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March 20, 2015

Comments

Steven Clarke

"Better planning regulations."

This is an area I'm interested in learning more about.

Can anyone recommend any books about the economics of land use planning or a comparative study between the different planning systems found in different countries?

rogerh

Are the British lazier or more stupid than the French or Germans? Probably not. So who isn't pulling their weight?

Not convinced that a few management courses will fix it, our consulting firms are in international demand and I doubt every mid size company is full of lardy managers sleeping off the port. So are our engineers or architects not up to scratch, does not seem so. Our shops don't seem all that much worse than French or German or American ones. Are our IT people no good - not generally and the doctors and scientists seem fairly OK too.

Yet there does seem a certain lassitude, a sense that progress is a struggle. A recent piece suggested that, miracle to say, the Treasury was considering - in an idle sort of way - upping the compensation paid to those on the end of compulsory purchase - from about 90% to a more French 150%. IMHO the drag on Britain is Parliament, still living in the 18th century.

Hugo Evans

Maybe financialisation has contributed to low productivity in the UK, especially since we went to bank rationed credit after the competition and credit regime came in 1971. This accommodated secular trends that blew out mortgage debt as we bid up the price of the housing stock, working ever longer hours over longer working lives to service ever larger mortgages. The political defence of the city would also explain why we can't unravel the mess.

Bill Posters

There isnt really a productivity paradox.

A lot of UK factories do things like make ready meals. Putting food in plastic bags. A lot of German factories make high precision industrial equipment. Which factory has the higher productivity?

For the solution see this
http://www.civitas.org.uk/pdf/RevivingBritishManufacturing.pdf

Sadly the people running the UK seem to think its a recreational exercise.

Perspective is gained from being up a ladder all day.

From Arse To Elbow

Rogerh says "our consulting firms are in international demand". Maybe, but most UK-based business consultancies focus on tax, audit and financial services - they're not actually in the business of improving productivity. Consultancies that focus on actual productivity improvement (as opposed to cost-cutting through outsourcing), such as process engineering and lean manufacturing, tend to be American subsidiaries or their offshoots.

Over the long run, productivity growth tends to differ across sectors due to capital composition. Manufacturing has high rates (lots of capital), business services has so-so rates, and consumer services have low rates (lots of labour). As we shifted from manufacturing to services, our productivity growth was flattered by a) the shakeout of under-capitalised manufacturing in the 80s, and b) the amplification of business services growth in the 90s by price inflation.

Manufacturing is now too small to drive aggregate productivity growth up much, while the business services gravy-train appears to have temporarily halted, initially because of the 2008 crisis and subsequently due to weak global demand (reflected in our worsening balance of payments). A lot of recent growth in the economy has been down to consumer services, which acts as a drag on productivity growth because of its high-labour/low-wage composition.

Our fundamental problem (reflected in low levels of capital investment, stagnant productivity growth, and a worsening balance of payments) is the imbalance in the economy. There was a lot of talk about this in 2009, but there has been no material attempts to address it since.

Clive King

There was talk about infrastructure, but not that I could find linking it directly to productivity. For example http://www.thinkbroadband.com/news/6891-uk-may-have-ambition-for-100-mbps-to-nearly-all-but-how.html

Maybe discussions of such distractions as the productivity gains from educational improvements, home working, not having to drive miles for an out of hours callout and avoiding peak hour commuting would detract from the very serious government work of making B.T. a serious competitor to Sky for residential entertainment which is, possibly the primary purpose of the BDUK funding.

Luke

Following on rogerh's point, surely if we are as a nation not that productive, then the natural inference is that our managers, architects, engineers, consultants etc are a bit crap? Otherwise we'd be as productive.

Are our shops a bit crap? I don't know, but doesn't the success of Aldi and Lidl suggest that they are (or were) a bit crap?

I have no idea, and lack the statistical/econometric skills to say, but doesn't the fact that we are not as productive as other rich countries suggest we are a bit crap? Or at least more crap than them.

gastro george

Following on from Luke, you're correct and it goes back a long way, especially in manufacturing. Post-war we had companies that relied on captive markets and failed to invest. So, for example, we saw our motor cycle industry collapse, and subsequently the car industry - which now seems to run perfectly well under foreign management.

