Productivity, Growth, and Public Policy

An invited paper for the Asian Productivity Congress, August 1970. As separate measures of productivity, output per man-hour and per capital unit have drawbacks. Total factor productivity, combining the two, is a more useful measure. There is active controversy as to how far increases in total factor productivity can be attributed to increases in input quality, and how much to new ideas, knowledge, and technology that are not embodied in the factor inputs. Each explanation has different policy implications. It can safely be said that improvements in efficiency are important for rapid growth. They require continuous innovation in methods, products, organization, and management practices. These in turn depend on a constant flow of information (about technology, markets, performance) and powerful incentives to reward those who contribute to efficiency, innovation, and higher production. For less-developed countries, innovations require adaptation, not simply transfer, from more developed countries; also required are R&D on market research, simplified specifications, improved quality control, and simplified maintenance procedures.