UK productivity is no puzzle

 

At its simplest productivity is the  value of output produced per hour or  per year by the average worker. The Bank of England is said to be worried because UK productivity is lower than the USA and some countries in the EU, and has not been going up as quickly as before the crash in recent years.

The Bank has struggled to explain why. Let me have a go to help them. It is not all bad news.

The first reason is the sharp decline of North Sea output – which is bad news. Oil production is one of the most productive types of activity as conventionally measured, as oil output has a high sales value, and uses relatively little labour to achieve it, once the wells and platforms are in place. The North Sea is now a province in sharp decline, so we have just lost a lot of highly productive output.

Pre the banking crash, the UK also had a lot of very  expensive banking and financial output. This too appeared to be achieved at very high levels of productivity, as each individual investment banker or trader could undertake very large turnover with modest supporting labour input. The fact that some of this output turned out after the event to be loss  making does not require the past productivity figures pre crisis to be rewritten, which are flattered by the apparent high turnover and profit announced at the time. Since the crash there has been a deliberate run down of bank balance sheets and activity levels, and the loss of some high end business to centres like Switzerland and Hong Kong where taxes are lower. This has also depressed UK productivity.

The third more positive reason UK productivity has fallen is the success of the UK economy in adding a lot of more labour intensive lower priced service sector activities to its high end manufacturing, commodity extraction and expensive service activities.  The French  barrister may go to the office and get a coffee from the workplace drinks dispenser. His UK equivalent may stop off for a coffee from a coffee shop produced in a labour intensive way by a barrista. The French may be more productive at getting their coffee, but the UK employs more people and produces a better served product in  this  example. UK shoppers  now expect a much higher proportion of cafe, pub and coffee shop space in their preferred retail centres, with a higher staff ratio for delivering the service.

To the extent that UK productivity has stagnated because we have added a lot of extra lower productivity labour intensive services, that is good news. It means we have much lower unemployment than Spain  or France. On OECD figures for 2012 (last I could find)  the UK generates $48.5 worth of output per hour worked, compared to $50 in Spain, $59.5 in France, $58.3 in Germany and $40.1 in Japan. The UK is just a little above the OECD average.

However, if you adjust these figures for the levels of unemployment, the  Spanish figure drops to $38.5, the French figure to $53 and the UK to $46, as by definition the unemployed are making no contribution to output but  do not get included in average productivity.

The Euro area as a whole has similar productivity to the UK. US productivity remains considerably higher than Europe’s. Norway has the highest of the Europeans, thanks to a large oil and gas sector. Switzerland is also high, with a large financial sector.

Raising output per hour is a good thing in most cases. The UK’s very average productivity figures tells us more about the new balance of our economy. It does not mean our best industrial companies are uncompetitive or themselves have poor productivity.

 

 

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106 Comments

  1. Gary
    Posted May 17, 2015 at 5:31 am | Permalink

    a country’s wealth is determined by the income it derives from trade. And that means having the ability to produce more efficiently and with more innovation, goods that are in demand externally, so that we gain income that can then be spent on goods better made by other countries. Specialization (division of labour) cannot be done for all goods in one country, not least because of unequal access to raw materials. Trade , and free trade, is the path to wealth.

    selling coffee, burgers and houses to each other won’t cut it. This govt should be ashamed of wasting taxpayer money underwriting the property bubble. This govt is economic illiterate.

    Reply No, a country’s wealth is determined by all that it produces, including the bulk of goods and services it provides to people at home.

    • Gary
      Posted May 17, 2015 at 5:41 am | Permalink

      the mercantilist economic model deprived , using raw military power, the ability of those countries with raw materials of turning out finished goods. The raw materials had to be exported to the centre country to be used in manufacturing and then exported back to those countries. This is not free trade, this form of coerced trade lasts until the natives begin to have the means to resist and military enforcement then becomes more costly than the trade earns.

      We all know examples of this model.

      • Denis Cooper
        Posted May 17, 2015 at 9:05 am | Permalink

        Are you claiming as a theoretical principle that any country which had no trade with other countries could never prosper?

        But a country is part of a planet, so surely on your logic a planet which had no trade with other planets could also never prosper?

        • Lifelogic
          Posted May 17, 2015 at 11:12 am | Permalink

          Well if you trade each country can do what it can does most efficiently and you tend to get far better economies of scale. You are thus likely to be far wealthier.

          Without trade many countries can survive, but may have little steel, coal, gas, aluminium, oil, rare earth metals, nuclear fuel, top quality medical drugs and research, insufficient agriculture and countless other things.

          • Denis Cooper
            Posted May 17, 2015 at 6:01 pm | Permalink

            I’m not questioning that there are benefits from trade. That has been known since ancient times when salt from one area would be exchanged for flint from another, although with the extensive and largely free international trade we have now we may be into diminishing returns on that front. I am questioning whether “a country’s wealth is determined by the income it derives from trade”, especially as the income of one country is the expenditure of another.

          • libertarian
            Posted May 18, 2015 at 7:43 am | Permalink

            Denis

            You are absolutely correct. 85% of all UK economic activity is internal trade. Whilst overseas trade is important and valuable it is not the be all and end all as Gary would have you believe.

            It is NOT possible to survive on international trade alone it IS possible to survive on internal trade

        • Dame Rita Webb
          Posted May 17, 2015 at 5:53 pm | Permalink

          Yes North Korea is a living example that autarky is unachievable. This state clings on by bullying others into providing it with food and fuel. Remember as soon as the Soviet Union started building socialism it still needed invite in the likes of Armand Hammer to do deals to get its hands on stuff that was necessary for its survival.

        • Posted May 18, 2015 at 12:51 am | Permalink

          @Denis @Dame Rita @Gary @ Lifelogic

          Denis is right on this point. Theoretically a large country like Russia, China, and the USA could prosper even with no external trade.

          It would be more difficult , but not impossible, for a small country like North Korea to manage on its own but I’d argue that North Korea is just an oddity. It’s more like a medieval feudal monarchy that anything else. It doesn’t tell us anything about our own economy.

          Having said that trade is desirable. If it’s possible to prosper without trade then its possible to do even better with trade.

        • Gary
          Posted May 18, 2015 at 6:25 am | Permalink

          if a country had unlimited access to all resources and had all the specializations required to turn those resources into the best finished goods in the world, then a country needs no trade. That situation can never happen.

          Not to mention the global market has 7billion consumers, the home market has 60million. As they say, do the maths.

