MDIA-p3-14 PRODUCTIVITY 150707

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Productivity improvement has been one of the keys to improved quality of life over the past 200 years. Structural changes in production processes as labor use declines and energy and equipment use increases are having major impacts on society (PEOPLE) and the environment (PLANET) while making it possible to improve PROFIT. With money metrics most productivity improvement benefits profit without commensurate improvement in people and environmental benefit.

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MDIA-p3-14 PRODUCTIVITY 150707

  1. 1. MULTI DIMENSION IMPACT ACCOUNTING File: MDIA-p3-14-PRODUCTIVITY-150707.odp Peter Burgess (c) All rights reserved MDIA PRODUCTIVITY
  2. 2. MULTI DIMENSION IMPACT ACCOUNTING WORK-IN-PROGRESS. SLIDESET STILL IN DEVELOPMENT. UPDATES WILL BE POSTED OVER THE NEXT SEVERAL WEEKS
  3. 3. PRODUCTIVITY has been enabled by technology … not so much by information technology, but by machinery and equipment that uses data to make production productive. MULTI DIMENSION IMPACT ACCOUNTING
  4. 4. PRODUCTIVITY is measured by comparing output to the amount of labor that is used in producing the output. This is a metric that had utility when production was constrained by a limited supply of labor … valid until around 1970 but since then not a significant constraint on amount of production. MULTI DIMENSION IMPACT ACCOUNTING
  5. 5. However … using money as a measure of SOCIO-ENVIRO-ECONOMIC ECONOMIC PERFORMANCE creates an unacceptable level of distortion. MULTI DIMENSION IMPACT ACCOUNTING Note: Households are earning a lot more money … but when discounted for the reduced buying power of money the income is almost the same as it was 50 years ago
  6. 6. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun THE MONEY ILLUSION
  7. 7. One thread of history suggests that most factory owners have ALWAYS made investments to improve their own profits. Nothing else! These owners did not embrace the idea that impact on SOCIETY (PEOPLE) is an important part of business purpose. Nor did they consider ENVIRONMENTAL matters to be of any concern for the business. MULTI DIMENSION IMPACT ACCOUNTING
  8. 8. Another thread of history is that some combined investment for PROFIT with the idea that workers could live in decent conditions and be able to live a quite good life. Lord Leverhulme who started the company that is now Unilever built a factory and community at Port Sunlight. The Cadbury brothers did much the same, building Bournville to be a factory in a country atmosphere. MULTI DIMENSION IMPACT ACCOUNTING
  9. 9. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun WORKERS' HOUSING AT PORT SUNLIGHT
  10. 10. There were impressive improvements in PRODUCTIVITY in the 19th century. Individual production was replaced by the factory system which produced much more with less labor. Mechanical energy replaced purely human energy. MULTI DIMENSION IMPACT ACCOUNTING
  11. 11. Manufacturing 100 years ago was already quite mechanized … quite organized … MULTI DIMENSION IMPACT ACCOUNTING
  12. 12. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun SPINNING COTTON MORE THAN 100 YEARS AGO
  13. 13. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun FACTORY SCENE FROM THE 1920S
  14. 14. TECHNOLOGY is part of the reason for increased PRODUCTIVITY since the 1970s Another part is the fact of GLOBALIZATION, which itself has been enabled by technology. MULTI DIMENSION IMPACT ACCOUNTING
  15. 15. CONCRETE PRODUCTIVITY improvement in pouring concrete … from wheelbarrow to very versatile concrete pumping systems. MULTI DIMENSION IMPACT ACCOUNTING
  16. 16. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun CONCRETE USING WHEELBARROW
  17. 17. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun CONCRETE USING A BUCKET SYSTEM
  18. 18. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun CONCRETE USING A PUMPING SYSTEM
  19. 19. SHIPPING PRODUCTIVITY improvement in shipping has been enabled by containerization … and very much larger ships. MULTI DIMENSION IMPACT ACCOUNTING
  20. 20. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun CARGO SHIP STEVADORING … CIRCA 1950
  21. 21. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun CONTAINER SHIP LOADING … CIRCA 2010
  22. 22. AUTOMOBILE ASSEMBLY PRODUCTIVITY improvement in the assembly of automobiles has been enabled by robotics and very much finer tolerances in the production of sub-assemblies. MULTI DIMENSION IMPACT ACCOUNTING
  23. 23. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun AUTOMOBILE ASSEMBLY … CIRCA 1950
  24. 24. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun AUTOMOBILE ASSEMBLY … CIRCA 2014
  25. 25. PAVING MULTI DIMENSION IMPACT ACCOUNTING
  26. 26. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun MACHINE FOR LAYING BRICK
  27. 27. The ability of LABOR to have a bigger share of the incremental gains from productivity has been gutted in the past 40 years … MULTI DIMENSION IMPACT ACCOUNTING
  28. 28. In this graph the growth of corporate profit (green) is on a log scale while the growth of household income (blue) and real output per hour (red) are on a standard scale. MULTI DIMENSION IMPACT ACCOUNTING
