Tuesday, 28 November 2017

UK Industrial Strategy - Productivity the non-problem

I have finally read some of the UK Government's much heralded industrial strategy. Which is interesting in that there is not much about Industry in it nor does it amount to much of a strategy.

There is much clamour in the Media and from Left-Wing politicians for a strategy, but this long and well-researched report just goes to show how little the Government can really do - it certainly can't pick winners. Just look at the results of hundreds of millions spent on Graphene over 10 years plus - patchy would be to over-state things and now China as ever has stepped up to the plate.

It is not that the Government cannot pave the way with seed money, it is that Government cannot oversee the development of private industry - this has been proven again and again.

So, as the Government sort of recognises this, the main thrust of the strategy is to improve education and infrastructure to enable growth by the Private sector, together with tax breaks to increase R&D.

This is more sensible and harder to disagree with, but it does mean that the Industrial Strategy has 1/3rd of its budget of £3 billion allocated to house-building. Which feels a bit odd overall even if that is a reasonable logical conclusion.

However, the big elephant in the room for me is productivity and its relationship to immigration. I have never agreed with this as a measure since I studied economics at post-graduate level. France is more productive than the UK because people officially work less hours and unemployment is higher. If we fired 5% of people from their UK jobs then our productivity would match that of France! It is a crazy and out of date measure which takes no account of technology impacts nor modern working patterns (such as longer-hours of unpaid work). It is an OK measure when most people work in factories in fixed settings with fixed inputs and hours spent at work, in a post-industrial society it has little meaning.

It is a bizarre thing to measure input times output divided by GDP and I note in the whole document the Government who use the word liberally, don't find space for a definition of productivity. A much superior measurement would be company revenues per employee over the quarter and years - company revenues vs employee numbers give a much better reflection of improvements made. Worrying about the capital investment or hours worked is too detailed to be captured properly and leads to a meaningless figure. The company I work for employs around 10% more people than 10 years ago and yet has revenues 50% higher which is what matters overall - the fact we all work longer hours without overtime is irrelevant to the economy as a whole.

For the UK the currently defined productivity measure is doubly bad for two main reasons - firstly immigration really skews the stats as first generation immigrants lacking language and social skills (for their new market) take-up low wage jobs and encourage their creation (e.g. hand car washes). Secondly, the vast public sector has no revenue increase incentive, as such productivity gains are not only hard to make but rarely even tried given there is no incentive with their cash accounting system; or if they tried are often involve huge, unwieldy IT systems upgrades. As such, UK productivity is always going to be weak whilst immigration is high and the state owns a high GDP share of the economy. Much better to not be seduced by this economist's enigma.


Nick Drew said...

just searched the Strat doc for the fateful word 'lagoon'

nothing! Praise be.

unfortunately, 'tidal' appears once, but not in a particularly sinister fashion

the rest can wait

Electro-Kevin said...

I'm sure that productivity doesn't measure cost. That a lot of labour in Britain is subsidised by the state. Where is this measured ? If it cost a lot of public tax to generate private profit it should be.

I'm always fascinated by Wanted Down Under or A Place in the Sun.

Supposedly lazy Brits going to countries for better quality time with the family, better housing affordability and better pay.

It's certainly not a lack of hard work (at least among those working full time) that is the problem in Britain.

Anonymous said...

The problem is millions of worthy people working hard at completely useless jobs, such as "Equality and Diversity Officer". People who spend 2/3 of their time in meetings.

And what is the "productivity" of the 45000 civil servants at the department of defence ?

Don cox

Steven_L said...

The company I work for employs around 10% more people than 10 years ago and yet has revenues 50% higher

Given you're always telling us you're on your travels I'm guessing your employer doesn't only trade in the UK. So 50% higher in pounds sterling? In USD? Trade-weighted mixed basket?

Either way you're over a barrel here aren't you? If your figures are not in GBP you're finally admitting that exchange rates matter when measuring things like what's in the cash register (and GDP). And if they are in GPB, well, we all know the exchange rate has fallen 35% in a decade, so your 50% increase in till receipts for 10% more hands on deck is actually a 2.5% decrease.

Do tell CU :)

Demetrius said...

My worry is that some official/expert will come up with the idea of increasing the productivity of undertakers. This would pay for itself by removing a large number of pensioners from the population.

Devil's Kitchen said...

It’s also worth noting that more and more software is now moving to SaaS models—and therefore purchases do not count as investment.


CityUnslicker said...

SL - GBP however, profits up a lot last year thanks to currency moving in our favour, the firm I work for is around 70/30 UK vs ROW in income and staffing. Even if I take your criticism at face value, my point would still stand, there is a lot of productivity gains being made in competitive markets but this is held back when you look at the national picture because of the main two points that I raised.

CityUnslicker said...

DK - great point. Another one to make the case that the whole measuring inputs vs outputs is just too technical these days. Much like the argument over CPI vs RPI - the stats show what you want them to show.

If France's productivity was bigger than ours you would expect them to have a much higher growth rate and GDP per capita over the past 20 years. Even with the currency fall the UK still has higher GDP per capita.

Steven_L said...

