Why do we need to continuously increase productivity?

Question

Why do we need to continuously increase productivity? & what is the relationship between "quality" and "productivity"?

Answer 1

After World War II, Japan needed to rebuild. One smart thing that they did was gear their factories for export. The economy would provide the basics of life for the Japanese people but to prosper they needed outside money, beyond what the occupation forces needed for their bases and their troops spending for their leisure moments. Many prosperous economies realized that, Sweden and Switzerland are excellent examples. But, unlike those two european countries, initially Japan was in for quantity. Make a lot of stuff cheaply and those in well-off countries would surely buy some. Folks like Peter Drucker began to galvanize the corporate thinking in Japan, much as has happened in the recent decades in China--the extra steps of extra value produce extra value and consumers who can afford and appreciate that extra value will pay higher prices for it. Japan increasingly became known not as the mass-producers of junk but mass-producers of quality merchandise.

Figure it this way. Factory A assembles 100 cheap automobiles that sell for $12,000 with a profit margin of $2,000 each. For that production period, factory A contributes $1.2 million in sales and stockholders count $200k in gross profits. Factory B assembles 50 luxury automobiles along the same lines and they sell for $25,000 with a profit margin of close to $8,000 each. Factory B contributes $1.25 million in sales and stockholders count $400k in gross profits. Factory A's product is in for maintenance and repairs between 2-5 times as often as factory B's product.

What I have just described, drawn from looking at it about 15 years ago, was a comparison between Chevrolet's GEO Prism and a BMW 3-series sedans. Chevrolet could make and sell more (often in a factory that it shared with Toyota who was making its comparable product, Corolla) than BMW did, but even with BMW's "introductory model", the German car maker could grow and profit while, if you notice, Chevrolet no longer makes Prisms.

Without sufficient quality, production is no longer needed. If you make junk that no one buys, what have you made? If you improve the quality so that you can charge a premium price, then you will have sufficient profits to fuel the production of the next level of quality.

As for increasing productivity, when a technology becomes standard, the quality price premium shrinks. That means profit margins narrow. That means in order to get the kinds of profit percentages that you had before or aspire to have now, you will have to simply do better faster. Chevrolet had higher unit productivity rates than BMW, but a much, much lower marginal profitability rate than BMW. Parent company General Motors is suffering today, BMW is not. That is the relationship.

Answer 2

1- Increase productivity

First of all, competition.

If we do not increase productivity, others will do, and will eventually reduce their prices or offer [product pluses using the cost reductions. We would be displaced from the market.

Secondly, as a country, the growth of population makes necessary to produce more goods with the same input.

Classic example: agricultural production.

According to Malthus, we should be all dead. But new technologies increased the productivity of the land. We are alive (I think).

2- They could be related in the sense that looking for a high quality using the same process could affect the quantities rejected, reducing productivity.

But ,with better production processes, you can improve quality and productivity simultaneously.

Answer 3

productivity growth is the only source of economic growth and welfare.
We are better off today because ,with given amount of labour and capital, we spent much less time to produce ,say a car, than 50 years ago.