Does the UK really have a productivity problem?

Money money money. Image: Getty.

Productivity – or the UK’s lack of it – is the cause of the country’s economic woes. We have been told this by countless politicians and commentators. And the focus on Britain’s “productivity puzzle” is back in the headlines thanks to the latest budget. The UK’s latest productivity and growth forecasts have been slashed, such that the leading IFS think tank now predicts two decades of no earnings growth.

A similar story tends to be recycled every time growth forecasts change or data comparing the G7 countries or regions within the UK is released. Phrases like: “It takes a German worker four days to produce what a British one does in five.”

But how is productivity the cause of the UK’s problems and what does this statement actually mean? Unfortunately very little, because the term is used inconsistently. There are different measures of productivity and the nature of the UK’s problem depends on which one we are looking at and how it is being used.

Different definitions

At its base, productivity is a measure of output over input. The most commonly used measure of output is value-added. Literally the value added to goods and services produced in the UK, calculated as the monetary difference between what is sold and the intermediate goods used in its production.

The most commonly reported input is the number of workers or worker-hours. When combined this gives us a measure of labour productivity, calculated for each industry and aggregated for a region or the whole economy.

So far, so good. However, there are some more crucial distinctions, depending upon how labour productivity is used.

If we compare the performance of the UK with other countries or that of London with other parts of the UK, this requires making the comparison at the same point in time. In this case national statistical offices use current price measures of value-added. They use prices in each country at the point of comparison, converted into a common currency (usually US dollars) and adjusted for what these can buy in each place. This is called purchasing power parity or PPP.

Hence, what we are saying when we say that London is more productive than Carlisle in the north of England or that the UK is less productive than Germany, is that the value-added at current prices produced per hour worked in those places (what economists would call nominal productivity) is different. This is likely to depend largely upon the activities that are being performed in each place.

If some highly lucrative activities are concentrated in one part of the country – say financial and professional services in London – or within a country – think of complex manufacturing across Germany – then this will strongly influence the current price productivity data. The fact that the UK lags behind other countries on this measure reflects what goods and services it produces and the prices it can command for them versus what it has to pay for intermediate inputs.

So some of what the UK produces may be attributable to the skills of workers – but clearly the UK has wider historical issues regarding the types of industry it has and the geographical diversity of its economy. It is misleading to label this a productivity problem.


Skills and efficiency

A second way that labour productivity is used is to chart its change or growth over time. This calculation involves fixing prices at some point in time and calculating the change in the quantity of output produced to give a real measure of value-added. Hence if real labour productivity is increasing at 3 per cent per year, a country is producing 3 per cent more actual goods and services per hour worked than it was before, independent of price changes.

It is this calculation that is reflected in the growth of the economy and increases living standards. It is often interpreted as a measure of the increasing efficiency of workers but we must bear in mind that how work is organised, what equipment workers have, how skilled and well-trained they are and how close to capacity the economy is operating will all affect this measure. Also, certain industries have greater propensity for automation, which is central to increasing productivity.

Unfortunately, since the financial crisis productivity growth across the G7 has been much lower than it was prior to it – which has raised questions regarding how realistic prior measurement was, particularly in financial services, and whether the world has entered an era of slower technological progress. The UK’s productivity fall was steeper and its rebound weaker than in comparison countries.

The ConversationThis might be due to a number of reasons: low capital investment, poor skills, the high employment rate and low interest rates keeping inefficient companies afloat. No single explanation is currently winning the day. I would, however, urge readers to think about which measure of productivity is being used and what it means the next time we are told that the UK’s economic woes are due to poor productivity.

Paul Lewis, Senior Lecturer in Political Economy, Birmingham Business School, University of Birmingham.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

“A story of incompetence, arrogance, privilege and power”: A brief history of the Garden Bridge

Ewwww. Image: Heatherwick.

Labour assembly member Tom Copley on a an ignominious history.

The publication last week of the final bill for Boris Johnson’s failed Garden Bridge has once again pushed this fiasco into the headlines.

As well as an eye-watering £43m bill for taxpayers for this Johnsonian indulgence, what has been revealed this week is astonishing profligacy by the arms-length vehicle established to deliver it: the Garden Bridge Trust. The line by line account of their spending reveals £161,000 spent on their website and £400,000 on a gala fundraising event, amongst many other eyebrow raising numbers. 

