What is the reason for economic wealth? – It all lays in the productivity of manufacturing technologies. When steam power was driving the spinning frames after 1769 it caused 200 times more productivity than before. Fabrics suddenly became much cheaper and people were able to buy more. This development demanded for a new infrastructure which gave more people new work. But this development was slowing down because not every business is growing with the same speed.
Eventually there is a productivity factor which we cannot increase on a short term and it becomes so expensive that additional growth is not profitable. In the 1820’s the productivity factor was the transportation costs. The result was that the productivity was stagnating. This development or cycles are called Kondratieff’s. Named after the Russian Nikolai Kondratieff. Those cycles are repeating in a 40 – 60 years timeframe.

These days according to Nefiodow we are now within cycle number 5 – the information technology. And if you noticed, the productivity of a computer is reaching its end. As a fact computer doesn’t make the office worker faster in his daily work any more. The demand for consumption goods is filled (CD/DVD player, digital cameras, mobile phones, computers,…).

What are the indicators to recognize a slowdown of productivity or in other words how is it possible to see the change coming? Again a look into the past is helpful in this matter.

Governmental Distribution wars – who gets what?
1930’s: Weimarer Republic bursts in the fight of unemployment insurance.
1980’s: Social liberal coalition in Germany is breaking because of the new indebtedness.
Today’s: Social insurance as a general and health care insurance in detail are the challenges of societies.
Minorities (handicapped,…) are always losers in this war.

Tariff war
The behavior is all times the same. When productivity increase is missing, companies tend to force politicians to close the domestic market against goods from abroad. Look at China – Europe – USA… any questions?

Society
In difficult times the dress code changes towards classical clothes. Because to stand out with your style might cost you the job. More women are wearing today again conservative fashion like pantsuit or costume. Coincidence or intention…?

Unemployment rate
Probably the easiest signal to notice. In booming times Companies are increasing their workforce since the market is growing and they need any worker they can find out there. But if in a long term boom the productivity decreases, costs cutting methods reaching its end and at the same time the market price is becoming more competitive, what happens… companies produce less. But less production needs less workforce and companies are releasing people.
- Handcraft – 300.000 releases
- Banks – 10.000 releases
- Semiconductor – 17.000 releases and this only in Germany.

Fusion, Merger, Amalgamation
Enterprises need to make profit – as simple as that. Without profit they need to cover the cost with assets or at the end private capital. Market competition are pushing profits almost down to “0″. What is the way out of this dilemma…? Kondratieff contractions are standing out through merger and acquisitions (M&A). Either enterprises (primarily smaller once) become overtaken or going bankrupt. Otherwise the merge together to powerful units in the hope of synergy effects and cost sharing. But those cost effects are questionable. Fights about market share are the consequence at the final end.

But how to escape this trap..? How the title says – productivity is the key to Innovation and to profitable growth. Companies need to try new things, invest more money, encourage R&D departments in order to find that thing what increases productivity. This productivity increase will lead to a break trough innovation.
Several rumors are out there… from environment protection, recycling, energy supply until a more effective way to share information (a Just in Time Information flow). What it will be at the end, we all will find out in the “near” future.

Tags: efficiency, innovation, Productivity, strategy

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