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Analysis

Unproductive Britain, even more unproductive Brexit

by Alan Wheatley | 05.07.2017

Here’s a question Brexiters must answer: how do they hope to turn round the UK’s appalling productivity record by throwing sand in the gears of trade and making it harder for our companies and universities to attract top-class talent?

Productivity is a word to make the eyes glaze over. It shouldn’t. Productivity – measured as output per hour or per worker – holds the key to rising living standards. It is the elixir of prosperity. The more we produce in a given time, whether it’s a factory worker making widgets or a journalist churning out words, the better off we are.

So official figures released on Wednesday should be a matter of grave concern, if not shame. After a 0.5% fall between the fourth quarter of 2016 and the first quarter of 2017, UK output per hour is lower than it was at the end of 2007 before the financial crisis. Output per worker is fractionally higher. Either way, on this important measure the economy has suffered a lost decade. No wonder incomes have stagnated over the period and voters are restless.

Productivity growth has been unusually weak in many countries. Reasons include the lasting damage caused by the financial crisis and slow progress in adopting new technologies that enable us to work smarter. There could also be measurement problems.

But that does not explain why the UK badly trails other rich countries when it comes to productivity. Per hour worked, the UK was 15.9% less productive than the rest of the G7 club of advanced economies in 2015, according to the Office for National Statistics (ONS). That we should have trailed the US by 22.2% is perhaps not surprising. But what about EU states? Remember, Brexiters warned that we would be shackling ourselves to an economic corpse by staying in the EU. Well, UK productivity in 2015 was 22.7% lower than that of France and 26.7% below Germany’s. Surely, though, we work more efficiently than the Italians? No, UK productivity was 10.5% lower than Italy’s in 2015.

The failure of UK productivity to grow over the past decade is a puzzle. After previous recessions, productivity initially fell but then rebounded to the earlier trend rate of growth. This hasn’t happened in this economic cycle. If productivity had followed the pre-crisis trend, it would have been more than 20% higher in the first quarter than it actually was, the ONS calculates.

Wednesday’s figures show that this conundrum is not going away. Raising productivity is a complex, long-term task. It calls for better education, skills and training, more sophisticated management, better coordination of supply chains, first-rate infrastructure and the relentless application of cutting-edge technologies.

Staying in the EU won’t solve the UK’s productivity puzzle overnight. But quitting the EU can only make the problem worse. Leaving the single market and the customs union will gum up commerce with our main trading partner. Abandoning tried and tested EU regulation of industries from drugs to airlines will create uncertainty for UK business, chilling investment and raising costs. Robbing firms and universities of the ability to hire the best and brightest from across the UK will slow innovation.

How productive is that?

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Edited by Luke Lythgoe

One Response to “Unproductive Britain, even more unproductive Brexit”

  • A serious question, is infacts an ironic name?

    I ask because it seems like childish finger pointing is increasingly replacing actual facts.

    “Here’s a question Brexiters must answer: how do they hope to turn round the UK’s appalling productivity record by throwing sand in the gears of trade and making it harder for our companies and universities to attract top-class talent?”

    Why Brexiters?

    This is the catastrophic failure of successive generations of govt. irrespective of party or stance on Brexit.

    You also imply that “making it harder for our companies and universities to attract top-class talent” will further negatively impact on productivity growth, without providing any explanation as to why it hasn’t helped in the decade since the financial crisis erupted.

    What’s fascinating is that productivity growth is not as determined by freedom of movement, as you argue, but by investment.

    Korea and Japan have very restrictive immigration policies, with no freedom of movement arrangements, and yet both, despite this have experienced considerable productivity growth.

    Most notably, in Korea, which started the 60s as a country poorer than most of sub-Saharan Africa, with no natural resources, has managed to almost match German productivity, indeed even surpassing it for a few years after the financial crisis.

    Productivity is far more nuanced than visa regimes or immigration policy.

    It is dependent on investment, in R&D, in manufacturing, in STEM education (not producing ever more graduates in Community Dance or Drama).

    All things which Korea and Japan have done to extremes.

    Brexit or no Brexit, no British govt. looks set to change that anytime soon.