Bear in mind that back in 2012, Johnson promised that the bridge would be entirely privately funded. The bridge’s most ardent advocate, Joanna Lumley, called it a “tiara for the Thames” and “a gift for London”. Today, the project would seem the very opposite of a “gift”.

The London Assembly has been scrutinising this project since its inception, and I now chair a working group tasked with continuing our investigation. We are indebted to the work of local campaigners around Waterloo as well as Will Hurst of the Architects Journal, who has brought many of the scandals surrounding the project into the open, and who was the subject of an extraordinary public attack by Johnson for doing so.

Yet every revelation about this cursed project has thrown up more questions than it has answers, and it’s worth reminding ourselves just how shady and rotten the story of this project has been.

There was Johnson’s £10,000 taxpayer funded trip to San Francisco to drum up sponsorship for the Thomas Heatherwick garden bridge design, despite the fact that TfL had not at that point even tendered for a designer for the project.

The design contest itself was a sham, with one of the two other architects TfL begged to enter in an attempt to create the illusion of due process later saying they felt “used”. Heatherwick Studios was awarded the contract and made a total of £2.7m from taxpayers from the failed project.


Soon after the bridge’s engineering contract had been awarded to Arup, it was announced that TfL’s then managing director of planning, Richard de Cani, was departing TfL for a new job – at Arup. He continued to make key decisions relating to the project while working his notice period, a flagrant conflict of interest that wouldn’t have been allowed in the civil service. Arup received more than £13m of taxpayer cash from the failed project.

The tendering process attracted such concern that the then Transport Commissioner, Peter Hendy, ordered an internal audit of it. The resulting report was a whitewash, and a far more critical earlier draft was leaked to the London Assembly.

As concerns about the project grew, so did the interventions by the bridge’s powerful advocates to keep it on track. Boris Johnson signed a mayoral direction which watered down the conditions the Garden Bridge Trust had to meet in order to gain access to further public money, exposing taxpayers to further risk. When he was hauled in front of the London Assembly to explain this decision, after blustering for while he finally told me that he couldn’t remember.

David Cameron overruled the advice of senior civil servants in order to extend the project’s government credit line. And George Osborne was at one point even more keen on the Garden Bridge than Johnson himself. The then chancellor was criticised by the National Audit Office for bypassing usual channels in order to commit funding to it. Strangely, none of the project’s travails have made it onto the pages of the London Evening Standard, a paper he now edits. Nor did they under his predecessor Sarah Sands, now editor of the Today Programme, another firm advocate for the Garden Bridge.

By 2016 the project appeared to be in real trouble. Yet the Garden Bridge Trust ploughed ahead in the face of mounting risks. In February 2016, despite having not secured the land on the south bank to actually build the bridge on, nor satisfied all their planning consents, the Trust signed an engineering contract. That decision alone has cost the taxpayer £21m.

Minutes of the Trust’s board meetings that I secured from TfL (after much wailing and gnashing of teeth from the Trust itself) reveal that weeks beforehand Thomas Heatherwick had urged the trustees to sign the contract in order to demonstrate “momentum”.

Meanwhile TfL, which was represented at board meetings by Richard de Cani and so should’ve been well aware of the mounting risks to the project, astonishingly failed to act in interests of taxpayers by shutting the project down.

Indeed, TfL allowed further public money to be released for the project despite the Trust not having satisfied at least two of the six conditions that had been set by TfL in order to protect the public purse. The decision to approve funding was personally approved by Transport Commissioner Mike Brown, who has never provided an adequate explanation for his decision.

The story of the Garden Bridge project is one of incompetence, arrogance and recklessness, but also of privilege and power. This was “the great and the good” trying to rig the system to force upon London a plaything for themselves wrapped up as a gift.

The London Assembly is determined to hold those responsible to account, and we will particularly focus on TfL’s role in this mess. However, this is not just a London issue, but a national scandal. There is a growing case for a Parliamentary inquiry into the project, and I would urge the Public Accounts Committee to launch an investigation. 

The Garden Bridge may seem like small beer compared to Brexit. But there is a common thread: Boris Johnson. It should appal and outrage us that this man is still being talked about as a potential future Prime Minister. His most expensive vanity project, now dead in the water, perhaps serves as an unwelcome prophecy for what may be to come should he ever enter Number 10.

Tom Copley is a Labour member of the London Assembly.