POllCY IMPllCATIONS OF THE DEVELOPMENT IN PBODUcrIVITYOF LABOUR IN TANZANIA Prof. Jerzy .Jedruszek* Since 1st July, 1980 the new national policy on prodUctivity, incomes and prices has been introduced in Tanzania. The idea of payment by results combined with prOOuction incentive scheme is being now implemented with the aim of relating salaries and wages to. the increment in output. It is assmned that each individual's renurneration should be intiuenced, wherever possfble, by his eontribution to ~ production. The fact that the policy has been introduced just now does not depend, of course, On chance; it was and it is necessitated by the past negative econoInic phen01lle1la which contributed substantially to the crisis situation in the country. The pld income and wage poliCy tended to concentrate almost exclusively on the reduction of income differentials without recognizing the importance of proper incentive schemes. The role. of incentives was. negligent; their influence on the productive capacities was practically none. The system of remuneration was based on fIxed wase combined with the overtime payment in cases when the quantitative production targets were not met plus, additionally, the bonus paid at the end of the year distributed equally among all the employees .. This system favoured neither individual nor group efforts to raise productivity. Even more, it was not sensitive at all to the problem of costs, to the problem of waste and negligence. Managers were not compelled to look carefully at the production costs and at the development in overall effIciency and in productivity. of labour. Equilibrium between the consumptive and productive attitudes was lost. All this affected adversely the productive capacities and trends in the fIeld of productivity. It affected also adversely the motivational block of the workers and their productive attitudes. The internal factors in the realm of wage policy added up to the external shocks affecting the process of production and must have had exerted additional negative influence on the production phenomena. Tanzimia's economy, in fact, faced and still faces, since 1973, a series of crisis which make it "extrem.e1y difficult to respond swiftly and effectivdy to the challenges of immediate economic problems without jeopardizing the long term social and economic targets." The origins of the past and present difficulties are multiple. They stem from the very strong exogenous political and econolnic shocks about which the country could do nothing at all; they originate, however, also from the endogenous internal development policies related mainly to the process of structural changes in the economy. For policy purposes it is necessary to assess critically the separlite contribution of those set of factors to economic vagaries observed in the country. This is not an easy task but luckily there is a number of documents which allow one to draw some conclusions. Among these are: The big World Bank basic economic report consisting of the main report and 7 separate annexes; (1978) ILO sponsored "Towards Self-Relience" publication dealing with development, employment and equity issues in Tanzania. Prof. Malima paper on "Tanzania and the IMFj" • Prof. J. Jedru5zek - Research ProrellOl", &ouomk~ Burc.u. UnlYenityofDareaSalum. 237 Jedrtuzek—Productivity of Labm» ERB paper on "Development in Employment and Productivity in Tanzania in 1967-1977; by J. Jedruszek; Work unpublished as yet on Tanzania's Economic Strategy (1974-1977) by Van de Laar, R. Green and D. Rwegasira; And a number of industrial case studies prepared by the National Institute of Productivity. From among economic phenomena observed in the past not surprisingly the development in productivity and employment were given a very great attention. After all, the employment creation, representing the swiftest and most rational improvement in the income distribution of the country, and developments in the overall social productivity determine the increment in the social production; they determine the supply stream so badly needed in a country like Tanzania. From among economic phenomena observed in the past not surprisingly the developments in productivity and employment were given a very great attention. After all, the employment creation, representing the swiftest and most rational improvement in the income distribution of the country, and development in the overall social productivity determine the increment in the social production; they determine the supply stream so badly needed in a country like Tanzania. The assessments of the trends in those fields differ sometimes quite substantially but in general there was a consensus that some improvements affecting the productivity and the structure of employment should be made. The background to this feeling may