Health and Environmental Concerns Must be Included in Productivity Statistics, says Coen Rigtering of Utrecht School of Economics

Coen Rigtering’s view is that while productivity growth is fundamental for economic growth, it’s not as important as it used to be. This is because growth statistics don’t take into account other social or environmental issues. For example, mining natural materials might create economic growth, but in the long-run society will be affected by the downsides of not replacing them.

“Over the past couple of years, we’ve seen an increase in economic growth but at the downside of something that’s more difficult to measure. To take a recent example, when all the factories in Wuhan shut down for a couple of months with the spread of Covid-19, this hit the local economy and the virus itself caused many deaths. However, a large number of lives were also saved because of the reduction in pollution. Merely looking a growth statistics is a very simplistic way of looking at economic growth. We need to account for destruction of natural resources and account for health concerns that go alongside it.”

There are three main factors for boosting economic growth. Population increase, mainly due immigration; capital accumulation in the stock market; and finding new ways of production that boost output and therefore productivity.

The final point is what economists focus on as important for growth. But Rigtering says this doesn’t reflect societal trends and changing demands: “Consumers want more customised products now, and these are more tricky to develop. It requires a different way of producing that is not necessarily the most effective way of production. It is better to take a broader view and think how we can create more equal division of wealth instead of simply increasing productivity and economic growth.”

The power of corporate entrepreneurship

Rigtering’s area of specialism is corporate entrepreneurship, a process that encourages entrepreneurial spirit within existing companies to create new businesses, products and services. The company with perhaps the most successful corporate entrepreneurship strategy is Google. The tech giant has made innovation a central focus of its business since its inception 22 years ago. Employees have the freedom to work on their preferred projects and its Google X offshoot encourages a diverse workforce of inventors and entrepreneurs to create “products and services that are 10 times better than the competition”.

Rigtering says lots of companies like the idea of corporate entrepreneurship, but that it is difficult to implement and needs plenty of management support. When people are allowed to experiment on the job, the outcomes are not always beneficial for the company. Gmail and Google Maps, for example, both started as side projects and ended up as core elements of the service portfolio of Google. However, a lot of projects and experiments also fail and this might hurt a company’s short term performance.

“Encouraging innovation could be really valuable to a business as they plan how they are going to survive the Covid-19 pandemic. Yet, many firms will move in the opposite direction as they cut costs and innovation will not be a top priority. In addition, the structure of the workforce is changing because of the pandemic and the rise in home working. The rise in home working might not be beneficial on the long run because a key element of new business development is bringing people in the same room together, so they can physically communicate and build trust with their team players. A combination of digital working and budget cuts could mean there is less innovation during the upcoming years. However, those companies that continue to invest in innovation and that dare to take the risks associated with entrepreneurial might be more successful because of the lack of innovation amongst their direct competitors.”

How to boost productivity

• Social and environmental impacts must be recognised in productivity growth statistics, rather than the numbers concentrating on just the final output
• Corporate entrepreneurship will help a company be more innovative and could potentially transform their business model, but firms must be willing to accept the short-term costs of this strategy
• Managers must help employees find meaning and purpose in their work to keep them engaged as home working becomes more common due to Covid-19
• Businesses must embrace advances in technology and invest for the long term.

Rigtering’s key conclusions:

• Social and environmental impacts must be recognised in productivity growth statistics, rather than the numbers concentrating on just the final output
• Corporate entrepreneurship will help a company be more innovative and could potentially transform their business model, but firms must be willing to accept the short-term costs of this strategy
• Managers must help employees find meaning and purpose in their work to keep them engaged as home working becomes more common due to Covid-19
• Businesses must embrace advances in technology and invest for the long term.