The productivity silence

Simon recently tweeted that it is important to ask why we are not talking about the crisis of stagnant productivity all the time. He’s surely right: this is our most important economic problem. So why isn’t it a top political priority? The fault, I suspect lies with voters, politicians and the media.

In voters’ case, it’s because stagnant productivity isn’t very salient. “Some Latvians moved in down the road and now my son can’t get a decent job” is an obvious story to tell – even if it’s wrong. But the UK’s productivity slowdown, and our low productivity relative to other developed countries, is a story about countless things that UK businesses do less well than their French or American counterparts and about impersonal forces such as low investment and innovation, slower world trade growth, a fear of credit constraints, a slowdown in entry and exit and so on. Such things are important, but not vivid.

Reinforcing this is a self-serving bias. People would rather blame their low pay upon immigrants than on the fact that they are incompetent unskilled buffoons.

Herein, though, lies a defect of modern democracy. Because the notion of consumer sovereignty has taken over politics, politicians think that what they’re “hearing on the doorstep” matters. In some ways it does. But it can also be a lousy guide to what really matters economically. Few politicians are brave enough to tell voters: “you shouldn’t worry about that; this is a bigger problem.”

And, of course, the media reinforces this. The BBC takes its agenda from politicians and the press. If these are talking about what are trivial matters economically speaking such as immigration or government borrowing, the BBC will reflect this and so ignore productivity. This is reinforced by three other factors:

 - The BBC prefers controversy. A row between idiots – one of whom is usually called Nigel – is better TV or radio than an expert discussion of productivity.

 - Official productivity data comes out only quarterly (though it can be inferred from monthly data), whereas figures on inflation and government borrowing are monthly. This means the news will more often report the latter than the former.

 - Productivity is a dry abstract story. The media are much better at human interest stories than in analysing social structures and impersonal forces.

But perhaps there’s something else. Many people do think: “I’d be better paid if this place weren’t so badly managed”. This sentiment, however, never gets onto the political agenda and the connection from this notion to worker democracy never gets made. Bosses are regarded as the only experts whose competence is unchallengeable. Maybe therefore the relative silence about productivity is yet another example of how managerialism – or neoliberalism if you insist – has triumphed so totally.

Comments

[Metatone]

Isn't another part of the problem that the main prescription on productivity from economists who influence policy tends to be "deregulate" - and we've reached a point where it has become apparent that it's not the cureall it is presented to be?

[Metatone]

To complete that thought more fully - I'd argue that economics largely abstracts away the details where the problem of productivity can actually be addressed. This sort of black box thinking is of course very powerful, but this article I came across today reminded me of the limits:

http://countercomplex.blogspot.co.uk/2014/08/the-resource-leak-bug-of-our.html

[Patrick Kirk]

Immigration has gone from 100k to 350k per year. I don't see how the Brits disliking adding 3 million people per decade is in any way linked to productivity. Its just a normal human reaction to fast sociial change.

[Scratch]

"People would rather blame their low pay upon immigrants than on the fact that they are incompetent unskilled buffoons."

That'd make them infinitely smarter and more competent than practically everyone in the "emerging markets" which seems a little saucy.

Unless, y'know, workers are kind of at the mercy of forces larger and more malevolent than themselves.

[Blissex]

«stagnant productivity isn’t very salient. “Some Latvians moved in down the road and now my son can’t get a decent job” is an obvious story to tell – even if it’s wrong»

Well, the food and drinks trade groups suffer from the same absurd illusion, by claiming that lower levels of immigration will cause retail prices to increase because of higher wages:

https://www.theguardian.com/business/2016/dec/08/uk-food-prices-to-rise-without-eu-workers-warn-trade-groups

Those fools! They don't realize that high immigration from low wage countries has no impact on labour costs! :-)

As long as the distributional impact gets the "la-la-la-dont-hear-you" treatment, policies that minimize the negative impacts while still helping workers from poor countries don't get discussed, much to the joy of UK property and business rentiers.

