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Britain’s productivity problem

Underlying last week’s Budget was a major problem of Britain’s poor productivity and this week a new industrial strategy is announced to try to tackle this. UK productivity has barely grown since 2008 and lags behind most of our G7 competitors; 35% behind Germany and 30% behind the USA.

That means that British workers take five days to produce what German workers produce in four but there is more to this than inefficient labour.

Firms that don’t or can’t invest in new capital equipment, despite years of low interest rates, is probably more significant. The uncertainties created by Brexit are one possible reason for this. The availability of cheap labour in some sectors is another. Post Brexit the limited availability of European labour might motivate companies to invest more in labour saving machinery. The development of robotics and artificial intelligence could not have come at a better time.

Worker skills are an obvious factor. That is why increased funding for maths teaching and teacher classroom skills featured in Philip Hammond’s budget last week. He also called for every pupil to leave school with proficiency in using computers. Manufacturers also need to train their employees in the use of new technology when they install it. Apparently there are skill shortages in engineering, data analysis and design.

Modernisation of our roads and rail services could also help to improve our productivity. That is one reason for HS2 and Crossrail, to speed up movement and reduce traffic congestion on the roads. The Government might also make important decisions more speedily and resolutely. Decisions about an extra runway at Heathrow or Gatwick airports have taken far too long and the eventual decision will take time to implement meaning that it will come a decade late.

Attitudes to change are another impediment to solving the productivity problem. Each of these transport developments have been delayed by protest groups.  Their existence is a legitimate expression of democracy but Government could listen, dialogue, persuade and act more resolutely where the national interest needs to trump sectional interests. The opposition to driver operated trains on Southern Rail that has caused misery for the travelling public and damaged their productivity should have been triggered a constructive response from the Transport Secretary.

Notwithstanding any of these factors, poor management and a failure to innovate are probably more crucial causes of our poor productivity. If workers underperform it is the responsibility of management to motivate them. If a company lacks drive and vision it is its board of directors who are culpable.  We spend only 1.7% of GDP on research and development.  The average for OECD member countries is 2.4%. It is time for both Government and those who manage our industries to improve on that. So, will the new Industrial Strategy do anything to change that?

The Government has committed an additional £80billion to R&D over the next ten years and will identify areas of industrial strategy to increase our productivity. Driverless cars, artificial intelligence and low carbon technologies are all in this list. Ministers are encouraged by two pharmaceutical companies, the American MSD and the German Qiagen, who are investing more than £1billion in the UK creating 1,850 new jobs. They have encouraged Business Secretary, Greg Clark, to claim “People don’t make investments of this scale that are for the long term if they don’t have the confidence that we are building in this country a very attractive base.” Fine words but until British companies match these initiatives Britain’s productivity problem will not be solved. St Paul gave wise advice to the Christians of Thessalonica that we might follow, in the boardroom and on the shop floor, to work hard and earn the bread we eat. 

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