Productivity is the key to economic growth. It is a simple concept, if difficult to create and measure. It means either producing more with the same quantities of input – such as labour, equipment, machinery and communication – or producing the same amount, but with smaller inputs of some or all those factors of production.
Importance of productivity
Productivity is the difference between those economies and companies that are prosperous and successful, and those that are not. Britain is among the least productive nations in Europe – not the ideal position from which to take on the world once Brexit happens.
It takes Britons five days to produce what French workers can do in four, and Germans, Dutch and Swedes possibly do in even less time.
The source of productivity is infrastructure and basic education. Britain is bad at both, yet government ministers and civil servants appear to be oblivious to this.
According to a FT feature on the UK’s ailing infrastructure: “The UK has an infrastructure problem. For a nation that drove the industrial revolution, it is disheartening that a lack of political leadership has left Britain with crucial parts of its infrastructure crumbling.
“Overcrowded and unreliable railways, an inconsistent and often slow broadband network, a crisis in housing stock and questions over energy security all point to a failure by successive governments to set clear, strategic priorities and accept the need for the public sector to play a bigger role in financing them.”
In 2016, the World Economic Forum ranked the quality of the UK’s infrastructure as 24th in the world; down five places in a decade. Britain has a middling rank among industrialised countries, but comes almost last out of the G7 nations, second only to Italy.
There is a growing consensus among business leaders and economists about what, and where, reform is needed. Politicians do not share this understanding.
Why London is richer
Low skill levels and inadequate communications infrastructure are blamed for poor economic performance and lower household incomes outside London. London and the South East are the only two UK regions with productivity above the national average.
An extreme example is that workers in London produce 63 per cent more output per hour than workers in Wales, the least productive part of the UK. However, most influential MPs are found in the home counties.
Henry Overman, director of What Works Centre for Local Economic Growth, a research centre based at the London School of Economics, believes that higher skill levels among London’s workforce explains about two-thirds of the productivity gap between the capital and the rest of the country.
Shamefully, British cities take up 11 places out of the 50 lowest skilled cities in Europe, if ranked by the share of workers with fewer than the equivalent of five good GCSEs. This is the importance of the Northern Powerhouse: it should not just be a good soundbite for politicians.
The Beveridge Committee in 1944 identified the need to develop Britain’s human capital by suggesting three levels of education – grammar schools for the intellectually inclined, technical colleges for those manually gifted, and secondary moderns for the remainder. Intellectual snobbery among the elites meant little was done for the manually gifted, leaving British business today dependent on continental immigration.