          • Denis Cooper
            Posted May 18, 2015 at 9:20 am | Permalink

            You haven’t explained how the inhabitants of Planet Earth can prosper in the complete absence of interplanetary trade to provide the income which you claim is necessary.

            (I will disregard the statistical quirk that overall as a planet we appear to be running a huge trade deficit.)

            I have no problem doing the maths about a global market of 7 billion consumers compared to a 60 million home market, but you ignore the fact that there are competitive suppliers among that 7 billion and if we have access to a global market then they all have access to our home market.

            That is the other side of the coin which was deliberately ignored by those who said our businesses would benefit from being able to export more freely to our European neighbours and so we should join the EEC, as if there were no competitive businesses in those countries which could displace home suppliers from our home market.

          • Gary
            Posted May 18, 2015 at 2:41 pm | Permalink

            Denis

            if you believe that it is not worth accessing a market of 7 bn consumers, because someone might be better at making everything that we can make, then let’s shut the borders completely and sell our inferior tat to each other.

            This is where the phrase “little englanders” comes from

          • Denis Cooper
            Posted May 19, 2015 at 8:23 am | Permalink

            You still haven’t explained how the inhabitants of Planet Earth can prosper in the absence of interplanetary trade to provide the income that you claim is necessary.

            “if you believe that it is not worth accessing a market of 7 bn consumers, because someone might be better at making everything that we can make, then let’s shut the borders completely and sell our inferior tat to each other.”

            That is an extreme, and negative, view which I do not share; I merely point out that while trade has benefits it also has disbenefits, it is not an unalloyed good.

            And that is especially the case when the trade agreement has the extraordinary feature that it requires the absence of any restrictions on the movement of persons, when it effectively supplants national immigration policy.

            “This is where the phrase “little englanders” comes from”

            No, it isn’t.

    • Ken Moore
      Posted May 17, 2015 at 4:29 pm | Permalink

      Reply No, a country’s wealth is determined by all that it produces, including the bulk of goods and services it provides to people at home.

      It is hard to see how services that amount to ‘taking in each others washing’ add anything substantially to our net wealth. GDP and a ‘country’s wealth’ are not the same thing. Mr Redwood makes no mention of the dire state of the Uk’s current account deficit…. What is there left to sell off ?

      We used to have a large manufacturing sector making useful goods that could be internationally traded until we threw in the towel and sold out to the far east and W Germany. Since 2000 manufacturing output has slumped by 26% – we now have to borrow 100 billion a year to keep the consumption party going.
      The trouble is we are still spending (both in public and private) without the necessary trade in goods and services to pay for it.

      Is making posh overpriced coffee with sprinkles on only a little bit better than paying people to dig holes and fill them in again ?.

      Of course the big corporations love Eu membership and the cheap labour it provides. And the government is only too happy to provide generous corporate subsidies in the form of in work benefits – even if it can’t really afford to do so it flatters the unemployment and GDP figures.

      The Conservatives seem to want and need both low-cost labour, on the one hand, and free-spending consumers on the other. It is this contradiction that has mired Britain in debt, because low-earning workers can only be high-spending consumers as well if the gap is filled by borrowing.

      This Ponzi type scheme can’t go on forever in my view..

      Reply I can assure you that educating a child, drawing up a legal business contract, selling a meal or coffee are all worthwhile income producing activities. Most people in the UK work for other people in the UK, as we sell each other our different services and goods which we specialise in. Why is an expensive car a way of making wealth and an expensive meal or drink not so?

      • KenMoore
        Posted May 17, 2015 at 9:57 pm | Permalink

        Selling expensive coffee might be a worthwhile income producing activity for the individual and corporation concerned, but adds little to the net wealth of the nation. It is more of the ‘taking in each others washing’ type of activity that the economy is biased towards.

        We need to trade to buy the imported food, energy and manufactured goods, and for £100bn annually of new debt we have come to depend on.

        Selling coffee won’t help us with this in the long term – education is still something we are good at and is of global value but there is not enough of these types of activities to pay our way in the world.

        Much of the profit from large corporations is taxed lightly and goes offshore.

        Posh coffee is not something that can be marketed globally to help us pay our way in the world – who is going to travel here for a cup of coffee ?. An expensive car or steel product can be marketed globally – but a cup of coffee ?

        The bottom line is the Uk’s current account deficit – which is in a terrible state – billions are leaving the country from interest and dividend payments on sold assets at a time when we are importing far more than we export…and this can only get worse as more assets are sold off!
        This can only end one way…

        Reply The UK sells a lot of posh coffee to foreign visitors, just as it sells posh education to foreign students.Indeed, it often sells posh coffee to foreign students. Why do you think one of these activities helps us and the other does not?

      • Mondeo Man
        Posted May 17, 2015 at 11:47 pm | Permalink

        An expensive car doesn’t make money for the country if it isn’t exported. Though if it stops the buyer paying for an imported one then I suppose you have a point.

        Coffee is always imported. And often the labour serving it too.

        • Edward2
          Posted May 18, 2015 at 5:22 pm | Permalink

          If a UK car manufacturer sells me a car it makes a profit and employs people and pays tax to the State.
          I have chosen to spend money I have earned on a car, rather than saving it in a bank or investing it or spending the money on something else.
          To say it “doesn’t make money for the country” cannot be correct.

          • Mondeo Man
            Posted May 18, 2015 at 6:04 pm | Permalink

            What if you work for the State, Edward2 ?

            But even if you don’t. The money to buy the car was already here.

          • Edward2
            Posted May 18, 2015 at 9:21 pm | Permalink

            Presumably if the money comes from a State employee customer in France and they buy our UK car then its then all OK to you?

            PS I do not understand what you mean by the phrase”the money was already there”

      • Posted May 18, 2015 at 2:29 am | Permalink

        Ken Moore,

        JR is right about the expensive meal vs the expensive car. There is no economic reason why the manufacture of one is any more virtuous than the other. Not every country in the world needs to make their own cars. If Germany, Korea and Japan are good at doing that then we should let them get on with it. IMO. We need to find our own niche -which we certainly can.

        You do have a valid point about the ability of workers to be able to afford the products of their own labour. Marx was of the opinion that was always going to be too much of a problem for capitalism to resolve and would lead it its eventual demise. I don’t believe he was correct in that view. However, the powers-that-be in the EU and eurozone are doing their best to prove Marx right and people like myself wrong in that respect!

        I hope the Conservative government don’t do the same thing now that electoral worries are safely out of the way for the next 5 years!

