Different Productivity In A Different Country

A person can  have different productivity in a different country! This is especially the case when one country has a developed economy and the other a developing one. It’s may seem paradoxical but it’s not because of a lack of knowledge, as the person’s has the same knowledge set, but rather because of a lack of capital (producer) goods.

Productivity rising

Same person yet different productivity

A country to get richer needs to have those goods in place to create higher order goods. Creation of capital goods takes time and savings. The governmental policies focus more on consumption instead of savings. The printing of money by the state bank in lowers the incentives to save. It’s because printing of the money erodes the overall value of money and is inflationary. This forces savers to consume instead of save. This consumption gives the temporary illusion of prosperity at the expense of longer term saving and capital growth. And remember it was capital growth that holds the key to a bigger and better output down the road.

The focus on Keynesian economics is on aggregates, which doesn’t even recognize goods to be of different kinds. This inadvertently takes the physical capital out of the equation of planning, destroying the very seed that can grow into a strong and productive tree. To get richer and for the same person to have greater productivity we need to accumulate physical capital. Until that happens the developed countries will be able to utilize the same person more productively while the developing countries won’t be able to.

 

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