be illustrated by tendencies described in the ERB paper on employment and productivity phenomena which occured in Tanzania in the last decade. I will not recall extensively the detailed analysis presented in this paper but a brief summary may be here useful. The picture which arises from the past decade shows clearly that there was a declining tendency in the rate of growth of GDP measured in constant prices. Table 1 below illustrates this tendency well. Table 1. Yearly Rates of Growth fo GDP by industrial origin (constant prices) Total Per Monetary GDP Production Capita Economy Only Finance deleted 1967—1972 4.7 1.1 5.7 6.1 1972—1977 4.4 1.4 4.0 4.1 1967—1977 4.6 1.3 4.9 5.0 1977—1979 5.3 — 3.77 3.96 Source: The declining tendency was especially outstanding in the monetary sector. Of course, one may say that the statistical data are shaky and they don't allow one to determine precisely what was going on, but they are accurate enough to describe at least 238 Utafltl- V0).5 No.2 Deceatber lSl30 thetren~s. There is, however, a figure for the last two years which calls for some comment. Increase in the total production in the years 1977 - 197-9represented a level of 5.3070 per year l;Uldcompared with much smallerrate of growth (3.8) in the monetary sector implies a growing contribution of the subsist~nce sector to the .GDP. lbis is a bit strange. If it is not due to errors in data, or if it is not related to the problem of definition then it may. raise a feeling of concern. Not because the situation in the subsistence sector has improved but because it may mean that instead of being relatively "squeezed out" of the economy by the more efficient monetary sector the role of this sector grows. This is confirmed by the information in Table 4 of the Economic Survey 1979/80 from which follows that the total subsistence production in 1979 represented 31.4% of the total GDP expressed in 1966 prices as compared with 26.90/0 from 1974 and 31.5% from 1967. Therefore, there was some error in the data or the efforts of the whole decade to change the basic structure of the national economy;were not successful. The negative tendencies in GDP described above coincide with. the direction of changes in total factor productivity and in proxies for "pure" capital and "pure" labour productivities. As the discussion about the "pure" labour and "pum~' capital productivities would take us beyond the terms of reference of this paper and, as I have got reservations about those categories I will concentrate more atten.tion on the average total factor productivity which may be treated as 'the overall social productivity. Let us start with the analysis of the relationship between the rate of growth of GDP and the rates of gro~h of productivity and of employment. The rates will be shown for the same periods as appearing in Table 1-. The basic data used for comparison are giVeD in Table 2 below. Table 2 Productivity per employee 1967 -1979 Proxy for "Pure" Proxy for "pure" Total factor Year capital productivity labour productivity productivity (monetary (shs. per employee) (Shs. per employee) sector finance deleted GDP Shs. per employee.) 1967 7779 10323 11384 1972 9615 11797 13081 1974 7701 10499 11875 1977 10501 i2173 13455 (13859) 1978 13604 1979 13488 Source: Table 3 indicates clearly that the averages rates of growth of GDP and the productivity display adecreasing tendency. There is a deceleration in growth in the case of total factor productivity where the rate dro.pped from 2:8% in the years 1%7-1972 to r.O% in 1972-1976 and again to 1.002% in 1977-1979. Such a clear tendency does not appear in the case of employment which indicates that the additions to the GDP were 239 Jerfiwek—P rod «ti vi ty of Labov Table 3 A verage Rates of Growth in Monetary Sector [%per annum] GDP Overall Years finance deleted Employment Social productivity r b a b:r a:r 1967-1972 6.1 3.2 2.8 0.52 0.46 1972-1977 4.1 2.9 1.2 0.71 0.29 1967-1977 5.0 3.0 2.0 0.60 0.40 1977-1979 4.0 3.83 1.002 0.% 0.25 due mainly to expansion of labour force. The ratio b:r is growing. This is typical for an extensive type of growth and might be expected; development, however, in the field of productivity should be the source of serious concern as it implies that ih&effectiveness of one of the most important national resources, i.e. the labour force, deteriorated strongly. This is further indicated by the fact that the sensitivity of the increase of the GDP to increase in employment deteriorated also. The ratio of r:b representing roughly output elasticity with respect to labour inputs dropped from 1.91 in 1967-1972 to 1.88 in 1972-1976, to 1.41 in 1972-1977 and lastly to 1.33 in 1977-1979. In general from Table 3 it can be seen clearly that up to 1979 the influence of changes in productivity on changes in GDP was steadly