What really determines the differences in productivity between nations, sectors and firms?
Prof Robert Solow is internationally recognized for his contributions on the role of technological progress in the theory of economic growth and development. In the 1990s, Prof Robert Solow worked with the McKinsey Global Institute (MGI) in sector level studies across the globe. In an interview with MGI, we learn from Prof Robert Solow's experience that, the difference in productivity (across sectors and firms) is not technology or capital accumulation... it is management, organizational behavior, how decisions are made, how tasks are allocated and I would add, how risk is managed.
Prof Robert Solow remarks in the interview:
"...the idea that everybody is everywhere and always maximizing profits (turns out) to be not quite right..."
#1. Competition is healthy
To assume that all economic agents are naturally maximizing profit, or acting rationally is incorrect. The open secret is that 'competition' is one of the important factors that drive economic agents to act rationally and maximize opportunities. We have to acknowledge that competition is healthy if we wish to transform African agriculture. While this sounds like going hard on our farmers and entrepreneurs, this could be the secret behind a brighter, more robust and sustainable growth path for our beautiful continent. But perhaps, the question in context would be, just how does competition spur productivity? Prof Robert Solow explains in the interview how "trailers" in an industry, nation or region actually move up to realize their dormant potential and become trendsetters.
#2. Competition is the mother of productivity
The exposure to the competition of other players who are applying right practices (i.e. using the right tactics in the game), spurs "trailers" to do more and thus into higher levels of productivity.
Prof Robert Solow remarks in the interview:
"...international trade serves a purpose beyond exploiting comparative advantage. It exposes high-level managers in various countries to a little fright. And fright turns out to be an important motivation..."
Some might wonder, can African farmers stand global competition? Yes. Actually, African farmers can be very competitive. I have shared a few insights in this post that might be of interest on this subject. You can also learn a lot from this report. African farms, small or large, have the potential to offer great value, for instance in supplying niche markets with healthy and more nutritious foods.
Local African agribusiness firms such as fertilizer and input suppliers or agro-processors also benefit from healthy competition. Exposure to the practices of other firms within and beyond the country or region will spur local firms to be more efficient and produce better quality products and services.
#3. Africa's agriculture sector is the "productivity tipping point"
On this point, I believe there is a lot we can learn from Jeff Bezos, the founder and CEO of Amazon one of the world's largest e-commerce companies. But before we get into the details, let me explain the last nugget from the classical interview between McKinsey Quarterly with Robert Solow in relation to our discussion. The MGI studies in which Prof Solow was academic adviser, also found that wholesaling and retailing were the strongest accelerators or decelerators of productivity growth between nations and were at the time of the studies, low productivity growth sectors. However, entrepreneurs like Jeff Bezos managed to see the opportunity in these low productivity sectors and struck gold; not only for themselves but for the American nation and even the world. Wholesaling and retailing could have been "slow" sectors in most developed countries but these sectors also employed large proportions of the population, and this was the growth dividend, summed up by Prof Robert Solow in this way:
"...a little improvement in the productivity of these sectors would make a large contribution to national productivity..."
Conclusion: Enhancing agricultural productivity; taking Africa beyond the tipping point
It is no longer a "hidden" secret today that the agriculture sector in Africa faces the challenge of low productivity, but it still employs the majority of people. When most people hear the word "agriculture" today, they think of the few large scale farms and estates. These have great potential, but that is not only where all the money is! Agriculture in Africa employs 65% of the labor force, and where is that mostly? In small and medium scale farms either in the rural areas or around growing rural towns and cities. I would like to rephrase Prof Robert Solow's statement and say:
a little improvement in the productivity of African rural farmers would make a large contribution to national and continental productivity, and by the way, you could make millions like Jeff Bezos did in transforming retailing in America and now in the world.
Have you ever wondered what Africa's richest man is doing? Among three things, he derives his wealth from sugar and flour business, the third source of his wealth is cement. Now is the time for Africa to go beyond the tipping point. Development and transformation is about growth in total factor productivity and the driver of total factor productivity is not only through capital accumulation, labor or technology. Arguably the main driver is the spur to do more; the motivation to put the best tactics to use, i.e. leadership, management, organization, managing talent, managing risks and that comes from exposure to competition. Now is the time for Africa to be bold enough to foster healthy competition, locally and externally, it is an "open" secret. It is time for African entrepreneurs and governments to see how agriculture will catapult the continent's economy from dormant potential beyond the tipping point of productivity. There is opportunity for nations and entrepreneurs in transforming African agriculture.
We just sent you an email. Please click the link in the email to confirm your subscription!
OKSubscriptions powered by Strikingly