Technology

Technology is made up of the tools and equipment used to accomplish tasks to produce services, physical output and/or information. Human agents use technology, space to use materials, energy, information to produce output over time.

Learning

Although a given set of physical inputs produce a specific level of physical output the human agent managing the process gains operational competence through repetitive effort and as a result of an advancing skill in applying the technology achieves a constant improvement in productivity, that is, the level and quality of output for given resource inputs. This is known as the learning effect.

The learning effect can be measured in physical and economic terms and the basic relationship is that the costs of production will decline by a fixed amount for every doubling of historic PHYSICAL throughput.

Technique

Technique is the way in which humans apply technology and the increasing competence (skill) in its application mean that different companies can apply the same technologies but end up with different performance levels. Quite often managers will try and compensate high costs by raising unit output prices. This can slow down the rate of growth in PHYSICAL sales so the learning effect, dependent upon physical throughput, is supressed. As a result, higher nominal monetary returns are associated with slower improvements in performance. The investment in learning and productivity combined with austere disciplined management can keep prices competitive and margins low so that costs fall by a substantive amount. This not only enables market penetration but also a less risky basis for operations.

Innovation

The combination of changing market conditions, constituency needs, learning and operational experience can feed into more innovation in the form of the development of a new technology which will then introduce a new learning/technique cycle.

Growth in Real Incomes

Growth in real incomes both of economic units and of the public in general is more substantial under the austere management regime because both unit profits can rise with lower unit prices because of lower unit costs. Therefore the purchasing power of the currency or current nominal income levels will rise resulting in enhanced real incomes.

Strategic equity models versus finance

This real incomes approach consists of a management approach that builds up own equity on a strategic basis by safeguaring medium to long term competitiveness while reducing the need for inflationary finance where interest needs to be paid. The real incomes model avoids the dominance of performance indicators by nominal monetary "performance" as a quantitative index of nominal funds (currency) and replaces this with real performance in terms of physical output coefficients resulting in lower unit costs per unit of output. This in turn enables the sale of goods and services at stable or declining unit prices and this promotes purchasing power of consumers and enhance real incomes.

Growth

In quantitative terms comp;artosns between long term productivity and real income impacts, the learning effect through modified techniques can range from 5% to in excess of 30% depending upon the levels of automation in processes. The maintenance of the learning process is guaranteed by introducing new technologies to introduce a new more competitive learning cost-reducing cycle.

The current emphasis under the globalization agenda looks at relative short term costs as opposed to medium to long term potential and, as a result innovators are marginalised and financiers brought to the fore. However, in terms of the sustainability of economies largely based on serices and financial intermediation the strategic risks are increasing because of over-dependency on external sourcing and because Keynesianism and Monetarism offer no effective policy solutions to market imbalances and market price shocks including strategic commodity price spikes and failures in paper monetary holdings (derivatives). In addition the same politicians who promote globalization and encourage "competition" are the same politicians who believe a partial solution to the current crisis is to increase debt even further to achieve export led growth in failing markets. Promoting globalization while maintaining KM policies does not offer a secure future.

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See 1981 brief on this topic: McNeill, H. W., "On the Problem of Technological Ignorance amongst KM Economists", December 1981, ISBN: 978-0-907833-10-9