As a country, our managerial class has been too interested in rent extraction and asset stripping. It's only "mavericks" like Dyson, Bamford, etc. that understand the importance of innovation and R&D investment.

rogerh

Here in the South East there are plenty of laser cutters and cnc machine shops - they are vigorous but small. In this county there are about 5 large companies but even they are pretty small. Whenever a business park is proposed there is endless protest. In this safe seat road programs have been stalled for 40 years. There has been growth - but really far too small and slow.

AtoE points up the danger - are we now too far along de-industrialisation ever to use that as a way to leverage the efforts of ordinary people - if so what is the alternative apart from a citizen's wage. I feel it is too easy an excuse to blame those at the bottom of the heap. Generally our workforce is not all that crap but it is dragged down by poor quality leadership at the very top. The inevitable conflicts in a democracy are being kicked down the road and never resolved. Do Nothing is Parliament's mantra.

Ralph Musgrave

Given the long list of possible reasons for low UK productivity given by Chris, it’s pretty obvious he doesn’t know which are the key reasons, and nor do I, and nor does ANYONE, I’d guess. A sudden knee-jerk increase in infrastructure investment or education in reaction to poor UK productivity improvements which have only appeared recently (in the last 5 years or so) would be daft.

Moreover some other countries’ productivity improvements have deteriorated recently, e.g. Sweden, so there is possibly something NOT SPECIFIC to the UK going on here.

All we can do is what I would hope we have done all along, which is to invest as much as seems to make economic sense.

gastro george

"... which is to invest as much as seems to make economic sense."

Absolutely right Ralph. What we need is some kind of "long term economic plan". Just the right one.

Tim Blackwell

I have two suspects, one for the numerator, one for the denominator.

1) Over statement of productivity in the pre-2008 financial sector - the Brown soufflé. I don't know much about how productivity is measured in the financial sectors, but I doubt that there is a way of doing it well.

2) working tax credits and rising personal tax allowances. The combination of these has reversed the incentives for reporting low waged work - especially self employed work. Self employed workers must declare adequate hours (16, 24 or 30 depending on circumstances) to claim working tax credit, but there is no income requirement. Life on working tax credit + self employment is far less onerous than going through the increasingly brutal hoops required to claim jobseeker's allowance, even if earnings are well below minimum wage.

Under universal credit, declared self-employed claimants will be expected to be earning at least minimum wage x X hours (if they don't, their universal credit will be cut on the assumption that they do). As universal credit marches on, this may bring about a small (if largely illusory) increase in measured productivity.

Alphacitybill

I thought the major issue in Great Britain these days was whether Jeremy Clarkson would stay with Top Gear or if Tom Cruise/Will Ferrell/Ricky Gervais/Prince William/Dame Judith Dench/Pierce Brosnan/Ralph Fiennes/Slash/Mick Jagger or possibly Camilla would replace him?

But then, what would we Americans know. We had 3 of the 13 worst cars in the last 20 years. (Odd, though, that Hammond has a Mustang...)

nick ford

It is possible to argue that the growth of the UK financial services industry is not the great national success story that successive Labour and Conservative governments have applauded, but a terrible waste of national resources which partly shows up in the low level of productivity growth.
I identify two impacts. The first is that a large part of the 'output' of this industry measured by GDP figures was and is illusory. Thus, selling PPI insurance, booking profits from dodgy property loans, charging fees on inflating asset prices all added to measured GDP, when in fact no output was taking place. The cessation of these activities has reduced GDP.
Further, we continue to measure as output the work of financial services companies that help people avoid paying tax. (It may be debatable whether we can attain prosperity by being shopkeepers, but surely we can not all become rich by helping one another avoid paying tax). As these non productive activities are squeezed out of the economy, measured productivity will fall further.
But the second impact of the financial services industry has perhaps most significant on productivity. The financial services industry sucks many of the most able and ambitious, creative people to work on activities that amount to diversion, not production. If these people were working in the rest of the economy, many of our non financial businesses may be better run.

