Upbeat news - UK productivity growth...unless you read the FT

If you want to read good news stories, check this out in the Financial Times.


Even by the standards of the #despitebrexit media this is a masterpiece. In what is quite a long and intelligent article they managed to get over the good news very quickly. In fact, they managed it in five lines before devoting the next eleven paragraphs to why in fact, everything was indeed terrible and we are all doomed, doomed I tell ya...


I have not been a fan of productivity as the obsessive measurement of it in my own industry leaves much to be desired. From obsessions with productivity come ideas like presenteesim in the office and other pointless paraphernalia of modern working life.


However, for the UK macro there are a few of truth bullets which really paint the picture:


1. The decline of the North Sea production and the easy productivity that went with it (a few people on rigs churning up billions of pounds per quarter) has been disastrous for the UK. This alone accounts for a huge chunk of the measured drop in productivity.


2. There is little retrospection in these numbers, so Financial Services are now way more unproductive than they were 10 years ago for worker output. But, um, most of the output was bullshit and the country had a huge recession, so were the original productivity measures also rubbish - almost certainly yes.


3. Mass immigration and an abundance of low wage labour has kept investment down and wages low. As a huge bonus to this we have had a cheaper cost of living and near deflation in many parts of the economy as well as near full employment - even with the immigration wave. Sadly, all this hugely lowers productivity - why invest in machines when there are people who will do the work for less.




I note the FT lightly touches on the 3rd point but only in passing and dismissively - whilst selectively quoting economists who agree with it and generally hand-wringing. Instead the above tells me we should not overly worry about productivity - the measurement is wrong, its a crap predictor and we cant do much about it anyway, so why worry.

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.