The International Writers Magazine: Productivity
We are told repeatedly how well the British economy is progressing, with the focus almost entirely on growth of Gross Domestic Product, and the fall in unemployment figures.
This is all very comforting and we can perhaps be forgiven for smugness when hearing of Greece’s problems and those of some other EU countries. Nonetheless, it is worth considering the long term value of having the fastest growing GDP in the G7 and a record fall in unemployment figures. How solid is this success? How well prepared is Britain to withstand future global crises that are widely seen as inevitable given the model of capitalism that prevails? Prophecies of future recessions have appeared recently in both ‘The Economist’ and the ‘Daily Telegraph’, neither of which can be considered left-wing.
We should not be mesmerised by the two figures that I have mentioned, GDP and unemployment. Just as one’s blood-pressure is an insufficient indicator of one’s health, so overall GDP is an inadequate indicator of economic health. Overall GDP can be inflated in several ways that would not indicate solid progress. A better indicator of health is found when we take per capita GDP into account. I have culled the following from OECD statistics. I looked at growth in per capita GDP over a decade, from 2004 till 2014, for a number of countries, measured in US dollars. The following emerged.
It is fair to ask, I believe, for how long Britain will remain one of the biggest economies if this situation is allowed to continue. On these measures we made only half the progress of France and the USA, three fifths that of Japan, and one third in relation to Germany.
The picture is little better if we look at growth in GDP per hour worked, a measure of how productive labour is. Again turning to the OECD we find that GDP per hour worked increased in the five-year period 2009-2014 as follows.
It is worth noting that several economists have expressed concern about labour productivity in America.
The government is proud of the fall in unemployment in the UK and tends to be dismissive of claims that the new jobs are mainly paying low wages. However, there is already upward pressure on wages in some sectors. How long will it be before the cost of labour outstrips its productive value? One of the reasons for fairly high productivity in France is the high cost of labour there that has caused French business to invest heavily in technology and more productive capital. Could Britain follow the same route? Not in the short-run. The French have been investing in labour substitution for a long time. I recall a conversation many years ago in Lyon with an English engineer whose British tool engineering company had been taken over by a French rival. He was in France on a six-month’s re-training programme. He confessed to being shocked by the discovery of how far advanced the French were, compared to his British employer. Unfortunately, many British companies appear to be hooked on cheap labour.
I see no quick-fix for this problem. Britain requires a strategy that encourages greater investment in productivity, but the omens do not appear favourable. At the time of writing a political argument is in progress concerning possible cuts in tax-credits that are paid to workers on low incomes. These payments are a subsidy to employers, and an incentive to substitute capital with low-cost labour. The harsh truth is that they are also reparations for a failed system of education and training. In the longer run they appear to be a handicap to productivity growth.
If our chosen economic system rests on what has been called the ‘commodification’ of labour, we must at least ensure that the commodity we offer is of high value, trained in skills appropriate to need. Sadly, our educational infrastructure is not designed to do that. British education and training has failed, and continues to fail to produce a labour force suitable to a vibrant, diverse economy. The problem has deep historic roots.
I have written elsewhere about the slide of British education down tables of international comparison, losing ground in language skills, mathematics and science. As for higher education, we appear to share Tony Blair’s belief that everybody should go to university, an example perhaps of intellectual snobbery infecting the country. Consequently, we have many people entering university who would have been better advised to develop technical skills, had adequate training been available.
We, and policy makers in particular, need to understand that there is nothing dishonourable in learning to be a good bricklayer. The need for such understanding has been apparent in educational policy for several decades. A previous Conservative government allowed polytechnics, in which the emphasis was on the development of occupational skills, to become universities. Consequently, these institutions lost their focus. The problem was exacerbated by the erosion of the further education sector, with colleges of FE also re-defining themselves as ‘universities’.
The delusion continues with the proposal that all children should remain in school until the age of eighteen, so requiring kids to remain in institutions that have failed over a decade to teach them the three Rs to an adequate level. This is a recipe for classroom disruption, and a disillusioned youth. The economy would be better served by allowing them to leave school at fifteen and to take up occupational training, either through properly monitored apprenticeships or by placement in a technical college where the learning is appropriate both to the needs of the economy and the interests of youth. We need to reorganise and build our educational infrastructure so that employers seeking highly skilled people do not have to, time and again, employ people from abroad. Bricklayers et al.
We have a new government that will, hopefully, address the issue of Britain’s low productivity, but I remain pessimistic. Our politicians appear content to boast about short-term developments that may simply be contributing to a bubble, and bubbles inevitably pop under pressure. The economy is not robust enough to cope with the challenges that lie ahead. In addition to having an inappropriate educational infrastructure, it is far too imbalanced occupationally and geographically. Time is not on our side.
© Tom Kilcourse June 25th 2014