Well OK. I'd accept 'productivity' is a silly measure of things. Some industries produce things that helps everyone else produce more. For example if the food industry suddenly started producing 75% less calories we'd all be too hungry to produce anything in our own industries.

Then there are 'industries' like the legal profession, where their 'productivity' is simply based on how much they have billed their clients. And every £1 they have 'produced' has probably reduced somebody else's production by £2.75.

Anonymous said...

Perhaps something to be learnt from John Cowperthaites' Hong Kong. Refusing as he did to collect any economic statistics to avoid officials meddling with the economy.

Anonymous said...

If we fired 5% of people from their UK jobs then our productivity would match that of France!

As a manufacturing bod, I've spent my career doing this and it is not a pleasant way or working. There is a lack of motivation and and endless chase for more with less. It is also the last throw of the dice for a sector or "last man standing". Though something that the PE community will chase for an income stream it is not the promised uplands of the future (Brexit or not).

The key econometric model will always be innovation and disruptors. Musk is an excellent example and cloning him would be worth the money. But where is the UK's investment in tertiary education or even Uni research? We've succumbed to the idea that education has a value and therefore should be paid for. It does have a value in excess of whatever is paid but should be nurtured, cherished and in light of our wish to be "free" of the EU should be cost-free.

Sebastian Weetabix said...

If you really want to have an opportunity to roll your eyes, take a look at the MTC just outside Coventry. It compares very unfavourably to the German Fraunhofer institutes.

Unfortunately our country is run by essay writing bullshitters. “The First Division Association: spending taxpayers money on useless shit since time immemorial”

DJK said...

"If you really want to have an opportunity to roll your eyes, take a look at the MTC just outside Coventry. It compares very unfavourably to the German Fraunhofer institutes. "

The company I work for was thinking of going there for help with a new project. Can I ask you for a summary of what's wrong with the MTC?

Sebastian Weetabix said...

Verrrrry slow. Not cutting edge.

Might be different for metal bashing but for electronics they are way behind what goes on elsewhere.

Anonymous said...

The MTC web site is very poor. Lots of restless graphics and no solid information.

Don Cox

Nick Drew said...

MTC is part of the increasingly byzantine network of not-really-NGOs set up at the government's behest

(see 'Catapults', Innovate UK etc - e.g. here: https://catapult.org.uk/about-us/)

there's a post coming on this, I feel

Anonymous said...

there's a post coming on this, I feel

Twas always so. We've had government after government chasing the holy grail of productivity and innovation. 3i is a prime example. And there have been some world beaters but not enough.

Brexit looks like last gasp "kill or cure" approach to exposing the UK economy to the rigours of the open world market after basking in the cozy protection of the EU and their trade barriers.

The siren calls to come into the waters of WTO may just give the UK the jump start it needs. But we might just end up taking what some of the current MP's see as our rightful place under that geographical heading "United States Minor Outlying Islands"

James Higham said...

If we fired 5% of people from their UK jobs then our productivity would match that of France!

CUSnomics? :)

Anonymous said...

Even stripping productivity to the basics of "doing more with less" the UK is in a bit of a pickle.

First off, we tolerate unpaid overtime too much. Apart from hiding inefficiencies, mostly managerial ones, no one has ever died wishing they'd spent another 10 minutes in the office clearing some fuckwits mess up. Organisations in the UK are all too eager to use their staff as human shields to buffer them from the consequences of godawful procedures and planning.

Secondly, we place little value on education - government, public sector, private, none are too keen on training courses unless it's for some mobile tumour of a middle manager wanting to garnish their CV with a new buzzword.

As a contractor I've waded through shit in most business sectors - in public, private, charidee and quango flavours - and it is always the same.

Very much hope Brexit takes a flamethrower to the lot of them.

Maybe they're the 5%?

Anonymous said...

Aon@ 4:00

I hear you brother .... but if you want to go into battle with the BRIC's especially the I and C - would you want UK management with you?

And you analogy of the flame thrower suggests you are more of a "kill" person that a "cure" one.

Have you been that badly treated at work?

Anonymous Coward said...

I've just started a new contract at an investment bank, in an IT role. I got into the office at (shock! horror!) 9am yesterday. My manager asked for a word. "What do you consider a professional working day?" she asked. I said 8 hours worked, starting early if that day's first useless meeting demanded. "Most of us are in for 7 and stay 'til at least 6," she said. I almost laughed. Rank-obsessed corporate dullards rule these organisations. True productivity isn't important - looking busy is.

Anon, just in case she's reading :-)

Anonymous said...

@Anon 4:35 - self-employed and contractor, so if I feel hard done by I go. Only happened the once fortunately, but it's watching what happens with the permies that is depressing. I'll get free reign with nice shiny new tech, which means when I'm gone the existing staff haven't a clue in many cases. And few places want to pay for documentation.

Then there's the project management - or lack thereof - from within the business.

If we want to compete technically we need to stop being so lamentably crap.

As for kill or cure, when dealing with the middle management types who rate having an Audi over knowing what they're doing, well, in the words of Bronn in GoT "no cure for being a cunt" :D