        • Ken Moore
          Posted May 18, 2015 at 9:19 am | Permalink

          At least we agree on something

          How can all activities be equally virtuous – from digging a hole and filling it in again to converting raw materials in the earth into a spacecraft which is globally marketable- there must be a range here ?.

          Reply If someone pays someone else to dig and fill a hole, that generates income. Some call it gardening.

          • Ken Moore
            Posted May 18, 2015 at 5:21 pm | Permalink

            It could be ‘gardening’ or the council digging up the street to install speed humps and then the electricity company digging up the same road a week later. It happens all the time here.
            There is little value added to the economy with internally marketed gambling, pedicures and selling extended warranties to ourselves. Money is just exchanged with a little going back to the government if the transaction isn’t cash in hand.

            I would appreciate your comment on the dire state of the Uk’s current account deficit as you seem so eager to dismiss my concerns. Is this sustainable in your view as someone with a background in the banking world ?

            The ONS report :-

            In 2014 the UK’s current account deficit was 5.5% of GDP, the largest annual deficit since the modern records began in 1948.

            http://www.britishchambers.org.uk/press-office/press-releases/bcc-current-account-deficit-rises-to-unsustainable-level.html

            Reply It has proved to be sustainable as many people wish to invest in the UK or buy assets here. Germany sells rich people expensive cars they do not need, and the UK sells them expensive flats so they can have additional homes.

          • Mondeo Man
            Posted May 18, 2015 at 6:06 pm | Permalink

            Reply to reply – Gardening serves no economic purpose – which is why most people do it themselves for free.

            Reply It can grow us food, a very crucial purpose.

        • Gary
          Posted May 18, 2015 at 3:45 pm | Permalink

          it’s all about economies of scale. You can sell a

          • Gary
            Posted May 18, 2015 at 3:58 pm | Permalink

            it’s all about economies of scale. If you could sell cups of coffee to 7bn consumers, then you are coining it. But you can’t. You can, however, potentially sell, say, solar panels, or phones or cars, or clothes etc to 7bn consumers. The potential profits in these markets dwarfs selling coffee, burgers, or houses to each other in a relatively minute market. That is why the Germans didn’t bother sinking all their savings into a house, they knew there was 100x the profits exporting into the global market. But, exporting is not easy, it takes optimal productivity, innovation and efficiency. So we avoid it.

            The Tories don’t seem to understand where our priorities should lie. They insist on ploughing money into underwriting houses. So do labour. It’s insane.

          • Ken Moore
            Posted May 18, 2015 at 5:48 pm | Permalink

            I agree totally – the money tied up in the ‘capital sink’ of our overpriced housing stock could be better used regenerating industry – yet we have a government that wishes to keep the bubble going with it’s ‘help to buy schemes’.

            The Germans also wisely retained their key industries and didn’t throw in the towel when faced with Japanese competition in the 70’s and 80’s.

          • Ken Moore
            Posted May 18, 2015 at 9:08 pm | Permalink

            An unfortunate consequence of the property boom has been to destroy good businesses as often the land that they occupy is now worth more than the business itself.

            I know of many long established manufacturing businesses that decided to sell up to never open their doors again once the developers got their cheque book out. The incentive is there for Corporations to sell up, cash in the land and move to Poland.

            What were once proud businesses making useful products and passing on valuable skills are now housing estates built to presumably accommodate….yet more people to make coffee, flip burgers and gold plate Eu directives etc.

            The recession and the mood music coming from Westminster that business is all about fat cats grinding the noses of the poor etc. doesn’t help either.

      • libertarian
        Posted May 18, 2015 at 7:50 am | Permalink

        Ken Moore

        Complete nonsense, join us in the 21st century. The UK is one of the leading manufacturers its just that manufacturing has changed out of all recognition since the mid 20th century.

        Your silly assertion that its taking in each others washing applies just as much to overseas trade as to internal business.

        British Chamber of Commerce Quote from last quarterly report

        “Service sector exports hit an all time high. Key manufacturing balances are at all-time highs. This continues a trend seen over the last three quarters where an initial spurt in manufacturing has developed into consistent growth”

        • Ken Moore
          Posted May 18, 2015 at 9:08 am | Permalink

          Libertarian,

          ‘Complete nonsense, join us in the 21st century. The UK is one of the leading manufacturers its just that manufacturing has changed out of all recognition since the mid 20th century’.

          I never said the Uk isn’t a leading manufacturer – there just isn’t enough of it to support the level of private and state spending we have become accustomed to.

          As I sadi, since 2000, manufacturing output has decreased by 26% in real terms, and the broader category of “globally marketable output” (GMO) has fallen even further.

          – last year we spent £412bn on imported goods – a far larger figure than our exports (£293bn) .

          -far more now flows out of the Uk in interest and dividends than flows in. Current financial flows, in balance until 2011, have now turned negative to the tune of £27bn in 2012, £43bn in 2013 and £64bn last year.

          The gap can only be plugged by further asset sales and the borrowing of billions of pounds…

          This situation is totally unsustainable – even the BBC’s Robert Peston pointed this out and he speaks from the left.

          • Mondeo Man
            Posted May 18, 2015 at 6:11 pm | Permalink

            Ken – If it’s any consolation I’m with you on this one.

            We have become a service economy largely serving ourselves and guess what ?

            Debt has doubled under the Tories.

          • Edward2
            Posted May 18, 2015 at 9:26 pm | Permalink

            There is this primitive idea that unless we manufacture something there can be no success.
            Well then stop buying any goods from other nations.

            Say a musician or an artist or an actor earns millions abroad for this country, do you feel this is an unworthy way for this nation to progress?

        • Edward2
          Posted May 18, 2015 at 5:23 pm | Permalink

          Totally agree liberatrian.

          • Ken Moore
            Posted May 18, 2015 at 5:33 pm | Permalink

            The British Chamber of Commerce Quote :-

            The UK current account deficit in Q3 2014 rose to 6.0%, an unsustainably high level
            •The trade deficit in real terms widened, as imports rose more than exports

            http://www.britishchambers.org.uk/press-office/press-releases/bcc-current-account-deficit-rises-to-unsustainable-level.html

            If a situation is ‘unsustainable’ something must have gone very badly wrong…why not just admit it?

            I can understand Mr Redwood not wanting to upset his constituents working in the service sector but lets get real here. I’m not saying service jobs have no value – they do to society but creating real value in the economy to pay our way in the world…

            Reply We export a lot of services as well as goods.

          • Ken Moore
            Posted May 18, 2015 at 9:21 pm | Permalink

            Thanks JR for your comments on this.
            I note that many Uk services are marketed globally but my point is the economy has become biased towards internally marketed goods and services.

