percent and 6.4 percent, respectively.
6. Among the Asean, Myanmar registered the highest growth rate (6.4 percent) in labor productivity, followed by Vietnam (5.5 percent), Cambodia (5.3 percent) and Laos (4.2 percent).
7. The Philippines’ growth rate in labor productivity is at 3.8 percent, while Indonesia has 3.8 percent, too; Thailand has 3.0 percent growth rate, while Malaysia grew by 2.6 percent.
8. The Asean countries with the highest labor productivity registered meager growth rates — Brunei at 1.8 percent and Singapore at 0.9 percent.
9. All of the East Asia/Pacific countries, including Australia, Japan, China, Korea, etc. registered an average 4.6 percent growth rate in per capita labor productivity, which is valued currently at $34,569.
10. The overall per capita labor productivity of the whole world is at $37,739, and grew at an average rate of 2.7 percent in 2019.
Labor productivity varies depending on the sector. In the Philippines, labor productivity is highest in manufacturing and industry, and lowest in agriculture. Much of the economic activities happen in the services sector, which has lower labor productivity than that in manufacturing. More than half of the employees are in the services sector, 30 percent in agriculture, and a smaller portion in manufacturing. The countries that have increasing labor productivity in the WBG report are those that are industrialized or industrializing.
The Philippines must have a clear industrial policy. I could be wrong, but what I only see are road maps that need to be improved if we want to see a truly industrialized Philippines in 2040.
In the World Economic Forum report, the top two most globally competitive countries are Switzerland and Singapore. Compared to the Philippines, they do not have natural resources. The Philippines ranks fifth among countries with the most valuable natural resources, and yet we import most anything from capital goods to agricultural products that we used to export.
Both Switzerland and Singapore understood early on that their only resources are their human resources. Both countries have great human development strategies, policies and systems. They also have great national policies that attract investors, whose money they use for their own national development.
Singapore usually gets half of all FDIs or foreign direct investments that go to the Asean countries. One cannot imagine the value of the “float” in the numbered accounts in Switzerland that could be used for developing the country and the people. How does this happen? Simple. Policies that attract investments — foreign or domestic — are in place. In contrast, it’s not surprising to know that Filipino tycoons have more investments outside the Philippines than in their own country.
Improving Philippine productivity
We can improve Philippine productivity by leaps and bounds. Here’s how:
– Government should develop and implement more investor-friendly policies that will encourage more investors to set up shop here, create more jobs, and pay more taxes. More taxes will allow government to invest more in infrastructure (that attract more investors) and in social services (that make people more educated, healthy, skillful, employable and productive).
– Business must strive to invest in technology, train their people for more value-adding skills, and operate more efficiently, resulting in the creation of better quality products and services using the same or lesser-cost inputs. Higher efficiency and lower costs result in higher profits, which increases the business’ capacity to pay higher salaries and benefits, and create more jobs.
– Workers will have more and better-paying jobs as they enhance their skills to do a variety of jobs. Their standard of living and purchasing power will improve. They will help create a bigger demand for products and services, and pay more taxes to government.
Lee Iacocca once said, “Start with good people. Lay out the rules. Communicate with your employees. Motivate and reward them. If you do all those things effectively, you can’t miss.”
Ernie is the chairman of the American Chamber of Commerce of the Philippines’s Human Capital Committee, co-chairman of the Employers Confederation of the Philippines’s Technical Working Group on Labor Policy and Social Issues, and past president of the People Management Association of the Philippines. He can be reached at firstname.lastname@example.org