The Key to Prosperity and Better Standards of Living

 

Why is it that when our Great grandparents were young it was a luxury to own a car, and now it’s regarded as normal?

Why is it that many more people were in back breaking manual work, and living in poverty, only several decades ago?

Yet now unemployment is low, average working hours are low, jobs are less physically demanding and most people have a higher standard of living than ever before!

Let’s look at the statistics across the world, to do that we will use Real GDP. To kick off we explain what Real GDP is:

  • GDP is a measure of a countries output in a year
  • GDP per capita is the average output per person in a year or the average wealth of a person
  • Real GDP per capita is the average output per person in a year taking into account inflation and the cost of goods and services so giving a real indication of how far that wealth goes.

Real GDP per capita is commonly regarded as a measure of the standard of living. United nations human development index also measures quality of life looking at many factors like life expectancy, literacy, education and quality of life, infant mortality, poverty, diseases, and much more. This index has a very close correlation with a countries real GDP per capita statistics so we can safely assume that if we want to measure standard of living real GDP is a good way to do it.

So how does real GDP per capita compare across the world? Using statistics from knoema.com we find that:

  • Ethiopia and Zimbabwe have one of the lowest standards of living in the world
  • India has approximately 3 times better standard of living than them
  • Turkey 10 times better
  • England 22 times better
  • Germany and Australia are 24 times better
  • America is 28 times better and
  • Swizerland 30 times better!

Why is there this huge disparity?! Is it the countries natural resources? No it is not, some of the countries with the lowest standard of living have the most natural resources. Economists believe the main reason is the productivity of the country. Poor or good government often affects the productivity of the nation thus affecting the overall standard of living.

The key is productivity…

As a country is more productive it produces more output per head, and then the standard of living goes up.

So how do we increase the output?

  • We can increase the percentage of the population that works, but there is always going to be a limit to that.
  • We can increase the number of hours each person works, but again there will always be a limit to that.
  • So this leaves us with finding new methods to increase the output per hour each worker works.

If we look at the progression of productivity since our great grandparents were young:

  • Harvesting used to be done by hand with scythes now we see combine harvesters.
  • We can talk to anyone in the world wherever we are whenever we want with all sorts of different methods.
  • We can research any topic in seconds with google.
  • Automated machines and manufacturing lines churn out products faster and cheaper than ever before.
  • We can control our factory from the other side of the world
  • This list of examples is endless…

All this progression provides relief from the back breaking work of 100 or even 50 years ago, and gives us more enjoyable and comfortable lives.

Let’s do a worked example:

  • A factory makes widgets at a rate of 100 per day and has 10 staff to do this.
  • Each widget makes £10 profit
  • Therefore total output per day equals £10 x 100widgets which equals a total of £1,000
  • Even if you had no other overhead costs this £1000 divided by 10 workers equals a maximum possible pay rate of £100 per day

If we automate the process so that each worker can operate a machine that makes 50 widgets per day.

  • The total output per day equals 10 staff x 50 widgets x £10 per widget which totals £5,000 per day
  • This divided between 10 workers equals a maximum pay rate of £500 per day
  • Or we can reduce the price of the widgets to increase the size of the market. We can then employ more people and buy more machines to make even more money.

But either way there is more money being made with the automation and the standard of living goes up for everyone involved. So we can see how if our standard of living is to improve our only option is to increase productivity and one of the key ways to do this is with automation. Equally if we don’t automate other competition and countries will and we might well be left out…

Compare the car factories of today with those only 50 years ago there is a stark difference. Would they still be making money if they had not automated? Most likely not!

The pace of technology and automation is speeding up, what will your factory / process need to look like in 10 years time?

What do you need to do now to increase your productivity and be prepared for the future?

Find out more…

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