            There isn’t enough of the former category to pay our way – the current account deficit tells the story.

            Reply I agree it would b e good if we exported more goods/services. So far it has not been a problem because we pay for our goods imports by selling assets.

          • libertarian
            Posted May 18, 2015 at 9:35 pm | Permalink

            Dear Ken Moore

            As I said join us in the 21st century. Most manufacturing is hi tech, software and IP ( they are all counted as services, not manufacturing) We export services.

            Over the last decade, UK goods and services exports have grown by an average of 2.8 per cent and 7.5 per cent per annum respectively.
            Some 60 per cent of UKTI trade clients are in services sectors. Only a proportion of these are in financial services: Financial services account for 28 per cent of total UK services exports, but business services also account for 27 per cent,
            Within information services, UK exports of services are nearly 100 times higher than those from France.

            Please find out what constitutes services because that is the future of the bulk of export earnings.

            You are laughingly trying to tell me services have relatively little value???? Really ???

            So IT/Software/Ecommerce/telecoms/film/music/TV/sport/finance/accounting/legalservices/insurance/health care/transportation/leisure & tourism have no really value.

            Tell you what Ken, you need a rethink

    • Posted May 17, 2015 at 4:53 pm | Permalink

      Shouldn’t it be that the country’s income is determined by all that it produces etc. …. ?

      It may seem a minor quibble but there’s an important difference there.

      Then there’s the question of how we should regard our net imports which aren’t produced by us, or traded for an equivalent amount of goods and services produced by us, but which we can afford to buy simply because other countries wish to lend us money. Put money in our bank essentially.

    • Mondeo Man
      Posted May 17, 2015 at 11:43 pm | Permalink

      Reply to reply – We could all do each other’s washing. We’re already looking after each other’s kids.

      Excepting tourist areas, selling imported coffee to each other isn’t reducing our national debt – especially where:

      – Kostbucks is an offshore company paying relatively little tax
      – they ignore local labour importing it instead
      – the taxpayer tops up the wages paid to that labour
      – that labour does not contribute to the public services it is entitled to

      Then the government goes on to say it’s created record numbers of jobs (well we have record numbers of people) and then goes on to claim that training to be a barista is an apprenticeship.

      Did the tea lady at ICI even register in the government’s economic reports ? Because that’s all coffee outlets and sandwich shops have replaced – the works canteen that we all used to take for granted.

      Very Blu Labour – very Blairist and spin-doctery.

      • Denis Cooper
        Posted May 18, 2015 at 9:28 am | Permalink

        “We’re already looking after each other’s kids.”

        And from an earlier and earlier age, thus freeing up both parents to earn money, enhancing the GDP statistic and enabling the government to boast about its excellent management of the economy, and providing more tax for the government to spend, for example on paying people to look after other people’s kids during the working day.

        • Ken Moore
          Posted May 19, 2015 at 9:08 am | Permalink

          Dear Libertarian,

          You seem intent on misrepresenting my position so I will try again to explain my position.

          I never said GLOBALLY marketable services have no value – I questioned who much REAL value is created by services such as manicures and selling posh coffee to commuters. The economy has become BIASED towards this type of service.

          There has been some growth in exports but it has not been enough to keep in step with our appetite for imported goods – otherwise we wouldn’t have to sell assets and borrow 100billion a year to buy the oil and food etc. that we need to import.

          We are still consuming too much and exporting too little in the form of SERVICES and goods to pay our way.

          The bottom line is the Uk’s current account deficit is unsustainable.

          • Ken Moore
            Posted May 19, 2015 at 9:28 am | Permalink

            Reply I agree it would b e good if we exported more goods/services. So far it has not been a problem because we pay for our goods imports by selling assets.

            Thanks John Redwood,

            So far it has not been a problem…but that could change…

            Britain’s slumping Net International Investment Position (NIIP), is being reflecting in accelerating outflows of dividends and interest on the assets now owned by foreign investors. How much more is there left to sell off?.

            In short, the combination of asset sales and borrowing, which has thus far kept the wolf from the door, is now beginning to bite back it seems.

            Inflated housing prices might be good for asset sales but this is turning a precious commodity (peoples homes) into a commodity to be bought and sold pushing them further out of ordinary peoples reach.

            Locking capital away in overpriced homes isn’t a sensible strategy when it could be regenerating our industries.
            Furthermore inflated land prices are incentivising businesses to sell up or move abroad.

            If this is the future god help us…

  2. Lifelogic
    Posted May 17, 2015 at 5:43 am | Permalink

    To raise productivity we need:- a far smaller state and one that actually delivers some efficient services, far lower taxes, far simpler taxes, easy hire and fire, cheap (non greencrap) energy, more competition in banking, fewer & simpler regulations everywhere, more relaxed planning, far more relaxed building regulations.

    The state sector is largely the ball and chain that holds back productivity. Now Cameron is free of the Davey, Clegg. Laws and Cable types he could easily deliver. He has shown little sign of it so far.

    The state sector produces rather little of any real value while inconveniencing, distracting and rendering the private sector far less efficient too. We should be aiming for a far smaller state sector, no pointless/counter productive wars, fewer lawyers, tax experts, HR experts and the many other people who jobs are mainly to guide one through largely absurd & pointless government/EU regulations and absurdly complex tax & employment laws.

    • Lifelogic
      Posted May 17, 2015 at 9:41 am | Permalink

      What JR says above is perfectly true, but we still need all the things I list above to make some dramatic progress.

      The state is holding industry and the people back as usual. In GDP per head (PPP) we come only about 27th in World rankings.

      • outsider
        Posted May 17, 2015 at 12:47 pm | Permalink

        Indeed Lifelogic. Purchasing power parity calculations can never be wholly accurate. Even if we ignore the small and special cases and stick to the EU, however, the IMF projects UK GDP per head to be more than 10 per cent lower than in Ireland, the Netherlands, Austria, Sweden, Germany and Denmark, so there is almost certainly a marked productivity gap.
        Mr Redwood gives several reasons for our low/stagnant productivity and we could all add our own. The central economic issue is how do we raise it?
        Looking at these other countries, it does not seem obvious that the level of state spending and taxes can be the only problem, but it may be that the UK public sector is organised far more to control the private sector in a hostile way than to promote it by co-operation.

        • Lifelogic
          Posted May 17, 2015 at 5:04 pm | Permalink

          Also the UK state sector spend a great deal but actually delivers rather little of much value. Furthermore spends a lot over regulating and inconveniencing the productive. Pushing up energy costs artificially for example and having an absurdly complex tax system.