declining to such an extent that the expansion of labour force could not hold the slowing down of the rate of growth of GDP. Ratio a:r which shows the share of an average growth in productivity in the average rate of growth in GDP dropped from 46%in 1967-1972 to 29% in 1972-1977. The years 1977-1979 represent further deterioration as this ratio dropped to the level of 25% only. It may be revealing, however, to determine what was happening in the particular fields of the national economy. Moving all the time at the high level of aggregation we will have a closer look at the development in industrial production divisions, for in the long run their output determines not only an income created but also an income distributed. The divisions concerned are mining, manufacturing, electricity and water supply and construction. Sources for GDP in 1966 prices and for employment are the same as used for previous analysis. The methodology used is also the same; thus the results obtained are comparable. Table 4 GDP and Productivity in Industry GDP in industrial Employment Overall social productivity divisions in 1966 prices persons per man/year Year (mil. Shs.) (thousands) (Shs.) 1967 1,120 87 12,874 1972 1,431 125 11,448 1974 1,528 159 9,610 1977 1,567 (1,620) 148 (164) 10,946 (9,555) 1978 1,532 148 10,351 1979 1,574 156 10,089 Results of the analysis of changes are shown in Table 5. 240 Table 5. Average rates of growth (070) per year for an aggregate of four industrial divisions expressed in 1966 prices "!"" Year. Output Employment Total factor productivity b:r a:r r b a 1967-1972 5.0 7.5 -2.3 1.50 -Q.46 1972-1977 2.5 3.4 -0.9 ..36 -Q.36 1967-1977 3.8 5.5 -1.6 1.45 -Q.42 1977-1979 0.2 -2.5 2.7 1978-1979 2.7 5.4 -2.6 The picture presented in Table 5 is much more dramatic than for the production of total monetary sector. :first of all, there was nearly a steady decline in the absolute level of total factor productivity expressed in constant prices. In the period 1967 - 1977 there was an average decrease of 1.6% per year and the overall decrease in absolute level of productivity amounted to 14.4%. The additions to output, which were growing in those ten years by 3.8% per year, were due mainly to the extensive factor; expansion of labour force. This may be seen from the growing ratio of b:r which indicates the accelerated increase in labour force and its growing share in GDP created. There is definitely a deteriorating situation in the ratio a:r indicating the falling role of productivity. The data for particular industrial divisions support strongly this observation. In the whole manufacturing division e.g. in the period 1967 - 1977 employment rose 2.6 times but contribution to the GDP expressed in absolute terms only 1.8 times. Employment rose there on average 11.16foa year while the production in constant prices only 656fo a year. The deterioration in effectiveness of use of labour factor - disregarding the reasons for it - is striking and implies very serious material losses in industrial production. If only the total factor productivity had remained at the 1967 level the total figure of gross value added in 1966 prices in the four industrial divisions considered would have been in 1977Shs. 1,985 instead of Shs. 1,620million. "Loss" due to decrease in productivity in four industry divisions amounts to Shs. m million and transformed into 1977 pric~ - Shs. 678 mill. which means 19:2% of the actuallYiobserved value of industrial output in 1977. This is a phenomenon too expensive in social and economic terms to be left without any attempt to change it. The more detailed analysis of the above developments is not possible without a description of what was happening with the utilization of capital assets and with the capital intensity of production. More disaggregation of the data down to the level of particular sectors of industrial divisions and even of particular enterprises is needed. It would be out of place to repeat all what I wrote on this topic in the paper mentioned above but some indices of what was happening are here Deeded. The tendencies appea.rii1g in the utilization of capital assets and in the effectiveness of 241 Jednuzek—Productivity of Labour expansion of capital stock may be discovered by the analysis of incremental capital-output ratios. The experience of a number of countries indicates that the capital- output ratio ranges on an average between 3:1 and 4:1. High rates of growth are associated with a low ICOR. If this ratio increases it implies that the effectiveness of capital inputs deteriorates i.e. one has to invest more to get the same output. For Tanzania we can calculate ICOR using data on the total capital formation in the .monetary sector and on the total GDP in this sector (finance included), to get the value of ICORs I summed up