Capacity Utilization: The Forgotten Secret in Trading Out Poverty

Abstract

Policy makers, academics and practitioners see economic growth as the secret behind the high standards of living worldwide. The ingredients that go into economic growth are still being debated, the only reason few countries have sustained long term economic growth despite all the promises politicians and policy makers make during political campaign periods or in times of economic crisis. One of the forgotten ingredients into economic growth is capacity utilization, there is overwhelming evidence that nations and regions could do more with what they already have if they focused more on capacity utilization. Even advanced countries like USA have never had a 100 percent capacity utilization, which operations managers might argue is not always desirable. It is hypothesized that focusing on capacity utilization might be a better exit strategy out
of poverty than attracting expensive investments and expanding plants. This paper attempts to unlock the potential of capacity utilization in economic growth and by extension poverty eradication. The paper while focusing on the USA will draw useful lessons for East Africa in general. Data is drawn from US economic and business official reports. To cater for economic crisis, the data is drawn to cover past crises such as the
oil crisis, the Asian crisis and any other event that might have adversely affected the world or regional economies. Linear regression is used in the analysis to investigate the drivers of capacity utilization and by extension economic growth. Private investment and productivity explains growth in capacity utilization in USA. Key words: Capacity, Poverty, Utilization, Economic growth, Trading