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Friday, September 16, 2011

Is Anyone Talking and Doing Something about Innovation, Productivity and Cost Reduction?

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Economies of Countries Will Keep Improving Only by Innovation, Productivity and Cost Reduction; Not by Merely Artificially Manipulating the Purchasing Power of People

The economy of any country is thought to be improving when there is lot of economic activity going on in the country. Economy is said to be healthy and growing when the producers of goods and services are able to continually sustain their higher productions and sales and the customers/consumers (the pubic of the country) keep buying those goods and services in abundance in terms of value and perhaps also in quantities.

This necessitates supply of goods and services that satisfy the existing and potential needs of the consumers and making these available at prices that can be met by the purchasing power of the buyers. The purchasing power is artificially enhanced normally by providing the loans in an easy manner to the consumers.

Now either because of ineffectiveness and inefficiencies of the producers or/and because of their greed to make still more profits, the prices of the goods and services are jacked up. The people still buy as the machinery to pump in the loans to the buyers is also in action. The purchasing power seems to be intact or rather getting further strengthened.

But in reality what happens is that this jacking of the prices by one or few producers has a cascading effect on the prices of other interdependent goods and services. Also in reality, there is full or partial absence of the free economy that is thought to be working purely on competitiveness in the market and on the relationship between supply and demand patterns. In reality the producers also often gang up and create a cartel or lobby and wield their power on the buying public by making sure that every producer without any exception decides to raise the prices of goods and services provided by them. The competitiveness is thus thrown out of the window.

This has a telling effect on raising the inflation in the country. A stage comes when this inflationary spiral reaches a height where the purchasing power of people even with supply of loans to them looks highly limited in continuing buying the goods and services. The result of this is a slump in the buying spree.

As the buyers put a brake on their buying, it affects the producers adversely. The producers can no more sustain their production and selling activities. They start downsizing and people lose their jobs. The purchasing power of people further reduces.

This might then lead to economic recession. The entire cycle repeats every ten to twelve years and it affects everyone pretty seriously.

If you look at it, in all of this, no one is talking and doing anything seriously about innovations, productivity and cost reduction. The key to sustained economic growth of a country lies in concentrating on these three aspects and not to play around too much only in making the people artificially rich by giving loans and enabling them to buy the goods and services at unjustifiably high prices resulting out of no or little emphasis on innovation, productivity and cost reduction and the greed for unbridled profiteering.

If following actions are taken one can solve the issues brought out in the foregoing discussions and keep the economy flying high and healthy all the time without undue inflationary impact on the buying public.
  1. The producers must use their creativity and innovations more and more in creating goods and services that are increasingly useful to the public and can be produced at significantly lower costs. Since continual improvement is a mandatory clause in all the ISO 9001 certified companies, the ISO 9001 auditors should strictly audit this aspect of creativity and innovation of the products and the cost of their production and selling, in quantitative terms and not merely in qualitative terms.
  2. The producers must employ the best possible ways to improve the productivity in their organizations. The improvement in productivity should be audited by the auditors in a very strict manner in quantitative terms.
  3. The organizations should put their best efforts in bringing down the overall costs of production and selling. The cost auditors should keep a tab on the cost reduction brought about by the companies.
  4. There should be an upper limit prescribed for making profits. For example, companies can be allowed to make only up to a maximum of 30% profit on their individual products and services. This also should be strictly audited and defaulters should be taken to task.
All these actions will keep the the inflation under strict control and buying public will get the innovative and useful products and services at the best possible costs/prices. The producers will get a guaranteed level of profits (say 30%). The loan borrowing will be kept to the minimum by the public which is good for them.

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