At its core is the so-called “productivity puzzle”, and Liz Truss is winning over a gullible Conservative party with the notion that cutting taxes is the way to unlock it.
The gullibility of Tories to accept arguments that seem to be too good to be true has local form. Just think of the way they accepted our Local Enterprise Partnership’s (LEP) claim to be able to double the local economy in 20 years on the basis of no evidence.
Like our LEP, Liz Truss’s claim doesn’t stand scrutiny either, read on. – Owl
Larry Elliott www.theguardian.com
It will doubtless come as a surprise to British workers toiling in distribution warehouses, call centres or the NHS that Liz Truss thinks they could do with showing “more graft”.
Judging by comments made when she was chief secretary to the Treasury, the frontrunner to be prime minister thinks the UK’s economic problems are down to a working culture quite different from that in communist China.
Truss is right in one respect. The UK does lag behind many other western countries in the productivity league table. Across the G7 group of major industrial countries, the average worker produces 13% more an hour than the average British worker and the gap is getting bigger.
Official data also appears to show a divide between London and the rest of the country, with workers in the capital apparently 80% more productive than the national average. Truss suggests this is a mindset issue.
The idea, though, that the UK’s deep-rooted economic problems are caused by shirking or a lack of effort does not stand up to serious scrutiny. Britain has one of the most deregulated labour markets in the developed world and the average British worker puts in more hours a week than the European average.
Monitoring and surveillance in many workplaces are intense, with disciplinary measures for those that fail to meet quotas. This is a country where management has the whip hand and, for the most part, workers are not protected by unions. To the extent Truss’s analysis was ever true, it harks back to a labour market that has long since disappeared – now replaced by one in which an army of gig economy and self-employed workers toil away to make a living.
The real reason for Britain’s poor productivity lies elsewhere. UK business investment as a share of national output, or gross domestic product, is the lowest in the G7. It is a similar story with research and development, to which the UK devotes 1.7% of GDP annually, compared with an average of 3.1% for members of the developed country club, the Organisation for Economic Cooperation and Development.
Britain’s economic model is based on an abundance of cheap labour and under-investment in up to date capital equipment and product innovation. Skills levels are higher in a country such as Germany because the Germans invest more in training.
The difference between Britain and better performing countries is not that they work harder than we do, but that they work smarter than we do. Foreign-owned companies in the UK tend to have higher productivity, so if “mindset” is the issue then it is the mindset of management that counts.
Nor is it really the case that productivity is higher in London because workers in the capital have a “can do” spirit lacking elsewhere. As a paper from researchers at Sheffield Hallam University found, once adjusted for factors including the size of the working age population, the concentration of high productivity jobs in finance and the number of hours worked, the gap virtually disappears.
Truss’s team say the remarks made some years ago have been taken out of context but they seem pretty clear. If Boris Johnson’s probable successor thinks more graft is needed, she is completely misdiagnosing the problem.