Productivity – your doorstep checklist

By Mark Beatson, Chief Economist, CIPD, @MarkBeatson1


At the start of the year we said that 2015 needed to see a 'productivity rollover'.  Well, the Budget didn't even mention productivity so what about the election campaign?  Surely, the parties would be highlighting how a vote for them would boost the UK’s productivity and hence lead to higher wage growth?  Especially given that future productivity levels could make a big difference to the amount of cuts or tax rises that an incoming government committed to balancing the budget might need to make during the next parliament, let along the longer term impact on the affordability of public services.

Well, with the exception of Labour's Business Manifesto and its sister Manifesto for work, the main parties have had very little to say about productivity, indeed the word has scarcely been mentioned.  This might be understandable in the case of the Greens because their programme rejects GDP growth as a policy objective but all of the other main parties have increased productivity as an implicit goal.

The answer might well be that productivity isn’t a term that resonates well with voters.  In part this is because understanding of the term is variable, to say the least.  We added some questions on productivity to our regular Labour Market Outlook survey last year.  The results will feature in a forthcoming research report but they show that many businesses have a poor understanding of the term “productivity”, often conflating it with business performance more generally.  The phrase “doing more with less” is a good description of productivity improvement but it doesn’t chime well with employees, often being seen as cover for job cuts and work intensification (although when we’re customers we’re very happy to be getting more for less – as ever, we should be careful what we ask for).

It’s unlikely that any of the parties are going to unveil a productivity love bomb at this stage of the campaign.  Nevertheless, the reality is that all the political parties have lots of policy positions that will have an impact on productivity, especially in the long term.  It’s just that they’re rarely talked about in these terms – more often they’re part of a discussion about “the economy”, “helping business”, “investment”, “being more competitive” or some such term.  So here (in no particular order) are eight issues to discuss with any candidates landing on your doorstep in the next few days that might help you decide whether a vote for them was a vote for or against higher productivity:


·         Skills – Initial education and training are important (as seen by the focus on apprenticeship numbers by the three main parties), but population ageing and technological change means the debate needs to move onto plans for lifelong learning.


·         Infrastructure – This would include transport (roads, railways, airport capacity), energy (the national grid) and ICT (broadband availability).  Modernising infrastructure sometimes requires public investment and sometimes can be funded by the private sector but requires either incentives or permission (as in the debate about additional runway capacity in the south east).


·         Support for business – This includes the general environment that businesses face (tax, regulation etc.) as well as specific measures to help people set up businesses and help them grow (the latter usually being targeted towards small firms).


·         Competition – The evidence suggests that competition is a significant contributor to productivity growth in the long term as low productivity firms are replaced by high productivity entrants using superior technology and knowledge.  Rates of business failure in the UK have been relatively low in recent years given the severity of the recession and the proportion of firms running at a loss has increased.


·         Research and innovation – Innovation (the introduction of new products, services and ways of doing things) accounts for a high proportion of long-term productivity growth.  Public investment in scientific research and business R&D can have a positive effect on innovation, especially if supported by policies that encourage interaction between the science base and business.


·         Workplace productivity – There is research pointing to a link between management practices and productivity and our analysis suggests that the UK has not managed to close the gap with countries like the USA and Germany on people management over the past decade.


·         Openness – Economies tend to prosper when they are open to trade (in goods and services), capital (investment), people (migrants) and ideas.


·         Public services – The performance of public services such as education and health can have a direct effect on productivity through their impact on individual productivity.  In addition, the more effective and efficient they are, the lower the risk of crowding out private sector activity.


Of course, any candidate quizzed hard on all eight of these might wish they had knocked next door instead despite the ‘dangerous dog’ sign!

Finally, and most important of course, use your vote productively.

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