Britain's Disappointing Productivity Performance : Causes and Potential Solutions

Peat, Jeremy (2015) Britain's Disappointing Productivity Performance : Causes and Potential Solutions. University of Strathclyde, Glasgow.

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Abstract

The past was consistent. For decade after decade, with no more than minor and very short-term interruptions, productivity – output per unit of input – in the UK grew by a steady 1½% to 2% per annum. In recessions during the 20th century productivity growth did decelerate, but not for long. The norm was for productivity to accelerate from relatively early in the upswing. Clearly this mattered, both because increasing productivity was the main factor generating growth of GDP and income per head; and because this also was the major contributor to the UK’s continuing competitiveness in international markets. Growth of productivity at a rate lower than our key trading partners and competitors would mean competitiveness problems and over time a decline in growth and a lower exchange rate – possibly coupled with marginally higher interest rates to keep inflation under control. This stable and predictable state of affairs regarding productivity growth came to an end at the time of the 2008 banking sector-induced recession – or possibly somewhat earlier. Unfortunately nobody has produced a convincing analysis as to why productivity growth has stayed so low for so long; and failing such analysis it is remarkably difficult to explain convincingly why and when any reversion should happen. That is not to say that a reversion will not happen, rather that we cannot readily explain why this should be the case if we do not know how to explain the productivity story over the past 8 years or so. Indeed if we do not better understand what has been going on over this period and if a ‘reversion to the norm’ does transpire, then we will not know why, will not be able to understand its implications and will not know how best to ensure that higher productivity growth is continued. And if it does not transpire then we will have no idea as to what policies should be prioritised to achieve what ends.

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