[Blissex]

«the main prescription on productivity from economists who influence policy tends to be "deregulate" - and we've reached a point where it has become apparent that it's not the cureall it is presented to be?»

This is based on an optimistic reading of neoliberal arguments...

Because the primary neoliberal goal is "lower wages", and «deregulate» is just a means to that end (the secondary goal of liberals is "higher asset prices").

The essence of neoliberalism is that lower wages solve every economic problem, and therefore they are indeed a «cureall»; it may appear that lower wages are not a cure for the problem of lower wages, but since lower wages are a solution, they cannot be also a problem. Simple really :-).

[Blissex]

«the relative silence about productivity is yet another example of how managerialism – or neoliberalism if you insist – has triumphed so totally.»

It is the usual story: for most voters, especially swing voters in marginal southern constituencies, their "productivity" has been booming: their capital gains on their properties have been zooming up for decades, and that has given their incomes and lifestyles a big boost.

Property rentiers have experienced very high "productivity" gains in their hard work at voting for government that push up property prices, and at waiting for those prices to zoom up.

The the winners of the "productivity" race the spoils! :-)

[Blissex]

«their "productivity" has been booming: their capital gains on their properties have been zooming up for decades»

The implicit story here is that most people don't care very much about their productivity, which mostly is of significance to macroeconomists and only partially to their employers.

They care a lot more about their monetary incomes, and for a large percentage of UK voters property capital gains have provided a huge boost to their monetary incomes.

Anyhow the usual stories about stagnating UK productivity have suffered a lot from disaggregated investigations, with two interesting results:

* F Coppola has shown that a large part of the flatline after 2005 was due to a large fall in the "productivity" of oil workers, that is a large fall in scottish oil output.

* Another significant aspect of the flatline is lower "productivity" in the finance sector, as some small problems around 2008 greatly reduced "book" profits of UK banks and other fraudulent speculators in the City.

http://www.coppolacomment.com/2016/07/the-untold-story-of-uks-productivity.html
https://1.bp.blogspot.com/-00MUXYqP2Us/V3-e-WNA5II/AAAAAAAAD-U/VbTXuSWoH-YOA0D8JX4bjTxJwWLeCtxOwCLcB/s1600/tom%2Bhirst%2BUK%2Bproductivity.png

[Blissex]

In the graph in my previous post the 1970-2013 productivity story goes like this:

* Oil sector "productivity" in 2003 is 9 times that in 1970, and falls to less than 4 times in 2013. Amazing news from Scotland :-).

* FIRE sector "productivity" in 2006 is over 5 times that in 1970, and falls to less than 4 times in 2013. 4 times? That much is ridiculously high.

* IT sector "productivity" is 4.5 times in 2013 as in 1970, and that is vaguely plausible.

* Manufacturing, professions, agriculture, transport productivity are in 2013 around 2.5-3.5 times more productive than in 1970.

* Everything else is less than twice as productive in 2013 as in 1970.

My impression, also considering that the inflation index is subtly "improved", is that the bulk of the UK economy was 2-2.5 more productive in 2013 than in 1970, for a compound growth rate of around 1.5%-2% per year.

[Boursin]

More than one of Britain's peer countries in the EU (e.g. Sweden, Germany) has worker democracy - not just formally, but in fact fairly substantially, and certainly to a degree that would cause a Thatcherite/Blairite managerialist to faint in horror. And "I'd be better paid if this place weren't so badly managed" IS on the political agenda in these countries.

Yet I see very little evidence that public discourse in these countries is any less consumer-sovereignty-centric than in Britain. And productivity growth there, while not intolerably low, is not particularly impressive either.

[Andrew]

I can't believe Blissex of all people hasn't mentioned the crucial impact of land prices on productivity. One reason for the high productivity of the US is that land is cheap for businesses to be productive on. Also, in the UK, workers can't move without paying seven years salary in moving taxes, and have to commute 3 hours each way to tiny dark houses, that make the entire workforce miserable.

