The keys to productivity

Let's think about what is needed for an economy to produce goods and services. At the center are the people who work, individually or organized in large or small companies. We all use tools, machinery, and infrastructure. We depend heavily on others, our suppliers: we are not Robinson Crusoe doing everything alone. Finally, there are the different levels of government, which set the rules of the game, enforce them, and directly manage a significant part of the economy's resources (almost half of what we produce).

Productivity depends on the proper functioning of this entire ecosystem. Improving it requires identifying its weaknesses and correcting them. In the case of the Catalan economy, I would highlight three: human capital, company size, and institutional quality.

If people are at the center of the production process, human capital is the fundamental ingredient for achieving high levels of productivity, but our shortcomings are well known. The results of the educational system, the difficulties in finding qualified professionals in many trades, or the insufficiency of places in highly demanded degree programs (how many brilliant and vocationally driven students cannot study medicine!) illustrate this well.

Other educational systems show a possible path: sufficient resources to manage a complex reality, more autonomy for schools, more decision-making power for management teams, and accountability for results. We also need to elevate the teaching profession to the level of its importance for the economic and social development of the country. What job is more important than that of a teacher? In vocational training and at university, more flexibility would be desirable to adapt the supply to the training needs of our economy. Likewise, we need to strengthen the training of unemployed people, especially the 30% who have not worked for more than a year, or people with lower educational levels, both native and immigrant. Active employment policies are practically non-existent or ineffective today. The selective use of tax incentives can also help attract highly qualified talent, for example in the field of research.

Company size is also another important factor. We have relatively few large companies and many very small ones. The former tend to be more productive because they have enough critical mass to specialize functions (a self-employed person has to wear many hats at once), invest in innovation and internationalization, or adopt new technologies. Why don't many companies with potential grow more? Because we put too many obstacles in their way, especially bureaucratic ones. Absenteeism also affects an SME operationally much more than a large company. Furthermore, there are thresholds above which regulation becomes more burdensome. It is no coincidence that many companies resist exceeding the threshold of fifty employees. Such sharp increases in regulation depending on company size should be avoided.

Another problem, shared with the rest of Europe, is that many innovative digital companies end up growing in the United States, where they find a larger market of customers and capital. In Europe, the market is still too fragmented, as well as too regulated. As the Draghi and Letta reports point out, the single market needs to be deepened and a true European capital market developed.

Institutional quality is also a determining factor. It includes aspects such as financing or the degree of execution of state investments, aspects that are clearly improvable. Also the way public policies are designed and managed. Decisions on regulation and spending should be more evidence-based, but we still evaluate little. The administration also needs to be more agile, citizen- and business-oriented, and more coordinated.

Housing exemplifies well the consequences of a flawed institutional functioning: excessive regulation, regulatory instability, lack of coordination between administrations, and slowness in granting permits. This is a situation also found in areas such as transport infrastructure, energy, water, knowledge transfer between universities and companies, or the arrival of European funds to their recipients.

Sometimes productivity is discussed as if it depended, to a large extent, on a major reform. In reality, it depends on many pieces that must fit together: a system that trains us better, companies with the capacity to grow, and institutions that facilitate economic activity instead of hindering it. We know what is failing. The pending task is to correct it.