Tuesday, June 14, 2005

Security Improves Productivity

Clair Michalon, in her book Cultural Differences, introduces a theory establishing a relationship between level of security people enjoy and the amount of risk they are taking. In this context, insurances, social security, retirement plans are considered factors of increased security. The risk people are willing to take can be observed by looking at levels of innovation or adoption of new technologies.

According to Clair, residents of countries with a lower level of security, like most countries in Africa and South America, tend to be more adverse to risk. On the other hand, in countries with higher security, like in the US and in European countries, people take more risk.

Higher risk pushes people to be more conservative. If risk is high, including even the risk of dying, walking on the footsteps of the previous generation (who did survive!) is the most logical choice. This theory can used to explain the differences in behavior we observe at a macro-geographical level (e.g. differences between groups of similar countries). At that level, we can observe that countries that are adverse to risk take longer time to adopt newer productions methods, business models, generate new ventures, and are in general less productive.

A question remains: can this be applied to companies? If it does, that would provide a strong incentive for companies to provide good health coverage, pension plans and other services employees, in the name of increased productivity. For sure, Dr. James Goodnight, the CEO of SAS, strongly believes that investing in what Clair would call "increasing the employee's sense of security" is wise investment, and his ability to grow SAS a sustained 10-15% rate over the last three decades seems to prove his point.