  29. 29. MULTI DIMENSION IMPACT ACCOUNTING SunSun EOP Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun BOP Financial Capital Human Capital Man Built Capital Natural Capital Sun THE MONEY ILLUSION
  30. 30. Part of this has been a systematic push back on the right of workers to unionize and have collective bargaining. Part of this has been the reduced demand for labor as a result of productivity improvement. Part of this has been the relocation of jobs through outsourcing to other locations where workers are available at lower wages. MULTI DIMENSION IMPACT ACCOUNTING
  31. 31. All of this has been possible because the metrics being used do not inform decisions makers of the facts in a way that results in better decisions. MULTI DIMENSION IMPACT ACCOUNTING
  32. 32. Recalling the PC paradox The PC was the productivity tool of the 1980s. It brought computer power to everyone and the commercial world invested heavily in PCs to improve office performance. After a decade, little improvement in productivity could be observed. Behavior change was slow. MULTI DIMENSION IMPACT ACCOUNTING
  33. 33. Post PC productivity By the early 1990s the technology used for the PC was being used to drive machines in the factory (numerical control) and then to streamline design, prototyping and manufacturing. Less people and significantly better production. MULTI DIMENSION IMPACT ACCOUNTING
  34. 34. The start of data everywhere In the 1990s PC technology started to be connected to the Internet. Data flows became automated with customized Personal Digital Assistants (PDAs) and in turn this enabled massive improvements in supply chain management. All of this was use of data to improve real economy performance. MULTI DIMENSION IMPACT ACCOUNTING
  35. 35. The downside of productivity The modern economy has some critical circularity. Consumer demand is driven by spending power. Aggregate wages determine sustainable spending power. Lower wages and in due course there is reduced spending power and reduced consumer demand. MULTI DIMENSION IMPACT ACCOUNTING
  36. 36. The impact of lower spending power on aggregate demand can be offset to some extent by enabling credit. This has been done in many creative ways over the last thirty years. Excessive use of this was one of the root causes of the great recession of 2008. MULTI DIMENSION IMPACT ACCOUNTING
  37. 37. Policy makers have not yet understood the many systemic problem that have to be faced. Full employment in an era of rapid increase in productivity will result in too much production and not enough demand. High production and high consumption also means dangerous impact on resource depletion and environmental degradation MULTI DIMENSION IMPACT ACCOUNTING
  38. 38. CLOSING OBSERVATIONS: Productivity has changed the profile of demand for labor; Productivity has made higher profit margins possible; Wages down, profits up; High energy use also means a high impact on the environment MULTI DIMENSION IMPACT ACCOUNTING
  39. 39. Policies to enable a smooth transition to a high productivity, high quality of life and low impact on the environment world have not been formulated; … and money metrics alone make doing this virtually impossible … IMPACT metrics are also needed for decision makers. MULTI DIMENSION IMPACT ACCOUNTING
  40. 40. NEEDS that go unaddressed are huge! In many 'rich' countries, infrastructure needs massive upgrading to suit the 21st century rather than the 19th century. In 'poor' countries, much of the population lacks essential infrastructure and access to services. MULTI DIMENSION IMPACT ACCOUNTING
  41. 41. The technology innovation that is going on at this time is impressive. The challenge is to use it in a manner that delivers progress for people without doing further damage to the environment … in fact to achieve substantial remediation of the damage already done. MULTI DIMENSION IMPACT ACCOUNTING
  42. 42. Up to now, PRODUCTIVITY has delivered good results for OWNERS but has been an unmitigated disaster for ordinary people. This has to be changed … and a key part of making this change is going to be making some fundamental changes in the way we do the metrics. Money metrics on their own are not enough! MULTI DIMENSION IMPACT ACCOUNTING
  43. 43. Follow up: Request for Feedback Getting these ideas fleshed out into a clear, simple but comprehensive structure is a big job and remains a work-in- progress. Many organizations are making progress with this, but there is no broad universal framework yet that will enable all the pieces to come together and work efficiently. I would like to get feedback from anyone and everyone to help move this initiative forward. While I have some clear concepts about much of this architecture, there are many details that I do not know enough about and need help. So, please feel free to contact me (peterbnyc@gmail.com). Please put something relevant and catchy in the subject line. MULTI DIMENSION IMPACT ACCOUNTING
  44. 44. Some links and contact information: Peter Burgess … peterbnyc@gmail.com Peter Burgess LinkedIn profile https://www.linkedin.com/in/peterburgess1 Link to TrueValueMetrics.org website http://www.truevaluemetrics.org/ Link to navigation for MDIA slidesets http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=list0200-Burgess-p3-Slidesets MULTI DIMENSION IMPACT ACCOUNTING

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