      • Dennis
        Posted May 17, 2015 at 4:29 pm | Permalink

        Yes we need more GNP – let’s all pray for a massive earthquake and other disasters somewhere in the not too destructive areas of the UK to boost our GNP in the expensive reconstruction industry costs that would ensue.

        More useless work would also boost our GNP so let’s go for it. (Don’t think about the environmental destruction which entails though)

        • Denis Cooper
          Posted May 18, 2015 at 9:33 am | Permalink

          At one time Cameron was inclined to agree with you. When not hugging huskies he was concerned that the GDP statistic may be flawed and may not be a good indicator of the overall welfare of the nation. But that was years ago, and a passing phase.

    • Posted May 17, 2015 at 5:04 pm | Permalink

      “The state sector produces rather little of any real value” ??

      There’s not much of that left. But did the Royal Mail not produce anything of real value when it was publicly owned? Is it any better now that it’s been privatised?

      Many of us have the state sector to thank for our education. Or if we’ve been seriously sick or involved in road accidents (both in my case) then we have the state sector to thank for our current well being. Is these “rather little of any real value”?

      Or what about the road network? Isn’t that mainly part of the state sector? Is that “rather little of any real value”?

  3. Posted May 17, 2015 at 5:51 am | Permalink

    North Sea Oil production peaked in 1999. So if falling oil production was a significant reason for poor UK productivity then we would have seen poor productivity figures before the 2008 GFC as well as afterwards.

    In the USA real wages for industrial workers rose in line with total production up until the early 70’s. Since then there has been no growth in those wages. The same process has taken longer to arrive in the UK but it looks like it now has, in the aftermath of the GFC. The USA is is a wealthy society and they like to think a classless society too. Yet in New York a waiter will be paid less than in London and will need to rely on tips to make enough to live on.

    Just why this has happened in America, and is now happening in the UK, is of course a matter of some debate. But, whatever the cause, it undermines the right’s claim that a ‘rising tide lifts all boats’. The right have, in the past, criticised the left for being too concerned with how the cake should be cut. Their argument has been a bigger cake means everyone will receive a bigger piece.

    If the empirical evidence is showing that isn’t the case, which seems to be the message of this post, then it should be of more concern to the political right than the left. They’ll say – I told you so and that a rising tide only lifts the luxury yachts. They’ll just get back to arguing for fair shares for all.

    Reply Output per worker includes the costs of production other than wages, and the return to capital. However, wages are more likely to go up when output per worker rises. My story of course illustrates that it is better to be employed in the UK than unemployed in Spain.

    • outsider
      Posted May 17, 2015 at 1:13 pm | Permalink

      Dear Peter Martin, your point is uncomfortably true. The three traditional parties have all looked to the United States for their economic ideas so it is not surprising that we end up with the same result.
      One reason (out of several) is that we both rely on a constant supply of imported cheap labour to boost aggregate output and keep wages down, particularly at the bottom end and in our state NHS. This is much easier than investing in higher productivity.
      Your analysis also presents a challenge to the Labour Party, which has prioritised short-term growth in aggregate GDP to provide more taxes to spend. Any party that claims to promote the interest of those on average or below-average pay must know, by the simple laws of supply and demand, that the wages of this mass of people are far more likely to rise if there is a mild shortage of labour.

    • acorn
      Posted May 17, 2015 at 1:29 pm | Permalink

      Output (GVA) per hour is a better measure of productivity, the ONS features it more nowadays. http://www.ons.gov.uk/ons/dcp171778_397326.pdf

      More part-time working reduces productive hours because of the greater impact of starting and stopping activity on shorter work sessions. Also, self-employment has a poorer ratio of paying hours; estimating for work you don’t get due to competition.

      Productivity got disconnected from wages during the Thatcher / Reagan era with the rise of neo-liberalism. A greater share of national income going to the capital owners rather than wage earners.

  4. agricola
    Posted May 17, 2015 at 6:28 am | Permalink

    Nicely explained and it should reduce your workload today. My only comment is that you may have a lot of people running around in the coffee dispensing industry, but it has not done much for the quality of the coffee.

    • mickc
      Posted May 17, 2015 at 7:16 am | Permalink

      Nor has it done much for the service, in fact.

      Queueing up to get a coffee at the end of the counter, while lots of young, inexperienced people get a shiny machine to make spluttering noises and some time later a coffee, is not my idea of a decent cafe.

      Sitting at a table and having the waiting staff ask what you would like, then bringing it, used to be the norm. It was much better.

      We now have an inferior product, and service, dressed up as something better.

      I also do not understand why, if the banks made a whopping big loss, as they did, the productivity figures are not recalculated. Nothing of value was produced, in fact value was destroyed. It is what the City specialises in.

    • alan jutson
      Posted May 17, 2015 at 7:46 am | Permalink

      All very well and good employing lots of low cost labour John, but do remember many of these jobs and companies, are now subsidised by working tax credits, which is an additional cost to the taxpayer.

      Whilst I agree that most work is better than no work at all, we need to get people into real wage jobs.

      In far too many jobs now, the minimum wage, is the wage rate, because we have plenty of imported (uncontrolled immigrant) labour available who are happy work for it.

    • Lifelogic
      Posted May 17, 2015 at 9:45 am | Permalink

      Indeed lots of silly names and endless stupid additions, but if you just want a good, plain, cup of coffee forget it. Not only that they do not even serve you at the table. You have to queue up for ages while they muck about with their silly frothing machines and the likes.

  5. Jerry
    Posted May 17, 2015 at 7:00 am | Permalink

    My only comment John is what would happen to your adjusted productivity figures if one include all those under 25 who are currently ‘treading water’ at Uni or College doing courses with little value to any future employer (the sort of course that Mr Lifelogic is always going on about) rather than being actively seeking employment whilst claiming unemployment benefits of some sort. Can you positively refute that the UK has a lower “youth” unemployment problem than the rest of the EU and that we are not simply hiding our unemployed off balance sheet in effect?

    • Lifelogic
      Posted May 17, 2015 at 11:17 am | Permalink

      Much truth in that. A very large proportion of university courses are worth very little indeed in commercial terms. I would tend to make people pay for their own hobby degree courses.

  6. stred
    Posted May 17, 2015 at 7:09 am | Permalink

    The effect of changes to measurement of GDP over the past two years was not included. The EU has decided to include charities, drug pushing and horizontal sex working in the figures and sent us a large bill for our share, presumably assuming that we had similar output to countries such as France, Holland and Germany.

