Building shield

As mentioned before on the Deep End, there’s an awful lot riding on what happens to Britain’s productivity figures. Certainly, there’s room for improvement. Measured as economic output per hour worked, British productivity has seen little or no improvement since the financial crisis – in contrast to our competitors.

The Economist has an essential briefing on this issue:

“…Britain’s stall is uniquely serious. American workers’ output per hour is 9% higher than in 2007; even in France it has increased by more than 2%. Compared with G7 peers, Britain’s post-crunch productivity performance has been remarkably poor.”


Pete Hoskin analysed the problem earlier this year, but what the report in the Economist does is to disaggregate the overall figures – allowing the anonymous author(s) to look “under the bonnet” of Britain’s stalling productivity.

What they find is massive variations between the performance of different sectors:

“…the fastest-improving part is the transport-manufacturing industry. The 345,000 workers making cars, planes and trains produce 56% more in an hour than they did in 2009. Whereas from 2005 to 2009 the car industry made 9.3 vehicles per employee per year, from 2010 to 2014 it managed 11.5.”

This improvement is ascribed to “investment in new technology, improved supply-chain efficiency and better management” plus “collaboration between firms, universities and government.”

But it’s not all about advanced manufacturing:

“Some low-tech industries seem to have overcome the productivity problem, too. The ‘administration and support’ sector… which lets other companies farm out anything from travel planning to entire HR departments—saw the next-biggest rise in productivity.”

In addition, this is a sector that has created a large number of new jobs since the recession – showing that we don’t necessarily have to choose between higher productivity and lower unemployment.

Given the overall productivity figures, there has to be some bad news to cancel out the good news:

“Productivity in finance and insurance is 10% lower than in 2009. That partly reflects artificially high productivity in the boom years, when the sale of overvalued financial instruments and dangerously high leverage delivered bumper profits. It is also partly down to a heavier regulatory burden on banks, which has caused the ranks of legal and compliance officers to swell. The benefit of this—reduced risk of another crash—does not show up in productivity statistics.”

This is consistent with the argument that much of the prosperity of the Blair and Brown years was an illusion – a Ponzi economy inflated by cheap credit and loose regulation. When all of that collapsed, a great deal of our economic output (and hence productivity) collapsed with it. Given the comparative weight of the financial and property sectors in the British economy, our productivity puzzle doesn’t look so puzzling.

And yet the problem can’t be entirely blamed on the bursting of asset bubbles. For instance, the Economist finds that one of the worst performing sectors was the chemicals and pharmaceuticals sector:

“It is hugely productive, with output per hour of £72 per worker. But it has stalled badly, with hourly output dropping by 11% since 2009. Real wages are down by 4% and employment has fallen by more than 5%.”

Why one high tech sector should have done very well (see above) while this other did badly isn’t entirely clear. You could argue, as the Economist does, that productivity improvements require policy reforms such as looser planning restrictions and streamlined bankruptcy laws; but can such factors account for the sheer spread in performance between different industries?

Perhaps, for the next set of answers, we should look to something that also varies hugely from sector to sector: management culture.

18 comments for: At last – some answers to Britain’s productivity puzzle

Leave a Reply

You must be logged in to post a comment.