The British Productivity 'puzzle or crisis'?

July 31, 2018

 

 

Have you heard of it? A lot of you already have. Yet the crisis over how productive the British economy in either per hour or per man terms continues to pervade the national debate and act, it is argued, as an albatross around the performance levels of the UK economy. It’s a debate which, moreover, has vintage, and that has not been helped by confusing definitions over what exactly productivity is, how should it be measured and why is it even important. We shall evaluate some of the issues here.

 

So what is productivity? Economic textbooks certainly offer several plausible definitions; One definition is that is it Labour productivity; What does this mean? It can be said that this entails the difference between an input use (the amount of hours expended or the overall level of employment) subtracted from economic output added either measured in terms of Gross Domestic Product (GDP) or Gross Value Added, (GVA).  This is a healthy starting point even if it excludes other kinds of productivity measurement (total factor productivity which measures the contribution of technical change, organisational innovation and ongoing education to the latter).

 

Put very simply, productivity is therefore one of the final outcomes of the production process in the overall economic system. What we produce and how efficiently we produce it gives insights into the overall health of the economic structure. Therein lies its value to us as students and observers of businesses and economics.

 

In what tangible ways does productivity benefit economies, business and ordinary people?  Greater productivity will yield gains including but not confined to higher wages and profits for the workforce and business owners and lower prices for consumers (witness the decline in consumer items like smartphones and clothing). Whether productivity is high or low is not therefore a simple question of more economic output but is indicative of wider issues within the economy and even society. To flip it around productivity tells us how well we are educating our future workforce, investing adequately or not in the most economic sectors of tomorrow such as Robotics, AI and machine learning or if it is sufficiently dynamic and cutting edge in its ability to innovate and develop.

 

That companies need to invest in these sectors should be regarded as almost beyond argument for any modern industrial economy with aspirations to be a fully productive one.  The direct gains will include more then just labour cost reductions but better-quality outputs as well as throughput's and reductions in downtime. All vital microeconomic benefits. These arguments seem to represent an unanswerable case for maximising productivity, but this ignores some of the real obstacles that exist around taking decisive steps towards boosting productivity through just the automation route alone. Some of these include the cost of new investment; the desire not to invest in new highly productive methods and technologies because such work can potentially be outsourced and the reality that we are unsure about whether such new automation will bring any tangible rewards or meet the claims advanced for them. The social upheaval caused by investing in newly productive techniques of automation may also undermine the business case.

 

Yet productivity should never be reduced to a question of invention or automation but can be linked to other components of business development. These will be familiar to many readers here; good supplier relations; quality of management systems and scope for productivity improvements through advancing modern work practices. These are all apposite if one is to leverage greater quality outputs.

 

The striving towards greater productivity has at the same time generated for some a paradox.

At the same time, we are producing more through greater innovation and technology, business should never neglect the fact that human interaction is valued and prized whether its retail, hospitality or construction. These are integral elements of boosting productivity which sometimes cannot be measured and are in fact eluded through standard figures and data.

 

The arguments over productivity need therefore to be understood at both the business-micro level and also at the national macro level. Is there an argument against productivity though? Yes, our businesses must be efficient and energetic forces which deliver quality services and products yet there are costs with this approach. To some extent the emphasis on productivity has brought with it an attendant focus on issues such as work-life balance and the stresses that running and managing jobs and businesses inevitably involves. Managing those stresses will remain a key objective of good business practice and management.

 

So must your business be a productive one?  It’s a virtual non-brainer. Yet its importance should not cloud us to the complexity of issues which arise when trying to make your business a genuinely productive one. Some of the following questions tell us this; the cost of investment, (how it displaces your existing workforce and you can re-skill your existing workforce?) How is government thinking affecting the development of your business (for example, tax incentives for investment and the calibre of state led training programmes for potential staff into your organisation, are you drawing on well qualified labour?)  All these issues are formidable in nature and not amenable to easy ready-made solutions.

 

To learn more about how to bolster your workplace or company productivity, contact thevaluespace to discuss its range of training solutions to help your organisation get ahead.

 

We would love to hear your thoughts on this thought paper and your views and opinions, please follow us on twitter @thevaluespace.

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