    However, these sectors will find increasing productivity very difficult and our GDP/worker is unlikely to improve. One reason is that charities rely on voluntary workers and can only sell or collect what is given. In the drug trade there is little possibility of automation, as traders have to keep moving around. In the horizontal sex industry it is hard to see how workers could up throughput, without wearing themselves out.

    Of course, countries such as Germany have always found ways of maximizing efficiency in these sectors. It was reported that whole apartment blocks had been taken over and used as horizontal sex workshops and some entrepreneurs had started to operate mobile hsw s in autobahn service areas. Whether the UK goverment should encourage such measure is questionable.

    • John E
      Posted May 17, 2015 at 11:02 am | Permalink

      The figures on the drug and sex industries were provided by our own statisticians.
      Being a bit squeamish they didn’t do much detailed research. They assumed that the activity in London was representative of the UK, resulting in a huge overestimate in my (admittedly inexperienced) opinion.
      This was partially reduced by the fact that their estimates included no activity by male sex workers – that was too much for them to contemplate.

      • Denis Cooper
        Posted May 18, 2015 at 9:36 am | Permalink

        I expect they did research, but at a certain point they made an excuse and left, as News of the World investigative reporters used to say.

  7. Edward2
    Posted May 17, 2015 at 7:25 am | Permalink

    I wonder if America’s good result in these statistics is due to their increaseed oil and gas output recently.
    Odd that France shows a higher productivity than the UK.

    • Lifelogic
      Posted May 17, 2015 at 11:20 am | Permalink

      More land per head and rather cheaper properties in France also good engineers and technical skills and far fewer lawyers per head which is always a good thing.

      It could be far, far better with a sensible government.

      • Edward2
        Posted May 17, 2015 at 7:18 pm | Permalink

        Good point Lifelogic.
        Didn’t think of that.

  8. Antisthenes
    Posted May 17, 2015 at 7:34 am | Permalink

    Having been an employer in France one concern was the high cost of Labour because of the tax system and the employment laws. In short, employing people is much more expensive there than here so the incentive is to to produce more with less workers.

    So to those lefties who believe in higher minimum wages, taxing businesses more and inflexible employment laws they should be aware of the cost. As those who do find employment may be better off but less of them are employed. And of course it is the poorest who suffer the most who the left say they are most concerned about which they maybe but their policies always seem to hurt them the most.

  9. David Murfin
    Posted May 17, 2015 at 7:53 am | Permalink

    There is always danger in considering averages and percentages instead of actual figures.
    Average productivity is an example. It has little real meaning, for as you note it can be changed – downwards by employing a second man to stand and watch a first doing the work; then upwards again by sacking him. In monetary terms, the watcher may be paid well to write reports on the progress of the work, but this may have little effect on whether the work is done well. ‘Productivity’ in the NHS is ‘measured’ this way, but the useful measures are:
    number of patients cured/number of patients treated, which needs to be high
    number treated/number needing treatment also needs to be high
    number of patients needing treatment/population, which should be low if the population is healthy.
    None of these include number of people employed by the health service, which is determined by the money available to meet the needs. Productivity per £ spent can be driven up by spending less on those doing the work, but whether this will improve overall results is less certain.

  10. Alan Wheatley
    Posted May 17, 2015 at 8:19 am | Permalink

    The BBC like to praise themselves as being innovative, and, for a change, just over a week ago they lived up to the claim with three programmes on the theme of “Hand Made”.

    In the first program a chap with his assistant took half an hour to make a water jug. In the second a guy took a week to make a knife. In the third a chair was made over a few days. In all cases the craftsmanship was brilliant, and it was fascinating to watch.

    So very low output per hour but, I hope, a very high price for the product produced. There does, of course, need to be a market prepared to pay the price. However, there never seems to be a shortage of money, and this type of enterprise seems to me an ideal means of redistributing it.

    It would be interesting to know where craftsmanship comes in terms of productivity.

  11. oldtimer
    Posted May 17, 2015 at 8:21 am | Permalink

    A changing mix of activities, as well as changing FX rates, will affect the national comparisons. As others have said the government of the day can positively improve national productivity by simplifying the burdens it places on business activity, whether tax or regulatory. A key test of the new government`s effectiveness will rest on its intentions and actions in this respect. Mr Osborne`s emergency budget will reveal just how far he intends to go.

  12. Martin
    Posted May 17, 2015 at 9:02 am | Permalink

    Isn’t the UK’s problem that high property rents means the government is paying out a fortune in in-work benefits?

    • bigneil
      Posted May 17, 2015 at 1:25 pm | Permalink

      I would like to know if the in-work benefits include those who have turned up from Europe, registered for a NI number, been housed, then just sell the Big Issue mag for the homeless ( when they are NOT homeless). I fail to see how selling a homeless magazine ( when not homeless) qualifies as a job.

      Maybe the whole benefits for immigrants system needs turning on it’s head.

      Instead of people just walking in, being given everything for free – – they should know that upon arriving here they will HAVE to work, pay taxes, etc – -and one of us , who has contributed for their whole lives – can then retire and be given a free life – on the taxes of the newly arrived immigrant. . No job to come to- no sponging here. No just turning up, claiming disability and be handed cars/ houses. money and healthcare for no contribution. No translators after a year unless THEY pay. I feel this idea would refocus the migration ideas of thousands of freeloaders with the intention of coming here to be a burden on the working/tax-paying English.

  13. JoeSoap
    Posted May 17, 2015 at 9:02 am | Permalink

    Your thesis here has some holes in it.

    http://www.marketoracle.co.uk/images/uk-crude-oil-production-2013.gif
    Shows that although production in barrels is down, value was higher in 2013 than any year in the past 3 decades bar 2 years. Even if you were right, wouldn’t it be sensible to have invested the proceeds of an exceptionally high period of productivity into alternative high yielding industries instead of daft vanity projects such as the dome and HS2? Ditto on banking activity, a fleeting period of exceptional returns off the back of credit expansion. Invest it in educating and equipping the indigenous population with the tools to maintain a healthy yield in future, don’t throw it away.

    Secondly, you seem to be trumpeting “Mac-jobs” here as a route to success. It just isn’t. It’s a route to a poorer society, which SHOULD have a lower tax take and less public services. Else you are going to continue growing the debt as you have been the past 5 years. You need to back Grammar schools as a route to produce those engineers and doctors from people who would otherwise be serving coffee. Else there will soon be nobody to serve with coffee.

