A simple economic truth: performance before pay

The teaching of economics appears to have failed utterly in this country. I blame this on the teachers. I remember my own first teacher of economics: he would walk into the room, start writing lines and lines of notes on the blackboard and expect his class to copy it all down. At the end of the lesson he would talk to us for five minutes, and then leave.

During the examination, if you repeated his notes word for word, you would get an ‘A’ grade.

It is a wonder I retained any interest in the subject. Fortunately, I was fascinated by some of the concepts and made up for the deadly dull teacher by doing my own reading.

Most Kenyans, however, seem to have given up on economics at the first hurdle. That is the only way to explain why we are regularly assaulted with statements of economic idiocy made from high offices of the land. And why few Kenyans with a deeper understanding of the subject ever stand up to put matters straight.

Recently, I have heard various noises around a particular subject: pay and reward. As our shameless MPs lead yet another crusade to get paid more, many voices of support are appearing, all focusing on a particular message: more pay is good. More pay means more spending power, which means more demand for goods and services, which means more production and more jobs. It’s all hunky-dory, if you start the ball rolling by just paying people more.

In the face of asininity, it pays to keep things simple. I’ve written here before: If salary alone was the important thing, we could employ all the jobless people in the country to simply dig holes one day and fill them in the next. Lots of money injected into the economy, lots of purchasing power, many healthier people around, more kids going to school. But that would be crazy, because we would be paying them with money from…where? Taxpayers, well-wishers, donors? If jobs are to be sustained, they must pay for themselves, it’s as simple as that.

Allow me to repeat myself some more. Jobs should be measured by the work done. More jobs are created when work is done well. Average wages go up when work is done well. Companies prosper when work is done well. Standards of living rise when companies prosper and workers are paid more. Good jobs equal prosperity for all. Bad jobs keep us poor and unskilled. We are poor because we do things badly. That’s all there is to it. But it’s quite a job to explain it.

An understanding of productivity – the outputs generated for the inputs consumed – is essential to understanding economies. Competitiveness, crucially, is not about low wages: Professor Michael Porter once pointed out eloquently in my presence in Nairobi: poverty is about low wages. We certainly want to achieve higher wages. But we can only achieve sustainable higher wages (and therefore higher standards of living) if we improve our productivity. Prosperity comes from returns, and returns come from uniqueness. Kenya’s success in cut flowers, for example, is because we have taken natural endowments – soil and climate – and added world-beating quality: in flower varieties; in logistics; and in marketing.

So let us please stop having hallucinations about pay. Performance first, pay later. You cannot walk into a job and demand more pay before even doing a day’s work. The onus is on both employees and employers: the former, to ensure they work hard and learn even harder; the latter, to provide on-the-job training and technologically enabled work processes.

Before that, society must get its priorities right. It’s the education, stupid. Which brings me right back to where I began this column.

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