Another huge factor is the zombie zero-bound economy that has had no creative destruction. The asset price inflation of a zero bound economy ties in to land prices.

And lastly an honourable mention for the financialisation of the economy, which might contribute mightily to GDP, but at the cost of taxpayer support and sucking up a lot of talent into a parasitic sector that does not contribute to technological progress, the driver of wider productivity growth.

[SimonB]

It's taken 15 days for a car body works to fit a new bumper to my car. Nobody except me seems to think its a poor service. There you have it in a nutshell.

[aragon]

Managements Right to Manage (FT 2013)
https://www.ft.com/content/7c3d0cee-a06c-11e2-88b6-00144feabdc0

"When she was elected in spring 1979 after the Winter of Discontent, she was bequeathed a style of economic management that had represented an elaborate firefighting dance amid long-term decline. She inherited incomes and prices policies to keep the lid on inflation, exchange controls to stop currency flight and the use of fiscal policy to manage demand – and discarded the lot.

The high interest rates and tight fiscal policy of the "medium-term financial strategy", the first incarnation of Thatcherite monetarism, pushed the economy into a deep recession, generated more than 3m unemployed, decimated the manufacturing industry of the north of England and squeezed inflation out of the system."

"For companies, changes to labour and product markets “gave managers a greater right to manage”, says John Philpott, an independent labour market economist, but offered little protection if their companies failed."

[...]

"Large parts of the country have never recovered from the industrial blight of the early 1980s, leaving a "lasting scar" says Mr Portes. And the legacy of owner-occupation, high house prices and planning restrictions now trap as many people in their homes as council housing ever did."

The windfall from North Sea, spent on the asset boom in the South?

http://www.economist.com/news/special-report/21621237-digital-revolution-has-yet-fulfil-its-promise-higher-productivity-and-better

"The world has more than enough labour. Between 1980 and 2010, according to the McKinsey Global Institute, global nonfarm employment rose by about 1.1 billion, of which about 900m was in developing countries. The integration of large emerging markets into the global economy added a large pool of relatively low-skilled labour which many workers in rich countries had to compete with. That meant firms were able to keep workers’ pay low. And low pay has had a surprising knock-on effect: when labour is cheap and plentiful, there seems little point in investing in labour-saving (and productivity-enhancing) technologies. By creating a labour glut, new technologies have trapped rich economies in a cycle of self-limiting productivity growth."

[...]

"Most rich economies have made a poor job of finding lucrative jobs for workers displaced by technology, and the resulting glut of cheap, underemployed labour has given firms little incentive to make productivity-boosting investments. Until governments solve that problem, the productivity effects of this technological revolution will remain disappointing. The impact on workers, by contrast, is already blindingly clear."

Newsnight: 12/12/16
Brexit will produce a ten percent shortfall in seasonal labour.

Carrot sorting:
Eighteen migrant workers replaced by automation.

Automatic weeding machine:
A gang of thirty replaced by a small four row machine.

Integration:
https://www.theguardian.com/uk-news/2013/nov/15/sheffield-page-hall-roma-slovakia-immigration

http://www.dailymail.co.uk/news/article-4018946/The-town-immigrants-fed-migration-Failing-schools-filthy-streets-benefit-fraud-ROBERT-HARDMAN-dispatch-accuse-Brexiteers-racist-read.html

[Antoni Jaume]

"in the UK, workers can't move without paying seven years salary in moving taxes"

Source?

[Bob]

The same people who support tax credits/basic income and mass immigration whining about productivity? Lol!

[Blissex]

Good quotes "aragon", and as to this:

«By creating a labour glut, new technologies have trapped rich economies in a cycle of self-limiting productivity growth»

This illustrates that conceptual clarity matters...

Productivity is properly defined as physical output per physical inputs; e.g. hamburgers per hour of work, thousand pounds of kitchen equipment, thousand pounds of ingredients, etc.

