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Despite claims of a recovery, UK productivity is stagnant

'Gideon' OsborneThe basic reason why UK wage growth has been virtually flat for a decade, at a level still 6% below pre-2008-9 levels, is Osborne’s relentless squeeze on benefits, tax credits, low pay and public expenditure. But there are two other very important contributory causes. One is that the proportion of our national income which we invest each year rather than consume is far too low. Since the onset of the crash in 2007 UK investment as a proportion of GDP (excluding R&D) has fallen from 18.2% to 14.5% now. Not only is this a drop of a fifth, which is a very serious shortfall, it is also barely half the world average which remained at 25.5%. As ONS figures show that depreciation of existing UK assets is running at about 11.5% per year, only 3% of the current total of 14.5% is left, which is not even enough to keep up with our population growth of at least 500,000 a year, let alone sufficient to build up our total assets per head of the population.

Crucially, also what little we do invest does not go to where it will produce the highest returns. Only just over a quarter of our total investment (28%) goes to manufacturing. Almost all the rest is devoted to other forms of investment – roads, schools, hospitals, industrial and commercial buildings, housing, ports, airports, etc. – all of which are important, but almost none which provide anything like the total return to the economy which comes from manufacturing. Again, ONS figures show that much the largest contribution to increased Gross Valued Added – 26% – came from manufacturing, even though it accounted for just under 12% of GDP over the period.

Ever since the Industrial Revolution it has been the combination of mechanisation, the application of technology and the efficient use of sources of power which are the key factors in increasing output per head. So how do we overcome these problems? Clearly we have to invest a higher proportion of our GDP and then devote a higher share of what we do invest in the future into manufacturing. We have to produce conditions which make it profitable for investment to be undertaken in a wide swathe of manufacturing, including low and medium-tech industries, where because at present they are unable to compete internationally investment in them is so low. That immediately raises another key issue. The UK exchange rate is far too high, making it far more expensive to produce most products in the UK rather than elsewhere. Only if we get manufacturing back to around 15% of our GDP rather than the current 10%, will we be in a sustainable position both to pay our way in the world, to avoid endless deflationary balance of payments problems, and to attain a reasonable growth rate and steadily rising wage levels.


  1. Verity says:

    How do we determine where to invest in manufacturing to ensure the best return?

  2. Ah, no. I’m sorry, but this article barely so much as touches on why UK productivity is really so low. Here are the big reasons:

    1. Poor infrastructure. The UK’s motorways regularly grind to a standstill; accidents, traffic, and even snow all contrive to prevent effective freight and commuting. This is because the UK’s road surfaces are built using subpar methods and materials, leading to rapid degradation and potholing that requires frequent repairs (causing disruption).
    The reality is also that there are simply too many cars and too few roads.

    Additionally, the UK’s rail network has spotty coverage and ageing diesel locomotives.

    2. The educational tail. The UK has the biggest educational tail in the world: large swathes of the population lack a basic educational attainment–getting Ds, Es and Cs at GCSE–which manifests itself in poor productivity, low social mobility and no ability to generate the wealth that could be created.

    3. Poor industrial strategy. Tory governments have helped foment a toxic and antagonistic relationship with the unions; the unions, for their part, are weak and few. This does not lead to happy, *productive* workers, and furthermore helps foster

    4. A culture of bad management, where executive pay is enormous but productivity is low among the underpaid masses. Furthermore, UK business lack effective models of corporate governance–decisions are short-sighted, quarter-driven, and ultimately bad decisions.

    5. Housing prices that are exorbitant, drive up inequality, force long commutes, and divert capital away from manufacturing and more. This is likely the most pernicious among all of these.

    So you see Michael, you’re really only just scratching the surface here.

  3. David Ellis says:

    The purpose of the post crash governments was never to pay the deficit or get the economy back on track or any of the other bollox that bourgeois politicians spout to get the herd to vote for them. The sole and only strategic goal of these governments has been to recover for them the trillions that the super rich had invested in the bankers Ponzi Scam. The bank bail out paid for by QE and austerity represents the greatest redistribution of wealth from poor to rich at least since the enclosure of the commons and maybe ever in human history. The real economy is being liquidated to the benefit of the global elite and the 85 individuals that control more personal wealth than 3.5 billion people. This isn’t about wrong-headedness this is about class war.

  4. David Pavett says:

    Breaking with the neo-liberal economic assumptions is key to building on the left surge that made Jeremy Corbyn Labour leader. We can’t live on that surge and not have to do the groundwork of providing solid support for Corbyn from the Party base. I appreciate the work that Michael Meacher has done for a long time to question prevailing economic ideas.

    However, if we are to have a widespread debate then, given the resistance of the left to get into economic detail, we need economic ideas to be presented with the greatest possible clarity and in a way that draws people into debating and learning more. I am afraid that this short piece is something of a model of how not to do that.

    It opens with the idea that “wage growth has virtually flat for a decade”. Would it not be clearer to say “wages have hardly grown for a decade” or “wages have been virtually stagnant for a decade”? To introduced the concept of growth into order to then qualify it as zero seems tortuous to me.

    But that is the least of it. The article then goes on to assert that the reason why wages have not grown is because of “the squeeze on benefits, tax credits, low pay and public expenditure”. Surely there is some ground to be covered in making the claim that wages have remained static and a squeeze on benefits. And doesn’t the claim that wages of remained static because of low pay need some elucidation? Or is all this supposed to be transparently obvious?

    Unfortunately the whole article is fully of such assertions. I am not saying that they are not in some sense true. Rather, I am saying that if we are to build economic understanding on the left it is going to require rather more effort in what is involved in raising economic understanding than seems to have gone into this article.

    Two other points.

    1. As I have said before, however much we may admire Michael Meacher’s work (I have a lot of respect for it) his say so is not a sufficient reference in debate with others. ARTICLES LIKE THIS NEED LINKS TO THE SOURCES OF EVIDENCE so that readers can follow them up for themselves.

    2. If we are going to try to encourage economic debate throughout the Labour Party in the democratic spirit that Jeremy Corbyn is calling for then we need to start, in blogs like this, to have a proper discussion. Among other things that means that PEOPLE WHO OPEN DEBATES SHOULD RESPOND TO QUESTIONS AND POINTS RAISED IN DIRECT RESPONSE TO WHAT THEY HAVE SAID OR WRITTEN. Not to do so is to perpetrate an elitist model of “debate” which is inappropriate to the democratic ideals to which the left lays claim.

    P.S. Good question from Verity.

  5. David Ellis says:

    Michael: Devaluing the pound to make Britain more competitive is a form of austerity imposed on the working class. I don’t see the idea of socialism being to make British workers more competitive with Chinese and Bangladeshi workers by reducing the cost of employing them to third world levels.

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