Productivity – a well understood if complex debate or one that for too long has been discussed in purely theoretical terms by economists or in isolation from the forces that act upon it? Why is UK productivity at an all-time low? Although the problem of low productivity is seen across the OECD, the issue is particularly and prominently evident in the UK. Pre-the 2008 financial crisis UK productivity was 9% below the OECD average; by 2015 (even with the general trend across the board post-crisis) UK productivity was 18% below the average. Recent figures indicate that situation is not improving.
Why is it that productivity per hour in the UK is 35% lower than in Germany and 30% lower than the US? Our productivity growth since 2008 is lower than all of the top ten largest economies. At last, politicians across the political spectrum seem to be agreeing that this is a real problem and have even begun to discuss it publicly. The debate is also maturing and it feels as though it has finally moved beyond the ‘single cause’ bias, e.g. we need more investment in infrastructure etc. The complex truth is that low productivity has multiple causes rooted over extended periods of time which cumulatively mean we now have a complex, systemic issue which needs a similarly sophisticated series of decisions and actions in order to effect positive, lasting change.
Of course, it’s going to be difficult for any political party to accept that full employment combined with the highest levels productivity is anything other than an idealised aspiration. We appear to have achieved the full employment goal, however that has been done by creating a vast low wage, low productivity economy.
This is only part of the problem; it would be very difficult to discuss automation in industry with queues outside the factory gates. The “Bot versus Human” debate will run for decades however the predominant and indisputable difference between the UK and German economy is the latter’s considerably greater investment in better machinery and more focus on training and development in STEM skills. Tech and bots are not the problem, they are part of the solution to a high productivity world. France appears to have achieved a blend of the STEM skill development and a cultural approach that leans towards ‘it’s what you put into the hours, not the hours you put in’. As you might expect the US does all of the above and has less holiday time but is much bigger and leverages the tech, the culture and a national interest in business generally.
Let’s look at the type of initiatives that may help us arrest the decline and drive the regrowth.
In order to combat against low productivity and help steer UK plc to better levels of performance in the long term, sustainable strategies need to be developed and successfully implemented. One such method is to improve productivity through greater targeted investment in human capital. A better equipped workforce over-time with more of the skills that are particularly lacking.
There are of course the other more general instruments that could assist in increasing productivity long term which include:
One final clarion call for why more than ever we need to focus on closing the productivity gap. The indirect consequence of low productivity is that it increases the attractiveness to high productivity nations of simple arbitrage purchase of business for growth and that means less companies owned and paying tax in the UK in the long run.
*The Year of Disruption follows on from our very successful Years of Digital (shortlisted for an Association Excellence Award), Growth and Diversity. For more information/content please visit the Year of Disruption specific hub.