Don’t count your (productivity) Unicorns before they hatch!

From David Daniel:

“The “Joint Committee” (representatives from 23 organisations across Devon and Somerset – political balance rules do not apply) has just endorsed the final version of the HotSW Productivity Strategy.

But would you buy the proverbial second-hand car from an organisation that takes such a cavalier attitude to presenting facts and figures? Would you trust it to invest hundreds of millions of pounds of your taxes wisely? And, if you did, would you have any faith in its ability subsequently to deliver the goods?

Let’s start with the press release statement: “The Productivity Strategy aims to double productivity in the area over 20 years”. It does no such thing. The maximum claimed productivity gain in the strategy is to jump from a currently “assumed” 1.7% local annual productivity growth (probably nearer 1.5%) to 2.2%. No doubling here even if you accumulate the change over 20 years. For interest, historic average UK productivity growth rate is 2.0% and in the league table of LEPs, HotSW ranks 32nd out of 37 (London and South East dominate).

The 20 year timescale is a bit fuzzy as well. The introduction to the adopted strategy says: “Our ambition is simple – to double the size of the economy over 20 years.” In the consultation draft, however, it said: “Our ambition is simple – to double the economy in 18 years.” So which is it? On page 36 the Productivity Strategy is clearly marked (as it was in the consultation draft) 2018 to 2036, and none of the other numbers has changed. In my book that is 18 years, not 20!

Anyhow, what is being doubled is not productivity but the size of the economy (a combination of growth in both productivity and employment). Except the economy won’t be doubled using any of the combinations of growth in productivity and employment mentioned in the strategy, in either 18 or 20 years. The best on offer is a 3% compound growth. If that started instantaneously this year, and it obviously won’t, it would yield 70% growth in 18 years or 80% in 20 years. To double the economy, a compound growth rate of 3.94% (4%) would be required. Long term average UK growth rate is 2.6%.

It is proposed to achieve this 3% economic growth by “holding” employment growth to 0.8% per annum (add 2.2% productivity growth to 0.8% employment growth = 3%). We are effectively at full employment now. The Office for National Statistic population projections do show the South West population as a whole growing over this period at around 0.8% (0.76%) per annum. However, we have an ageing population and the annual increase of those classified as of working age is only 0.16% (16 to 64 for all genders). This will leave a shortfall of around 83,000 workers by the end of 18 years. Pension age is increasing to 66 by 2020 and to 67 between 2028 and 2028. Even if all 65 to 69 year olds are added to the work force they would not make up the shortfall. They would probably not be at the cutting edge of productivity either. So the plan can only work with major inward migration. This could be difficult in the post Brexit world.

Having ambition is one thing; plucking numbers out of the air and throwing them around without regard to the real world is quite another. There is no discussion of how long the transition from the slow to fast lane might take, delivery considerations come later. The hype assumes instantaneous change. How can anyone take this seriously?

Perhaps the members of HotSW and the Joint Committee believe they will all be long gone in 18 or 20 years and can’t be held to account. But what they have signed up to is so dramatic that failure will very soon become apparent. Brexit, surprisingly, might herald a refocussing of minds as suggested by Philip Aldrick, economics editor The Times, 20 March:
“….One theory doing the rounds is that the Treasury wants to know if its business support schemes are working. A crunch is coming. England’s 39 local enterprise partnerships, designed to boost growth, are funded largely with EU grants. For 2014 to 2020, they secured €6.51 billion of European Structural and Investment funds. Of that, €2.5 billion was allocated to “enhancing the competitiveness of small and medium enterprises”, about a tenth of which went to less developed regions.”

“After Brexit, now formally delayed until 2021 after yesterday’s transition deal, the money will no longer make the round trip via Brussels. It will come directly from Westminster, bringing with it more political accountability. If the money is not driving productivity, which it patently isn’t, the Treasury may decide the financial medicine could be administered more effectively.”

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