nick ford

I feel we must also resist the bandwagon that infra-structure spending is necessarily a good thing. Unless it produces a decent return such spending amounts to waste.
In Edinburgh we have a 1 billion pound tram system, that has been money entirely wasted. It is no better than the buses it replaced. HS2 is almost certainly a similar waste of £60 billion of tax payers money, which would be better spent on housing.
A couple of decades ago, similar sentiments were expressed that spending umpteen billions on additional higher education; sending half the population to university was going to create some productivity miracle. Infrastructure spending is the latest wasteful fad.

Leslie48

If nick does not believe infrastructure is not economically important he should join millions stuck in traffic jams everyday especially in London or join the endless jams on the M25, M11, M4, M1 etc.,

Moreover most studies show societies with higher uni participation achieve just about every higher social indicator. Tech and science parks are booming and nearly always close to university towns.

Moreover its the middle classes who are paying for that uni education through tuition fees ( quite a bargain for the state). However I refute Nick - more education at higher levels has to be a social and economic good ; human capital is there for the taking but if our other supply side e.g. building infrasture including houses or lending to new niche starts ups is weak we stall. Growing inequality and disproportionate reward to our plutocracy does not help.

Igor Belanov

"Moreover most studies show societies with higher uni participation achieve just about every higher social indicator."

Putting the cart before the horse on this one I think. If every adult in Britain had a PhD it would not bring about a rise in productivity.

"If nick does not believe infrastructure is not economically important he should join millions stuck in traffic jams everyday especially in London or join the endless jams on the M25, M11, M4, M1 etc.,"

Many of these clogged motorways already have four lanes or more. Do you want them to go to twenty lanes? The country has been trying to engineer itself out of traffic congestion for years, it is time that other solutions were pursued.

nick ford

Hello Leslie,
I am not arguing that investment in infrastructure has no economic significance. I am only arguing that worthwhile spending on infrastructure should be able to demonstrate decent economic returns without resorting to dubious accounting and speculative benefits of the sort attached to Hi-Speed Rail. However,I also accept that costing the benefits of infrastructure schemes is not easy, particularly when environmental concerns must be considered.
Heavy investment is no guarantee of success for a business - look at Tesco. It has arguably over-invested. For any business what matters is to invest in new opportunities that give a good return. Similarly for government, the key to good infrastructure investment is that it makes a satisfactory positive return. Southern Italy has some wonderful new motorways, but it has not provoked economic growth there.

Jonathan Haskel

Dear Chris, a great post as usual.

On planning.

Just a quick one if it's useful: we estimate that UK TFP growth in retail was indeed held back by planning restrictions here

Jonathan Haskel & Raffaella Sadun, 2012. "Regulation and UK Retailing Productivity: Evidence from Microdata," Economica, London School of Economics and Political Science, vol. 79(315), pages 425-448, 07.

Thanks for the consistently interesting and imaginative posts.

Yours,Jonathan Haskel


Metatone

Have to note that the study Chris links to about long-run growth rates is almost comical in it's belief in the ability to extrapolate from a sample of 17 OECD countries. The long time-series data is good, but really, 17 isn't a good basis for their exaggerated claims.

theOnlySanePersonOnPlanetEarth

"All we can do is what I would hope we have done all along, which is to invest as much as seems to make economic sense."

Why does Ralph prattle on about 'we' when 'we' have fuck all say in what gets invested and where.

Leslie48

I believe in 'human capital theory' and its no coincidence that Sweden, Norway, Denmark and Sweden all with fine fairly free social democratic systems involving good schooling and Higher education do well on most indicators as shown in studies like the Spirit Level.

I suppose on Infrastructure these things are less easily evident but I note that countries like France and Germany have better roads than us and also can someone tell me why the French, Germans, Spanish, Belgiums , Chinese, and Japanese can already have Hi-Speed railways and we Brits cannot not. Well we know why - its called Buckinghamshire Tory voters.

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