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April 11, 2013

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Luis Enrique

What role did capital accumulation play, do you think, especially in post-war years? GDP per hour worked could rise not because production was getting any more efficient (TFP growth), but because we were building more factories etc. Could faster productivity growth pre-1970 be explained, partially, by a process of continuing industrialisation?

In language of neoclassical model, we could have been undergoing transitional dynamics, accumulating capital, and then at some point reaching our (dynamic) steady-state, in which case you'd expect faster labour productivity growth in early years.

Craft's figures seem to say we closed gap on competitors TFP-wise rather faster than output-per-worker rise in post-Thatcher years, but I'm not sure I'm interpreting them correctly.

Keith

I suspect the Tory "reforms" are irrelevant. My theory would be that the relative improvement is a case of reversion to the norm. Many of the traditional industries and their firms inherited by post war Governments were uncompetitive on the world market once rapid recovery got going elsewhere and the decline and collapse of these industries and firms improved the relative performance. Helping to destroy some of these firms by over valuing the currency no doubt helped the work along in 1979 to 1983. Creating space for new firms to grow.

The decline of pre 1914 industry was followed by new growth after the departure from Gold in 1931. The new industry in the midlands and south in that period also was high productivity; radio and radar replacing coal and iron. Also a period of high unemployment before rearmament. Lots of similarities between the thirties and eighties.

Rich C

What about the "shooting the last batsman" critique of Thatcher era productivity? In contrast to Germany and Japan (at least) the UK saw a very rapid contraction of employment, and especially manufacturing employment, in the early 1980s. Presumably, firms that went under during this contraction had lower productivity than those who survived, but since "survior bias" isn't really taken into account in calculating productivity, the effect would be to boost the measure of aggregate productivity, even as overall welfare is declining.

Keith

Rich C is right. By selecting any metric you can get any result you like!!

On the other hand if you are investing in the stock market you can only buy shares in firms that have not gone bust. If the firms that have not collapsed have high productivity growth the shares must reflect that. The investor is not concerned with overall welfare. This is Capitalism after all.

Luis Enrique

of course, even if capital accumulation does explain much of this, one might still ask why capital accumulation apparently proceeded happily under unions and did not respond positively when Thatcher weakened them.

Metatone

@Luis Enrique - it has been suggested that there is evidence that unions cause capital investment, because they make fiddling with workforce variables (pay, conditions, number of employees) more expensive. Now it's another leap to capital accumulation, but I think it's plausible enough to be worth exploring.

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Tammly

'Presumably, firms that went under during this contraction had lower productivity than those who survived, but since "survior bias" isn't really taken into account in calculating productivity, the effect would be to boost the measure of aggregate productivity'

Ah this is the nub. We are rather assuming in this piece that we have a 'truthful' measure of the concept of 'productivity'?

In my own opinion, we havn't.

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