  14. Denis Cooper
    Posted May 17, 2015 at 9:27 am | Permalink

    If we adopted a sensible Australian-style immigration policy, but with a proportionately much lower annual cap – the 190,000 places in the Australian immigration scheme this year represents about 0.8% of Australia’s 23 million population, and would scale up to about 530,000 for the UK, an order of magnitude higher than the kind of level which would be welcome to the great majority of UK citizens – then that would necessarily drive up productivity as the supply of cheap workers to fill less skilled jobs dried up.

  15. aelitaman
    Posted May 17, 2015 at 9:39 am | Permalink

    I believe that your answers are part of the problem and it is much larger.

    Since 2008 we have had more regulation from Brussels, especially in the Finance sector. This requires large numbers of non productive jobs to ensure these regulations are met.

    We have massive avoidance of corporation tax by any companies that route UK revenues. (One company ed)is estimated to produce 3.2 bill in revs in the UK but reports 600 million. This affects productivity. When you add up every large international company using these schemes it comes to a very sizeable amount.

    Then we have the ultimate elephant in the room, unlimited supply of cheap labour, why would a business invest in being more productive when it is cheaper and quicker to get a few more minimum wage workers to take up the production needed.

  16. Posted May 17, 2015 at 9:45 am | Permalink

    I’m not much of a coffee drinker and do no want to comment in that direction . In the manufacturing sector the inducements companies receive have a lot to do with cost and efficiency ; recently more encouragement has been made but , a lot of catching up is still required . We have often led the field in innovation and design with various products and ideas finishing up with foreign companies , this situation grew from the mid 60’s .

    The correction has to come from Government incentives and support ; individual organisations are driven by relatively short term objectives and strategy and are under pressure from shareholders . In Germany capital investment is part of shareholder mentality and the productivity there reflects this .

    I also agree with the observation made recently by Mark Carney who observed that the availability of low cost labour also impinged on innovative capital investment . After all , why spend millions in one direction if you can achieve the same result by employing extra low cost bodies . To compete effectively we must stay ahead of the game ; international competition is growing and leadership from the Government is vital .

  17. JJE
    Posted May 17, 2015 at 11:17 am | Permalink

    Underpinning so many of our issues is overpopulation. The world has two and a half times more people in it over my lifetime. We only have one planet. Malthus will be right in the end because key resources are finite. Growth cannot continue for ever.
    There is no way to find useful jobs for everyone. We are at the point where we have to pull up the drawbridge and protect ourselves.

  18. Max Dunbar
    Posted May 17, 2015 at 11:21 am | Permalink

    I have always wondered how oil extraction from the North Sea could legitimately be classified as production.
    Once the raw material has been shipped to, say, Grangemouth on the Forth estuary and converted into petrol, diesel and a vast range of other chemicals, the oil has become a product of the refinery. North Sea oil is a declining resource and eventually it will no longer be economical to extract the reserves there. However, Grangemouth oil refinery can process vast quantities of oil from all over the world and maintain production indefinitely.
    Banking is another activity where I have trouble accepting the term ‘production’. Banks like to describe their services as ‘products’ presumably because it sanctifies a rather dubious and sterile form of exploitation.

  19. Rods
    Posted May 17, 2015 at 11:54 am | Permalink

    Is the BOE expressing concern because it wants to see higher productivity or because, unlike you, it can’t see why productivity is lower?

    If it is the latter then it is of a concern, that after 7 years of poor growth forecasting, are the BOE now better equipped going forward?

    I hope that now the Conservatives have a majority Government that they will reduce the 45% tax rate to 40%, so raising higher levels of revenue. This will help to increase the amount of high worth individuals here, which will increase productivity, growth where many will start businesses locally and also spend more of their income in the UK. Before anybody asks, no I’m not a 45% taxpayer, but I’m also not jealous of those that use their skills and hard work to create a better life for themselves and their families, create new jobs (some of which will be highly paid), so UK PLC and the population all benefit.

    The US (and all G8 countries) since the 1980’s has seen real wages fall for the unskilled and semi-skilled, it just about hold it’s own for the those that have post school qualifications below degree level and rise for those with degrees. I can’t see this trend changing, where computerisation and automation will continue to advance. In Europe EU high energy costs (so CO2 production is exported with jobs and economic growth to other countries) and ever increasing regulation (a product of a democratic deficit in Brussels) continue to make high-productivity manufacturing offshore to primarily Asia for a better manufacturing infrastructure and lower wages and the US with their low energy prices.

  20. Steve Pearl
    Posted May 17, 2015 at 12:42 pm | Permalink

    I have followed British politics for over fifty years, and in all that time the anguished cry of “low productivity” has been an unswerving constant.
    Why is that? It certainly can’t all be down to North Sea oil (there wasn’t any) or coffee shops (there were hardly any of those either!), so is it work rate, work practices, low pay, investment by management, unions, laziness, too many holidays…what?
    Whatever the causes low productivity has been cited as the curse of the British economy since as far back as I can remember. Is it true or just a myth?

  21. margaret
    Posted May 17, 2015 at 12:49 pm | Permalink

    You are highlighting two disparate definitions of productivity, one relying on natural resource and another reliant on human resource. In a real world, which is not driven by inaccurate data collection and the following analysis ,these are not comparable. It is all the same good to know, if it is correct, that we having more people employed, is a better outcome and could eventually lead to more people spending. Technical advancement has long been a threat to human resource and somehow we have coped directing skills into other areas.

  22. Vanessa
    Posted May 17, 2015 at 12:53 pm | Permalink

    JR – I am wondering whether this government will do something about our energy prices. The law on CO2 emissions is utterly ludicrous and will make this country completely uncompetitive – that is until we discover a proper alternative to gas and oil.

    We have 200 years worth of coal under this country, time enough to discover a viable alternative. In the 1900s nobody could dream of the new technologies we have today so it is not “rocket science” that we will come up with something more workable and reasonably priced.

    All businesses, small as well as large, need to use electricity (now 2 or 3 times the price of gas) and if energy stays so expensive Britain will lose so many companies which would have improved our productivity and competitiveness. To cut CO2 by 80% is to go back to the dark ages before industrialisation and nobody seriously wants that – do they?

    Reply The government will cancel onshore wind subsidy for new projects and develop shale oil and gas

    • Iain gill
      Posted May 18, 2015 at 5:26 am | Permalink

      Which government? Scotland? Or rest of uk?

