Van Reenen: what determines productivity?

if you can increase the rate of productivity growth you can increase the size of the economic pie and that leaves more money to spend on people wages or incomes or even on public spending if you want to spend in that way my name is John Van Reno I’m a Bachelor of economics I’m particularly interested in productivity and the reason to put to be difference in the country in the cross verb people care about the wages they care about what they can buy they care about the standard of living all those things really in the long run are driven by productivity there’s a huge variation in the level of productivity across different countries even when you look within a country in a very narrow industry you see enormous productivity differences between different firms two main fundamental causes of politically variation have to do with technology innovations of diffusion of new innovation and also management if you think about how economies grow for rich and new technologies come along different firms adopt those different technologies but another really important factor is how those new machines and new types of capital are being used that’s the management problems there’s been a lot less work on looking at the effect of management it’s a lot harder to measure the standard way the economists look at the world in terms of thinking about productivity is that competition will kill off the lag of and enable the more efficient firms to expand and get larger and that’s a powerful force creative destruction is sometimes called but that competition process doesn’t happen immediately that will depend on things such as the skills of the workforce and managerial skills in the firm other factors which are important includes your openness to foreign direct investment so a great way of spreading new ideas is being open toward other firms investing in your economy many countries are reluctant to allow foreigners to enter their industries that take over their firms this is also a barrier to the spread of new technologies and the spread of in practices we’ve done things where we actually have a clinical trial of management practices where we give some firms help and training to improve their management and compare that to other firms what we don’t give that and we found that the firm’s which actually got improvements the management practices and very large increases and their productivity and company performance we’ve also found that there are systemic factors which drive management such as competition skills and finally we found that if you look at the differences of productivity across countries about 30 percent of those differences are due to different management practices in those different countries one solution the textbook solution is just let the market sort the problem out by increasing competition and it also we said for that by removing barriers to competition but that can take a long time so I think there’s a set of other policies one could use in addition to competition one set of policies might be to speed up the rate in which better management practices are adopted in different parts of the economy for example by improving the kind of skills and human capital for the role of universities of business schools another group of policies to be thought of our openness to imports so a very good way of getting new ideas and the economy is to allow foreign direct investments or the key takeaways for the students so one is to look at the data looking just that fear is never going to be enough you have to think of the many tools in the policy toolbox to use so competition is certainly one of the important tools but as many other tools the role of the economist is not just to provide theory but also to find evidence of those those theories I mean often the problem is people think they know how the economy works and when you actually look at the data you find things which is very different from you [Music]


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