Productivity – or profitability? That is the question Philip Hammond has failed to answer

A Mercedes-Benz factory in Rastatt. German workers produce the same in four days as UK workers do in five [Image: Kai Pfaffenbach/Reuters].

A Mercedes-Benz factory in Rastatt. German workers produce the same in four days as UK workers do in five [Image: Kai Pfaffenbach/Reuters].

Apparently the decision of successive neoliberal governments to support a low-paying service industry while destroying manufacturing has harmed productivity.

And the reluctance of domestic businesses to spend their money is also holding us back.

Part of Ms Riley’s comment also suggested that legal changes allowing firms to rid themselves of employees would also increase productivity – but This Writer has deep doubts about the claim.

It might improve profitability – but that is not the same as productivity.

But this raises another question:

Why is Philip Hammond concerned about productivity anyway?

He raised the issue in his Autumn Statement.

But it seems he may have meant profitability instead.

If so, he has sent the whole country off on a wild-goose chase.

Rebecca Riley, a research fellow at the National Institute of Economic and Social Research, said declines in banking and the oil industry partly explained the UK’s low productivity rate, but there were also a host of other factors.

Studies have looked at whether the near collapse of the banks restricted the supply of credit to companies and prevented them making productivity-enhancing investments. Riley said this would have had some impact.

The rapid expansion of mainly low-level service jobs that carry low levels of pay is another reason. In France and Germany, the coffee shop and online delivery culture is still in its infancy by comparison with the UK. These are businesses that provide a valued but unsophisticated service with limited room for productivity improvements.

It means the UK has lower unemployment and a bigger workforce, with fewer people economically inactive than France – but lower productivity and lower pay.

Bill Martin, a former City economist who is now at Cambridge University’s Judge business school, has argued that the UK’s poor productivity is “more plausibly interpreted as a symptom of a largely demand-constrained, cheaper-labour economy”.

He is not alone in saying that companies would invest in new equipment and be more productive if only there was higher demand for British goods and services from its domestic businesses, consumers and the international community.

The UK has seen a much bigger fall in trade as a proportion of GDP than France or Germany in the past eight years, forcing it to rely increasingly on its own economy to drive demand – a challenge that consumers have met, but businesses have refused to join.

The OBR said a planned Brexit in 2019 would further damage Britain’s export sector and push down trade as a proportion of GDP. The fear must be that this will further discourage investment and delay again the moment productivity stages a recovery.

Source: Why is UK’s productivity still behind that of other major economies? | Business | The Guardian

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3 thoughts on “Productivity – or profitability? That is the question Philip Hammond has failed to answer

  1. Barry Davies

    Not sure why the mercedes factory is shown we don’t construct mercedes in the Uk so the analogy of 4 days to 5 is not a direct match and is it due to the technology used by mercedes compared to ours, perhaps mercers against volkswagen would add to the argument. The other problem goes all the way back to the 19703 when the agreement to join the common market meant we had to lose thousands of jobs in manufacturing along with all the skills that entailed to keep the service industries, a decision which has come back to bite us with unemployment throughout the nation outside the capital never having been properly addressed since then.

    1. Mike Sivier Post author

      That would be to indicate the difference between our productivity and that of the Germans. Perhaps Mercedes don’t have a factory here because of it, Barry.
      There was no agreement meaning we had to lose manufacturing jobs as a result of joining the Common Market; Margaret Thatcher chose to devastate UK industry after her election in 1979, in order to grind down the British workers who, in her opinion as a rich Tory, were getting far too uppity for her liking.
      Learn your history. Don’t spout nonsense propaganda.

    2. rotzeichen

      Barry people need to look deeper into what has happened over the last 40 years, nothing in all that time has happened by accident but have followed the doctrines of Friedman and Hayek, two of Thatcher’s gurus, the rest of the world has also jumped on the same bandwagon, that has brought about the crash in the world banking system as well as the decline in our manufacturing base. The destruction of our manufacturing base was a price worth paying in Thatcher’s eyes, as that would hand control over to the financial sector who would have the power through debt to control the population at large, highly paid manufacturing workers don’t need to borrow. The banking system makes it’s profits out of debt.

      Neo-Liberalism has been the driving force in politics since the 1970’s first appearing here under the Heath government, politics has gradually morphed into it’s acceptance as though it were gospel, Thatcher though took it to it’s greatest levels and unambiguously defined the private sector as being the wealth creators, therefore transferred public service into the private sector accelerating our decline even further.

      People generally bought into the mythology that Thatcher promulgated that big government was bad and the dead hand of the state was holding us back, only now after the decimation of our economy and the wholesale destruction of our manufacturing base is the penny beginning to drop that we have all been sold a pup. But in reality people still don’t understand why or how. It’s quite simply that the state is the producer of wealth, not all these little businesses that Thatcher boasted about, the state has everything to do with the creation of wealth and the private sector is peripheral to that, in other words governments control the economy it does not come from the economic activity of the private sector. They expand as the economy expands and vice versa when the economy shrinks, we have been in a depression now for over thirty years and more steeply since the financial crash. That has been driven by government hands off policy.

      The Neo-Liberal policies that have benefited the mega rich at everyone else’s expense have created poverty levels not seen since the 1920s and unless people wake up we will fall even further back to the times of Dickens, and for some that has already arrived.

      Interestingly when Jeremy Corbyn pronounced that “Austerity” was the cause of Britain’s decline, most laughed at him, now everyone is claiming that they believe that austerity is the problem, his words were “you can’t cut your way to growth”, it is an oxymoron. Austerity is an Oxymoron.

      To summarise what people need to know and why Neo-Liberal politicians have been leading our country into the abyss, turn everything they say on its head, government doesn’t have to borrow its own money, we have a fiat money system that means we can never go broke and any politician that claims otherwise is not telling the truth, Cameron said himself during the flood crisis of his making, i.e. he halved the Environment department in that locality to save money without regard to the obvious risks, then when the floods came he said “money was no object, he would do what ever was necessary” no doubt knowing the consequences politically in that area, i.e. Tory.

      Governments make choices, such as wars, pet projects, protecting the financial sectors interests, but when it comes to our interests (public Services), suddenly we are broke.

      People are the creators of wealth, not the rich who sit on mountains of cash whilst people are starving.

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