During the last century, governments have relied upon just four basic economic paradigms including Monetarism and Keynesianism with the addition of Mundell-Laffer supply side economics in the 1980s and Modern Monetary Theory more recently, which purports to explain how governments create fiat money. This K3M group of policies (Keynesianism, Mondtarism, Mundell-Laffer supply side and Modern monetary theory) has not performed well.

Whereas a declared arbitrary monetary policy target has been 2% inflation, and the other policies possess mechanisms suposedly to control inflation, the average inflation rate in this country between 1945 and 2025 was 5%. This represents a depreciation in the value of the purchasing power of the pound and people's real incomes of 40% each decade over the last eight decades. The real economy has had to struggle against this negative load over this period.

Having lost most industrial and manufacturing capacity and with 80% of the working population now employed in an economy dominated by a low wage, low productivity services sector the ability to counter this rate of depreciation has become difficult and has led to something like 20% of the constituents of this country have experienced a decline in real incomes or purchasing power creating poverty and a rising income disparity.

The increasingly acknowledged problem of the British economy has been a decline in productivity which reduces the ability of the economy to lower unit costs of production and therefore moderate or even lower output prices.

Noneof the K3M paragigms possess policy instruments to increase productivity with this vitalissue being relegated to academic dioscussions concerning "Britain's productivity puzzle"".

The Real Incomes Approach

The Real Incomes Approach to economics is the only macroeconomic paradigm which places productivity in a central position as the principal inflation reduction mechanism. This has the advantage of avoiding austerity which results from applying raised interest rates or taxes and the orincipal policy instruments to reduce inflation. According to the economist and systems engineer, Hector McNeill who is the lead developer of this approach, the productivity mystery is the result of an incorrect definition of productivity. He explained this as follows:

"The British government agencies concerned with economic poicy all use the US Bureau of Labor Statistics, OECD and ILO definitions which measure productivity by dividing "value added" or the GDP by the total hours of work." "Given what is included in the GDP, this is not a measure of productivity but rather, a measure of the monetary yield." "Productivity is a physical construct so it is necessary to separate the direct impact of this change in input-output physical productivity from the monetary amounts associated with any particular level of productivity. Usually, the turnover of a company is related to shareholder value, profits, prices, bonus payments and inflation, these are not directly a function of physical productivity but are monetary assignments." "There is therefore a 'financial engineering' or a 'financialization' factor in turnover or GDP. Therefore there is a need to deploy a measure of productivity which reflects the specific contribution of changes in productivity to real incomes, the value of the pound or purchasing power. In other words, the response of unit prices to changes in unit aggregate input costs is a direct measure of the impact of productivity changes. This measure is known as the "Price Performance Ratio" and this is the percentage change in unit output prices in response to aggregate unit input costs."

The Price Performance Ratio

The Price Performance Ratio (PPR) is the percentage change in unit output prices in response to a change in the aggregate unit input costs of production or service provision.

PPR = dUP/dAUC
This simple measure, introduced by Hector McNeill in 1976, measures the reflection of productivity changes in terms of changes in real invomes or purchasing power by measuring the impact of productivity on price or inflationary/stable or deflationary movements. This, in terms of growth or changes in purchasing power or value of the pound, is an objective measure of productivity.

McNeill explains this as followws,

"In 1973 OPEC raised petroleum prices along with the 6,000 petroleum derivatives, used by all economic sectors, by a factor of seven over the following decade. This generated stagflation the combination of rising inflation and unemploymnt." "The flood of dollars used to purchase petroleum created petrodollars in agreement with the USA administration, and a flood on funds into financialization and globalization. Because of the drastic drop in productivity caused by rapidly rising petroleum complex prices, UK industries offshored production to low wage countries in a drastic attempt to lower costs and maintain profits. This resulted in a major deindustrialization of the UK economy and the growth in a low wage, low productivity services sector employing 80% of the working population." "With limited options for changing technologies and techniques, service activities handle rises in costs by passing them on, so, the UK economy structure was transformed into an exogenous (imported) inflation feeding an endogenous (national/domestic) inflationary economy where it is difficult to control inflation. The formal definitions of productivity are therefore no longer appropriate because much of the value added or GDP is not related to productivity changes but rather to pricing, bonuses, shareholder value, wages and inflation. The Price Performance Ratio is the only way to measure the contribution of companies to purchasing power, value of the pound or growth in real incomes" Real Incomes Objective Price Performance Policy (RIO3P). This is the only macoeconomic policy that makes use of the Price Performance Ratioo as the Critical Performance Indicator which provides a precise and accurate measure of productivity and growth."