corresponding figures in the periods under consideration, calculated the average share of capital formation in total monetary GDP and then divided it by the yearly average rate of growth of that GDP. The results for all data expressed in 1966 prices are shown in Table 6. Table 6. ICOR for Tanzania (1966 prices) Years Capital formation Yearly average as % of GDP rate of growth ICOR of GDP _ _ __ _ _____ _ 1967-1972 26.3 1972-1977 27.0 4.0 6.75 1967-1977 26.7 4.9 5.45 The tendency appearing in this ratio in Tanzania is quite clear; it forcefully implies a grave deterioration in the effeciency of use of capital inputs in the national economy. Tanzania is not the only country which was affected by the negative phenomena in the field of productivity, of income creation and of employment security. To cite the data published in the Economist on the 25-31.08.1979: "in the decade to 1973 each worker employed in the 7 major western market economies managed to raise his output by an average of 4.5% per year. Since 1973 this rate of increase has shrunk to 1.5% a year." After 1973 and up to 1979 there was severe decline in growth of productivity. The highest occured in Japan where the yearly average rate of growth of productivity slipped from 8.7% observed in the period 1963 — 1973 to 3.3% a year between 1973 —1979. The growth of productivity in 1973 — 1979 has been slowest in the US with a bare 0.1 % a year on average. By 1978 W. Germany had a significantly higher level of output per man than the US and registered the smallest decline in the rate of change of productivity with a drop of only 1.5% points. However, this was achieved in a typical way for a capitalist market economy through the policies of shedding labour and through disregard of the socially important principle of employment's security. Over the six-year period, 1973 — 1979 in West Germany employment actually declined by an average of 1.1% a year. This tendency still continues and appears also in other leading capitalist-market economies like U.K. and U.S. Those tendencies brought a new — in modern times—phenomenon. There are cases where some trade unionists after years of under-employment are resisting attempts to increase productivity as a threat to jobs. Thus improved productivity suddenly became a social menace instead of a social blessing. 242 Utldlti-Vol.5No,2 :oea.J..._ 'IbiS isilot suipnsm8 in the countri~ ~ ~'idea of an~. social rationality is abhorred and therefore impossible to impleInalt •. In such a situation ~ caiI to • output per ID8Il in order to finance the higher standird of Jivina that aD societies lWnaOO is not valid and cannot bring the results hoped for .. The point relates to the social effectiveness; the overall social ratiooality cannot be treated as a simJ:1e swmnation of the effectiwness of the si.nafe particular units, It it not true to state that once we secure the efficiency at the micro level we secure in an automatic .way effeciency at the maao sociallevd.. It is wropg to auumc further that once the problems of 8CClIIl1Ulation and growth are sucessfully so1\'Cd the diatrfbutiona1 problems.will be solved too. In the social system where tha'e is no unity of aims - wberC the market and its rules are the central object of adion and 9f analysis - the social rationality becomes JreSlningJess. DeveIopmeDt concept con.fioed to the jacket of solely market analysis cannot secure consistency of the system frOm the point of view of both macro and micro rationality .... However, the planned socia1ist economies too are not without their P'Oblems although for different reasons •. . In Poland for example the industrial social effectivCBSS showed alIO a c:Ja..ijning tendency. If we assume that this effectiveness may be measured by the difference between ~ rates of giowth of total factor productivity and of total outlays this kind of a measure started dearly to decline after 1974. The neptive teDdcocles appeared I especially in theeffkieney of the JJSC of C81lita1 assets {Ind..~ ~,J~ in natiomil income became in the seventies less salSitive to the inaa:nents in capital assets than inthe sixties. Fi Negative phenomena appeared also iDthe field of In)ductivity. Thus fQ1' example tcclmical endowment per employee in the 8(V'iA1i~ industry rose in tbe period 1975 - 1977by 22Of, while the value added per 1000 d. of capital assets in industry dea-eased in that period by 5.4%. In 1978 technical endowment of labour in industrY fOlIe by 9.,'" 'While the productivity of laboui inaeased.only by 2'10. Such a nqative discrepancy between those two indices coti1d be observed infac::t since 1912 •. ' . 'l- ODe may assume then that the neptive pbmomena in the fiddof productivity wa-e quite widely spread and affected both 1lllJl'ket 8nd planned ecotIOIDici althouah the set of causes bringing about this phen