Britain has a productivity problem. In terms of output per worker per hour we lag 15 per cent behind the European average and 24 per cent behind the US average. Not only that, productivity has never recovered from the economic crisis of 2008/09. It is often said that a German worker could pack up on Thursday afternoon and still produce as much as takes his British counterpart until 5pm on Friday.
There is some question over the data. Methods of measuring productivity were designed to deal with factory output. It is harder to measure in a service-based economy, still more in one with a large number of self-employed workers. The Office of National Statistics is engaged in a study to see if it can capture data better. One of the issues is the dividends paid by workers who operate through personal service companies – which are, to all intents and purposes, earnings from work but don’t necessarily get included in productivity data.
Nevertheless, there is a broad view that statistical inaccuracies cannot account entirely for the poor levels of productivity being measured. Nor, believes Kwasi Kwarteng, MP for Spelthorne and PPS to Philip Hammond, the Chancellor of the Exchequer, can it be blamed on the what in the 1970s was described as the ‘British disease’ – poor industrial relations – even if the strike by Southern Rail drivers, called off only after they accepted a 28 per cent pay rise, has caused lot of concern. Remarkably, productivity was growing more strongly throughout the industrial strife-torn 1970s than it is now.
Are we simply lazy as a nation? That was the view advanced in a book, Britannia Unchained, written by Kwarteng along with four other Conservative MPs in 2012. It claimed: ‘The British are among the worst idlers in the world. We work among the lowest hours, we retire early and our productivity is poor. Whereas Indian children aspire to be doctors or businessmen, the British are more interested in football and pop music.’
Kwarteng says he does not resile from those words now, but his thinking has moved on. One thing which has caught his eye is the theory of ‘labour-hoarding’. ‘We have very cheap credit and very high employment,’ he says. ‘The normal forces of creative-destruction have been suspended’. Inefficient companies which in normal times would have gone out of business have been protected. Cheap labour from Eastern Europe has been so easily available that it has destroyed the incentive to automate operations or otherwise to improve working practices.
But there are still cultural issues with the British workforce, says Kwarteng. ‘It is acceptable to be innumerate. People will say “I don’t do maths – I gave that up at 16.” People wouldn’t boast in the same way about being illiterate.’ Correcting that is one of the objectives of the Chancellor’s focus on maths lessons, presented in the Budget.
For Sir Roger Carr, Chairman of BAE Systems, one of the solutions to our poor national productivity is to spread best practice from the best performers to the rest of industry. It is not just a case of managing a bit better or working a bit harder – firms, especially small ones which do not always find the time to examine their working practices ‘need to look around and realise that working smarter can be better than working harder’.
That is the purpose of the Productivity Leadership Group, of which Carr is a founder: to spread ideas of how to improve productivity among companies who might otherwise jealously guard their productivity secrets. Tony Danker, Chief Executive of the organisation, which is backed by BAE, GlaxoSmithKline, and the John Lewis Partnership among others, believes that businesses have been far too quick to blame weak productivity on infrastructure, education and anything else which can be treated as someone else’s fault. ‘This is a time for business leadership, not necessarily political leadership,’ he says.
Contrary to Sir Roger Carr’s assertion, Allie Rension of the Institute of Directors does not see the solution to the productivity problem as one of larger companies passing on their expertise to smaller ones. Sometimes, she says, middle management can be the problem which prevents ideas reaching the top of a company and which prevents senior managers seeing what is going on at the bottom.
What should be the government’s role in all this? To ‘provide the skeleton on which business can build the muscle,’ says Carr. Education needs to become less fixated on university degrees and to start thinking, as early as primary school, about the careers children will eventually lead.
Apprenticeships should be valued as much as degrees, while the concept of an apprenticeship must not be watered-down to include any old training.
Kwasi Kwarteng, whose constituency lies close to Heathrow, sees a problem, too, in the planning system. ‘We’ve been debating Heathrow’s third runway for 15 years,’ he says. ‘It is like a theological debate in medieval times – it goes on for decades without ever producing a decision.’
The debate over productivity in Britain has been going on for decades, too. Many of the issues with British productivity were there before the 2008/09 economic crisis – even if they have become more serious since then. It is a debate which, like the economy itself, needs to be productive.
Kwasi Kwartweng MP, Sir Roger Carr and Tony Danker were all speaking at the event, ‘Prosperity Britain: A programme for productivity’, which was sponsored by BAE Systems.