In the year 2007 Gordon Brown became prime minister, Northern Rock went bust and the iPhone was introduced. But something silently and invisibly calamitous must also have happened in Britain, because it was the year that productivity growth in Britain all but ceased.
Tempting though it may be to blame some or all of the above, no-one seems to be able quite to put their finger on it. It should, however, be the single biggest conversation in Britain because without productivity growth we cannot as a nation grow richer, and we cannot award ourselves above-inflation pay rises – or at least not without inflation catching up with them a few months later. As the economist Paul Krugman puts it, productivity isn’t everything, but in the long run it is nearly everything.
What is artificial intelligence about if not helping humans do their jobs more effectively?
UK economic history since 1945 divides into four periods. Between 1945 and the mid 1970s productivity growth averaged 3.6 per cent a year; between the mid 1970s and 2006 it averaged 2.1 per cent; 2007 to 2019 it averaged 0.2 percent and post 2020 when it has been non-existent, or even negative. Between the first quarters of 2022 and 2023 output per hour worked slipped 0.6 per cent and output per worker fell by 0.9 per cent.
Internationally, we have become a lazybones nation. In 2021, the average UK worker produced £46.92 of value for every hour worked. In the US it was the equivalent of £58.08, Germany £55.83 and France £55.50 – although we did outdo Italy (£45.33) and Canada (£42.94).
These figures should be read with a certain scepticism. Exchange rates make international comparison treacherous, as do differences in collecting data. I am always a bit wary of French productivity figures given that country’s mandatory 35 hour working week – employers have an incentive to under-report working hours.
Yet you don’t have to look too far around Britain at the moment to see these statistics in action: the things which aren’t getting done, the slovenliness of officialdom. Public services seem to be the seat of the problem. According to the Office for National Statistics, in what it describes as experimental statistics, the average worker in the public services is producing less now than in 1997, with modest gains in the 22 years to 2019 more than wiped out by a dive since the pandemic.
Sluggish productivity is all the more difficult to understand given that we are in theory living through a golden age of labour-saving technology. What is artificial intelligence about if not helping humans do their jobs more effectively? Over the past 15 years we have had the mass adoption of smartphones, automated checkouts and airline check-in gates, as well as advances in robotics. True, some of this technology can be a distraction – there was no one watching videos on their smartphones two decades ago – but surely they ought to have a net positive effect.
So what is the underlying reason, if indeed there is one single cause? There ought to be no better place to start than the government-funded UK productivity commission set up two years ago by the National Institute for Economic and Social Research. Its eighteen commissioners did publish a brief evidence review in June last year, but alas it failed to come to any conclusions.
The economists seen by the commission can’t even agree when the problem began, with some saying it started with the financial crisis of 2008/09 and some claiming the problem was already embedded by then. A follow-up report promised there will be more to follow, albeit after three more years of evidence sessions, all of which begins to make the productivity commission look more like part of the problem than the solution.
But the commission has provided some useful insights, not least the geographical distribution of productivity. A submission by the Centre for Cities reveals a steep north-south divide. London comes out as one of the most productive European cities, with Reading not badly-placed. Sheffield, Manchester and Birmingham, by contrast, come close to the bottom.
If these latter cities had grown productivity at the same rate as London between 1992 and 2015 it would have added an extra £120 billion to the UK economy. Some economists suggested poor communications and numerical skills for under-performance – although are we really less well educated than in the late 1940s when productivity was roaring ahead? Others have suggested that the UK has a long tail of under-productive small companies compared, for example, with the US. US-owned companies operating in the UK are apparently 20 per cent more productive than UK-owned ones.
The commission report also identified the lagging sectors of the economy: manufacturing, finance, insurance and information and, surprisingly, communications technology (ICT). Other laggards are not surprising, such as adult social care.
This is not to disparage carers, but when your job is defined as looking after someone for a set number of hours, just how do you increase productivity per hour? When we were a manufacturing-based economy it was relatively easy to rationalise systems in order to improve output. It is very much harder with service industries, unless we are happy to have robots emptying bedpans and doing granny’s hair.
There are a few other issues, though, which the productivity commission might like to consider in its coming sessions. What about Eastern European migration which, by providing a seemingly endless source of affordable labour, reduced the incentive for investing in automation? Then there was Labour’s equality legislation, culminating in the all-encompassing Equality Act of 2010. It is surely worth asking whether it has hindered the ability of employers to hire and fire as they see fit, leading to less-than ideal diversity hires in senior jobs and on company boards.
Then there is the matter of ‘work-life balance’. Since the pandemic the whole idea of a job seems to have been redefined in the minds of many Britons – away from being a means of earning money and achieving fulfilment and towards providing a pleasant lifestyle.
We still have large numbers of people working from home, or part-time. Perhaps these trends were in evidence before the pandemic. It was, after all, Tony Blair’s health secretary, Alan Milburn, who popularised the notion of work-life balance when he resigned his high-flying job in 2003 at a time when many believed he could turn out to be Blair’s successor – and all because, so he said, he missed his son’s school concert. He broke new ground as the cabinet minister who resigned because he really did want to spend more time with his family. In recent years, Milburn himself seems to have evolved into a pretty busy lobbyist, but just maybe he started something big, which neither he nor anyone else foresaw.
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