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May 14, 2015



The problem is that convincing people that supply-side action is valid is a huge ideological battle.

Which sounds a lot like the battle between media-macro and anti-austerity.

Not only do I not have (a la Paul Mason) the confidence that Labour have the ability to win that kind of fight - I really wonder if anyone can with that fight in the existing media climate.


Having a quick look around any office and the outlawing of comments on blogs would probably have the biggest impact on productivity. Yes I do appreciate the irony.

Luis Enrique

yes Twitter = negative technology shock. Launched 2006/7? look at the graph! coincidence? I think not.

actually this is one of the big puzzles - whatever your explanation of the productivity slow down is, an proposed cure, it has to be consistent with this slowdown being caused somehow by the financial crisis.

you are asking a lot of the Labour party - I haven't seen many with convincing explanations and policy responses to this.

Steven Clarke

I think Labour should take on the NIMBYs and go for urban expansion.

Relax planning laws around growing towns and cities.

Allow some form of local land value tax or Tim Leunig's Community Land Auctions so locals benefit from development.

Allow councils to borrow more to invest in housing.

Alter local political boundaries, so places like Oxford aren't held up by recalcitrant surrounding LAs.

It would allow people to move to areas where they can be more productive, raising productivity.


But don’t serious supply-side policies require serious investment? And haven’t we just been told, and again agreed, there’s still no money for such niceties and governments spend too much and cause ‘these’ problems? A message reinforced (as ‘we’ move forward) with broadcast media requiring every potential Labour leader to answer the question: did Labour spend too much? I don’t know about Labour being intellectually challenged, but “lily livered” now that’s for sure. But then when you have no real power behind you because (it seems to me) you play your electorates ignorance, as opposed to challenging and enlightening, what else can you be.

Mick Beaman

Chris, to repeat a question left on the IC site, as I understand it (and I am not an economist) productivity is measured by the money value of output and the perceived fall has mainly stemmed from the services sector. But if I now charge £80 for a service that I used to sell for £100, my productivity has gone down even though I am still providing the same service. In overall terms my loss is offset by the gain of the perosn who bought the service for a lower price than hitherto. So why should we worry?

And are the productivity stats up to the task of drawing robust conclusions? My understanding was that the methodolgy was quite dodgy.


@ Mick: productivity is the volume of output dividedby employment. If you cut your prices, what happens to productivity depends on what happens to demand. If you sell more, your productivity rises. If you had to cut prices coz of a lack of demand, it falls.
The precise figures are a bit dodgy. But it's surely very unlikely that GDP is understated and/or employment overstated so much as to account for more than a fractio of the gap.
@ Luis - I'm not sure we need a onvincing explanation of the problem to have policies to raise productivity. It's quite reasonable to say "we're not sure precisely what has caused the stagnation, but here's a range of policies to deal with it."
@ Metatone - I sympathize. But slogans about increasing efficiency shouldn't be too difficult to get across.

Luis Enrique

Chris fair point, but I really would like a good explanation. I cannot think why, if the UK economy really was getting more productive pre-2007, it would stop doing so. Some explanations - such as people taking part time work or firms hiring low productivity workers - are in a sense accounting errors, not properly measuring heterogeneous inputs, utilization rates etc. not changes to the fundamental productivity of the economy.


The BBC's contribution to the productivity problem was to ask, are British workers lazy.

The BBC is utterly abysmal.

gastro george

I was staggered to listen to this on the radio this morning - strange that the BBC should discover it, and the threat to the economic "recovery", only a week after the election.

Then at lunchtime I went back to Martha Kearney haranguing Yvette Cooper about "Labour overspending" and started banging my head against the wall again.

Ralph Musgrave

Neither Chris nor any commentators above mention (far as I can see) that the sudden slow down in productivity growth is a problem in some other Western countries. Thus the cause and cure will presumably come from looking not just at the UK.

Ralph Musgrave

Steven Clark,

I quite agree. The cost of land with planning permission is now ridiculous. It accounts for a third of the cost of houses. I.e. if we released a lot more land for building, then presumably the cost of houses would come down by approaching a third.


Graph trends are dangerous things Chris as you should well know from your day job (Chartism anyone?) - this GDP trend graph that has been going around is a particularly dangerous version. Anton Howes had a good post on this recently;


The simple story is that whether or not we have a deviation from trend all depends on where you start and what data you include in the trend.

My view is that productivity statistics are extremely hard to calculate, especially in the "new economy". Productivity is a concept that works very well for commodities like steel, it completely breaks down for a service economy where quality is just as important as the quantity. Let's take my favorite example of a hotel that gets dinged by Trip Advisor so they increase their number of cleaners. Measured productivity goes down (same number of rooms, more people) but quality goes up.

I think Scott Sumner has the right approach on this - look to the employment numbers not the GDP or productivity ones if you want to see how an economy is doing.

gastro george

"... look to the employment numbers not the GDP or productivity ones if you want to see how an economy is doing"

So hiring a hundred people to dig a field instead of using a tractor is a good thing?


We need more data and investigation to understand why productivity growth has stalled before we can draw conclusions about what policy measures might help revive such growth.
Historically, productivity growth was driven by mechanisation, first in agriculture, then in manufacturing. However, as these become progressively smaller parts of the economy, their improving productivity has an increasingly small effect on the total.
The right has long warned about the effect of ever increasing 'red tape'(which in its widest context includes the complexity of the tax system), but has traditionally claimed this would lead to a loss of jobs. In truth, provided competitors are also subject to the same 'red tape', its effect is not to reduce profits or employment, but to reduce productivity. It may be that the cumulative effect of bureaucratic imposition on the service sector is now driving its productivity down faster than technological advance can raise productivity.
Further, direct government policy, such as reducing class sizes and introducing classroom assistants directly reduces productivity.
However, to know if the issues I raise are significant requires more data and investigation, which is what is now required.


"if we released a lot more land for building, then presumably the cost of houses would come down by approaching a third."

What evidence do you have for that assumption? Releasing more land for building has never made it cheaper in the past, in fact, quite the reverse. The '70s building boom was accompanied by a rise, not a fall in house prices. Why should it be any different now?



"So hiring a hundred people to dig a field instead of using a tractor is a good thing?" - no its not if that decision was made by someone not bearing the costs (like a politician) but yes if it was made by someone (like an entrepreneur) who is using her own money.

gastro george

@ChrisA - Leaving aside the point that I was replying to a question about whether productivity/employment was of-itself-alone what we should judge the "goodness" of an economy, I should point out that the entrepreneur-risking-their-own-money-as-the-hub-of-capitalism meme is actually a trope. I hate to point to TV for an example, but Dragons Den offers a few real lessons. The punter-entrepreneurs maybe risking their own money, but they are small fry. They're going nowhere without finance capital. The dragon-entrepreneurs, well they're not really entrepreneurs, are they? They're just rich people with so much money that they can play with it. They're acting the role of finance capital. Nobody gets anywhere without the money and the access to markets. In that sense, Bill Gates deal with IBM for MS-DOS was probably the best deal in modern capitalism. On the back of that (and coining his money on monopoly profits) he became one of the richest men in the world. But his entrepreneurism was in the deal, not the risking-all-of-your-money trope.

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