Productivity is thus a measure of *efficiency*. But company owners are not interested in efficiency, but in profitability, so they think that "productivity" is dollars of sales per dollars of costs, which should be called (cost) effectiveness.

Therefore for a business the same increase in "productivity" can be done by reducing the time to make an hamburger by 10% or reduce wages by 10%.

The distinction between productivity and cost effectiveness is often lost in debates about either macroeconomics or business economics. Sometimes wilfully...

[Blissex]

"Integration: [ ... links to articles on issues around Sheffield poor immigrants ... ]"

As to the lot of poor (or rich) immigrants from eastern Europe and third-world countries, I am reading "This is London" by Ben Judah, which I recommend a lot.

It is in many ways the 2016 update of Henry Mayhew's "London Labour and the London poor" of 1861, which I also much recommend. In 1861 it was mostly northen, scottish and irish immigrants instead of eastern Europeans.

[aragon]

I am not worried about productivity which is exploding despite the labour glut, destroying capitalism and economics, but I am worried about Social Cohesion, Austerity and Wealth/Power Distribution.

It is disturbing that economic metrics cannot identify the technological productivity gains we are surrounded by, when they are obvious in reality, to the public.

Then there is the appalling mismanagement of society by the establishment (local, national and global).

Moving taxes, refers to stamp duty on high over inflated) house prices? Not to mention the even higher prices in the areas with the best jobs *London and South East) making internal migration difficult. Not that migration (domestic or international) is not desirable, except in the nihilism of economists.

[Ralph Musgrave]

Chris's claim that the UK has a poor productivity growth record is bit misleading. From what I can see from the ONS source he quotes that's been true over the last decade, but not over the last TWO decades.

[Blissex]

«From what I can see from the ONS source he quotes that's been true over the last decade, but not over the last TWO decades.»

Please double check the graphs in F Coppola's blog post.

[Blissex]

«there is the appalling mismanagement of society by the establishment»

That depends very much on the point of view: for nearly retired and retired property owners in the south the UK has been very well managed indeed for 35 years, because for those 35 years they have enjoyed 100% per year net profits on cash invested in their property.

Many of them have become rich beyond their dreams, with "gentry"-like lifestyle levels they never imagined they could aspire to.

[Blissex]

«higher prices in the areas with the best jobs *London and South East) making internal migration difficult»

The many romanians in London who sleep in tents in rubbish dumps or cardboard boxes in underpasses, and the many poles who rent a bunk in rooms with 4-8 beds or in garden sheds, prove that high property prices are no difficulty if lifestyle expectations are revised, in a "Britannia Unchained" way.

[aragon]

The Romanians and Poles are willing to accept poorer conditions that are not acceptable to internal migrants, and have larger gains when converted into their local currencies (external migrants).

So high costs benefit the transients, who get higher returns in their return home. Of course social housing, free education and health care make the rest of Britain more attractive to people from poor countries without this social protection, or where they experience discrimination in the case of the Roma.

Unfortunately their is a large cost to the host community and little benefit except to the rent seeking class whom exploit the cheap labour.

[ADifferentChris]

@aragon

I'm sure it's unintended. But you sound like a neoliberal defending feudalism via consumer choice. "Peasants wanted feudal obligations, huge benefits over tribal society" etc.

Insert standard Portes argument about how immigration benefits the host* economy.

*Another unintended line, I'm sure. But calling our economy the 'host' casts Romanians and Poles as parasites.

Historically, that ended well /s

[Churm Rincewind]

"Simon recently tweeted that it is important to ask why we are not talking about the crisis of stagnant productivity all the time. He’s surely right: this is our most important economic problem. So why isn’t it a top political priority? The fault, I suspect lies with voters, politicians and the media."

Perhaps the answer is that "voters" - i.e. the entire population - have other concerns which they consider more pressing and which politicians and the media are by definition obliged to address.

Simple, really.