Celebrating failure

For a long time, people like me have accused politicians of importing into government the habits and ideology of corporate management. Listening to Osborne on Wednesday, however, made think that this accusation is wrong.

Take this passage:

I also said three years ago that I was confident that job creation in the private sector would more than make up for the losses [in the public sector].
That prediction created more controversy than almost anything else at the time.
Instead, every job lost in the public sector has been offset by three new jobs in the private sector...
A central argument of those who fought against our plan completely demolished by the ingenuity, enterprise and ambition of Britain’s businesses.

He's forgotten something here. Back in 2010, he thought the private sector would create jobs because the economy would expand. But the expansion has been much weaker than expected; In June 2010 the OBR forecast (pdf) that real GDP would be 9.5% higher in 2013 than in 2009. If its latest forecast is correct, it'll be only 3.8% bigger.

This poses the question. If real GDP is 5.2% less than expected, how can Osborne still rejoice about job creation?

Simple. It's because productivity has fallen.Rather than celebrate businesses' "ingenuity, enterprise and ambition", Osborne should be cheering their increased inefficiency.

The numbers here are huge. If GDP per person in employment had stayed at its 2008Q1 level, there would now be 1.3m fewer people in work than there are. If GDP per worker had risen by 2% a year - as it did in the 10 years to 2008 - there would be four million fewer in work. If half these showed up in the jobless count, we'd have 4.5 million unemployed.

Now, I don't think Osborne deserves any credit for this fall in productivity. And, in fairness to him, he's not claiming any. I've not heard any Tory say; "thanks to our policies, British business has become more inefficient."

But this is not the only way in which he's claimed credit for something he's not responsible for. He also rejoiced in the "£6 billion pounds a year less we are paying to service our debts." But the main reason why debt service costs are low is that gilt yields are (still) low (for now). And the main reason for this is that the (global) economy is so weak. Again, he doesn't deserve credit for this.

Instead, he looks like an in competent rifle-shooter who shoots wildly at a wall, and then paints targets around his bullet holes and shouts "Yay, I hit them." I suspect that if we'd had more normal productivity growth and higher unemployment, Osborne would be celebrating the increased leanness and efficiency of British business.

And this is why I say that government is insufficiently businesslike. Any competent business benchmarks itself against pre-existing targets. The man who misses some targets, hits others only by luck and who invents others after the fact would soon be dismissed as an incompetent bluffer.

In some senses - contrary to my general view! - perhaps we need more managerialism in government.

Comments

[Boffy]

The other point, which is a corollary of the implied drop in productivity is that if more people are employed but National Income has fallen or hardly increased, then that is an indication of how much Income per head must have fallen!

Actually, I suspect productivity has only fallen in the aggregate, and is simply a reflection of the fact that there are so many people listed as being in employment, but who really are not. They are under employed as self employed drifters, people on zero hours contracts, and around 2.5 million people employed in zombie jobs in zombie companies.

I suspect that in other parts of the economy productivity continues to rise. The failure of Government economic policy is that it has failed to bring about what it said was its intention, a restructuring towards those areas that are sustainable. That is because like Thatcher, its ideology is based on the mentality of the narrow minded small capitalist rather than that of the big industrial capitalist. Its policy remained mired in a model based on high debt and low wages.

Labour has missed a trick. They should have seized the idea of being opposed to Welfarism, and called for a massive rise in the Minimum Wage, to force the inefficient small capitalists to modernise or die. Thereby also placing the responsibility for providing decent living standards for all workers where it belongs on Capital, not on some workers to support other workers via there taxes.

[Chris Purnell]

If real wages have dropped by c. 12% since the beginning of the recession; and interest rates have been at reecord lows then there is a cross referenced fiscal subsidy. Inefficient firms have not been 'found out' but presumably they will be found out once the historic ratios resume. On this basis I'd expect that the post 2015 Government will inherit a dramatically worsening employment situation.

[Blissex]

«Inefficient firms have not been 'found out' but presumably they will be found out once the historic ratios resume. On this basis I'd expect that the post 2015 Government will inherit a dramatically worsening employment situation.»

That's wildly optimistic... it is all about NORTH SEA OIL and its collapsing production and increasing imports, as I have often commented on these columns, and sometimes has been acknowleged by ChrisD, who continues to obsess about "managerialism", a good topic, but a figleaf for the politics of making the benefits of the oil boom go to managers and other property owners.

This is my usual, the most important graph of the past 30 years in the UK:

http://mazamascience.com/OilExport/output_en/Exports_BP_2013_oil_bbl_GB_MZM_NONE_auto_M.png

On this topic you can see the history of the past 30 years in it. In another blog I found a nice reference to a Tony Blair article of 1987 (10 years before he became prime minister:

http://www.lrb.co.uk/v09/n19/tony-blair/diary

"More critical has been the balance-of-payments effect of oil. The economy has been growing under the impetus of a consumer boom that would have made Lord Barber blush. Bank lending has been growing at an annual rate of around 20 per cent (excluding borrowing to fund house purchases); credit-card debt has been increasing at a phenomenal rate; and these have combined to bring a retail-sales boom – which shows up dramatically in an increase in imported consumer goods.

Previously such a boom and growth in imports would have produced a balance-of-payments deficit, a plunging currency and an immediate reining-back on spending, with lower rates of growth. Instead, oil has earned foreign exchange and also produces remittance payments from overseas investments bought
with oil money.

The situation is neither stable nor healthy in the long term: but in the short term it allows the living standards of the majority to rise rapidly, even though the industrial base, the ultimate foundation of a successful economy, is still only achieving the levels of output of 1979.

The fact that we have failed to use oil to build a productive and modern industry for the future is something historians will deplore."

Jim Rogers who is deeply conservative agrees:

http://jimrogers-investments.blogspot.co.uk/2008_08_01_archive.html
«Now the only thing that saved the U.K. was the North Sea oil fields, even though Prime Minister Margaret Thatcher likes to take credit, but Margaret Thatcher has good PR. Margaret Thatcher came into office in 1979 and North Sea oil started flowing. And the U.K. suddenly had a huge balance-of-payment surplus. [ ... ] You give me the largest oil field in the world and I’ll show you a good time, too. That’s what happened.»

For other terrifying numbers this article makes the point that more than entire GDP growth in the past 20-30 years has been due to debt against notional house price gains:

http://www.opendemocracy.net/ourkingdom/oliver-huitson/thatcher-black-gold-or-red-bricks

«Another of Thatcher’s magic potions was ‘home equity withdrawal’ or remortgaging – drawing down the equity in the borrowers home for (mainly) consumption purposes – new cars, holidays, and so forth.

Under the two Prime Ministers that preceded her, James Callaghan and Ted Heath, home equity withdrawal as a percentage of GDP growth was around 36% for both.

Under Thatcher, this exploded to over £250bn across her premiership – a staggering 104% of GDP growth. [ ... ]

[ ... ] But Blair did his homework and let loose – as did Thatcher – a wave of cheap credit, financial deregulation, house price inflation and an equity withdrawal-led consumption boom.

Withdrawals under Blair’s leadership totalled around £365bn,
that’s a full 103% of GDP growth over the same period,»