There have been plenty of reasons to feel optimistic about the British economy over the past year. Employment levels have hit record levels, and are among some of the highest in the world. Leaving the EU doesn’t seem to have dented growth much, and there is still plenty of investment pouring into the country. The budget deficit is slowly coming under control, and wages are still rising even if they are failing to keep pace with prices. There is, however, one huge problem. Our record on productivity has been dismal.
In the latest quarter, there has been a small upturn: the Office for National Statistics reported a 0.9 per cent improvement in output per worker in the latest quarter, the fastest rate of growth in six years. And yet, it will take a lot of quarters like that to make up for what amounts to a lost decade. Since 2006, productivity has only risen by a miserable 0.6 per cent. In a decade, businesses have not worked out a way of getting more output from a day in the average office or hour on the factory floor. We have been very good at creating lots of low-paid, low-skilled jobs. But we have been very bad at creating the highly skilled, highly paid kind. The net result? GDP rises because we keep adding more workers to the economy, but living standards stagnate for the simple reason that people are not producing enough.
Politicians and think-tanks have worked on that for years. Government has tried different tax breaks to encourage the right kind of investment. Programmes and plans to improve management have been unveiled. None of them have made much difference. Now, however, that could finally be about to change. It’s possible — just possible — that artificial intelligence and robotics may transform our productivity.
At first, that might seem crazy. In 20 years, new technologies have done nothing for output per worker. The economist Robert Solow once quipped: ‘You can see the computer age everywhere but in the productivity statistics.’ Right across the developed world, vast sums of money have been poured into IT, the internet and computing, but unlike other waves of technological innovation, from steam engines to electrification, none of it seems to have made us produce more. It might even have slowed us down: whichever idiot came up with the ‘cc’ address line on email must have taken at least a trillion off global GDP all by themselves. But there are two reasons for thinking the next wave of technological change will be different.
First, look at innovations such as ‘Billy Bot’, a robot junior clerk named after the flesh-and-blood version in the TV series Silk. From a Bristol base, the automated system is taking instructions for barristers from solicitors, arranging fees and doing much of the routine work traditionally done by armies of legal clerks. That is just one example among thousands of ways that robotics is advancing rapidly into professional, white-collar jobs. In accountancy, design, medicine, teaching, and dozens of other professions, machines are starting to take over mid-level, routine tasks. This is only going to accelerate over the next few years.
That matters. Manufacturing technology didn’t make much difference to us because we don’t make much stuff in factories anymore. It only accounts for 10 per cent of the economy, so even if manufacturing technology gets a lot more efficient, it won’t make much difference to overall productivity. Services are what really matter because they account for the bulk of our output. We are also great at exporting them. In the latest quarter, we exported £38 billon of services, while only importing £17 billion, according to figures from the ONS. If companies can use robotics to start making 10 or 20 per cent improvements in their output per person, then it is going to have a big impact on overall productivity very quickly. And it will benefit the UK more than its rivals, because our economy is far more service-based than most others.
At the other end of the scale, robots are replacing lots of low-skilled work, and freeing up people and time for more skilled work. Take a simple industry like trucking as an example — and there are 280,000 lorry drivers in Britain, so it is a very big business. It is very hard to increase their output. You can’t make the trucks much bigger. You can’t make them go much faster along our over-crowded motorways. It is virtually impossible to raise output. But replace them with a self-driving truck with a robot in the cab, and suddenly that industry will be transformed. Lots of not-very-productive drivers can be deployed on something else.
Self-driving cars and delivery drones will do the same thing — the guy delivering that Amazon Prime parcel is not incredibly productive. True, sometimes that will create unemployment. But more often than not people will end up retraining in higher-skilled work, with higher productivity.
Experts have been trying to improve our productivity for decades without much success. We have tried industrial strategies, deregulating markets, and tax breaks. The education system has been reformed and re-focussed on providing the skills business needs more times than most people can count. Despite that, we remain behind Germany, the United States and Japan. But a new wave of technologies may finally be about to help us out. We read a lot about robots destroying our jobs — but perhaps they will just make us better at them, and more productive as well.