Productivity. The Engine of Progress in Business Organizations

This study aims to show that in a capitalistic economic world the trends in productivity and quality represent the fundamental economic variable. The search for ever greater levels of productivity is due in general to man’s natural tendency to maximize labor efficiency, which by definition represents a necessary though “unpleasant” and strenuous activity to be minimized. This phenomenon is general in nature, as observation reveals, and can be translated in two general observational postulates: Postulate of industriousness: man develops economic behavior aimed at the production, exchange and final consumption of wealth; in particular, he is willing to supply his own labor to produce and consume those goods necessary to satisfy his economic needs, which is equivalent to saying that man is industrious. Postulate of efficiency: industrious man maximizes the efficiency of his labor, thereby maximizing the ratio between the benefits of «working» and the sacrifice involved, searching for the maximum quality given the sacrifice needed to produce; that is, he maximizes the value of the obtained production. These postulates lie behind the hypothesis that productivity and quality are destined to continually increase. I propose the following “Hypothesis of increasing productivity”: the search for the highest levels of Return On Equity necessary to produce value for the shareholders and meet the expectations of the firms’ stakeholders gives rise to a improvement process whose macro effect is increasing levels of productivity and quality. This paper will try demonstrate that productivity is the basis of all productive systems, which are viewed as transformers of utility and value, since the search for maximum productive efficiency is necessary to reduce production costs and thus to produce value. After presenting a coherent frame of reference we shall examine the drivers of productivity and then move on to discuss the consequences of the continual growth in productivity. The paper concludes with a simple but significant model that seeks to illustrate the relationship between productivity and employment. All goods – individual or collective, material or services – that man uses to satisfy his needs and aspiration must be viewed as products obtained by some productive process carried out by a productive system activated by business organizations which bear the risk of production and marketing. In fact, every productive process carries out a productive transformation through which inputs of given quantities of productive factors (cement and steel reinforcing rods, wheat and milling machines, corn flour with water and salt, aluminum plates and press brakes, etc.) are transformed into outputs of volumes of production at the end of the process (columns of reinforced cement, wheat and bran, cornmeal, computer chassis, etc.)