    • Ken Moore
      Posted May 19, 2015 at 2:35 pm | Permalink

      What is the government going to do about the madness of Drax power station being fuelled by woodchip imported from Canada ? . Can we now have a sensible and competitive energy policy now Mr Davey has left ?

      http://www.dailymail.co.uk/news/article-2290444/Madness-How-pay-billions-electricity-bills-Britains-biggest-power-station-switch-coal-wood-chips–wont-help-planet-jot.html

      • Ken Moore
        Posted May 20, 2015 at 1:06 pm | Permalink

        The coal fired Ferrybridge power station announced today it is to close citing ‘environmental legislation’ as the reason.

        Meanwhile just as we are running out of North Sea gas and future supplies of this expensive fuel look far from certain , a nearby gas fired station is to re-open.

        Have we gone mad…If Mr Cameron’s government was really any different from the last surely this decision could have been reviewed ?

  23. alte fritz
    Posted May 17, 2015 at 1:01 pm | Permalink

    It is hard to follow Mr Carney’s suggestion that there are low wages drags on capital investment. In manufacturing, for example, there will be no wage competition between Vietnam and the UK. If there is an advantage to be gained from investment, and the capital is available to invest, UK firms will invest. I suggest we concentrate on ensuring that the UK is a competitive market, that there is readily available capital, and that UK based firms remain UK based and keep their profits here.

  24. forthurst
    Posted May 17, 2015 at 1:09 pm | Permalink

    An area worth examining is the neoliberal policies of successive governments; in practice this means that British companies can be purchased easily with cheap loans often supplied by British banks, even by taxpayer owned ones, but not vice-versa, to riotous applause from the banksters who managed to pay themselves huge bonuses on the backs of filling their balance sheets with dodgy loans and even dodgier derivatives, which the British taxpayer was then forced by Gordon ‘Save the World’ Brown to make good.

    A foreign owned business is not generally at liberty to innovate as it wishes, to employ and expand as it wishes; its profits and corporation tax are remitted abroad; its profits often being massaged down by transfer pricing; in other words, foreign owned businesses are much less likely to yield high added value per employee than corresponding British owned ones.

    Apart from the banksters who like our businesses to be ‘in play’ so that they can make legal and illegal profits out of takeovers and mergers, and who continually pester businesses to put themselves ‘in play’ whilst exhorting other, usually foreign-owned, businesses to make bid overtures, there is also the issue of the unusual idea, except in this country, that accountants are the best people to lead businesses, presumably on the basis that they are best at talking to our oversized bankster population; of course, nothing could be further from the truth; accountants are the last people on Earth who should be leading particularly technologically-based businesses. Such people invariably have short horizons, no imagination and no interest in what they make; consequently they spend their time buying and selling business units to rapturous applause from the City, eventually destroying anything of value which they inherited. (I was glad to see our premier technological business recently unceremoniously dumped its accountant CEO before he had managed to inflict irrevocable damage and replaced him with a brilliant and innovative and successful engineer.)

    We need far fewer banksters, more entrepreneurs and technologists but fewer accountants, lawyers and other either non added value creating, or actual value destroying ‘professionals’. Lastly we need a government that does not regard patriotism as a dirty word and seeks to protect our businesses from foreign predation.

  25. outsider
    Posted May 17, 2015 at 1:49 pm | Permalink

    Dear Mr Redwood: The May Bank of England Inflation Report also says something else of great importance: that the cyclical recovery is complete. It reports that business order book are now “normal” and it estimates (or guesses) that the slack in the economy now amounts to only 0.5 per cent.
    If that is so, it is time for the Government to stop talking about continuing the economic recovery and starts to phase out measures designed to provide a cyclical economic stimulus rather than bringing in new ones.
    It follows that, once the income and corporation taxes roll in, the entire budget deficit will be structural and not cyclical. And that long-term productivity growth should now be the main economic priority.
    If I read it correctly, the Bank also suggests that the unemployment rate is lower than the official figures because the ONS has under-estimated immigration at about 165,000 a year.

    Reply Yes, and the government is going to use the extra revenue generated from the growth to reduce and remove the deficit! So we all agree.

    • Posted May 18, 2015 at 3:07 am | Permalink

      Remove the deficit? It’s just not possible in the timescale planned.

      I’ll eat Paddy Ashdown’s hat (that is if he hasn’t already eaten it himself) if the deficit is removed during the lifetime of this, or the next, parliament without the economy being crashed in the process of trying.

      • Edward2
        Posted May 18, 2015 at 5:30 pm | Permalink

        A brave bet.
        As long as economic growth continues as predicted the deficit can be paid down without difficulty.
        State spending is predicted to rise from £740 billion to £790 billion so not real austerity with steadily rising spending.
        Less taxes than had Labour/SNP had their way so no real increases in the tax burden either.
        I am optimistic.
        We shall see.

        • Posted May 18, 2015 at 9:04 pm | Permalink

          We can make it slightly more interesting if you like! £50 on my claim the government deficit will not be removed during the course of this Parliament?

          Economic growth will raise taxation revenue but it will also tend to suck in more imports. So, when overseas central banks accumulate pounds they will buy UK securities. The government will then need to deficit spend the proceeds back into the economy to keep the money circulating and prevent recession.

          That’s not a bad thing but the government will more than likely respond to that growth, if it happens, by slowing down the economy with a mixture of tax rises and spending cuts. That won’t solve anything, of course.

          Reply You still ignore the domestic private sector which can and will propel growth

          • Edward2
            Posted May 19, 2015 at 8:11 am | Permalink

            “crashing the economy” in the attempt to pay down the deficit was your original complete prediction.
            I do not foresee a Gov’t trying to stop economic growth by deliberately slowing down the economy.
            Especially at a time when inflationary pressures are low.

            I’m not a betting person Peter, but I look forward to your promise to do an Ashdown should you be proved wrong!

          • Posted May 21, 2015 at 8:17 am | Permalink

            Edward2,

            I base my prediction on the validity of the equation:

            Govt Deficit = Net Savings of the PDS + External Trade Deficit (Current account)

            So unless the first term turns sharply negative (its currently about zero) and/or the external deficit turns into a surplus then there’s no possibility of the present Govt Deficit turning into a surplus.

            JR,

            Yes the PDS can and will propel growth given the right conditions. But, the above equation will have to hold regardless. The PDS would have to assume a huge deficit istelf (desaving) to remove the Govts largish deficit and at the same time support a large external deficit.

            It’s theoretically possible but extremely unlikely. I’m confident that my digestive system won’t have to suffer in quite the same way as did Paddy Ashdown’s!

  26. Gumpy Goat
    Posted May 17, 2015 at 2:01 pm | Permalink

    Low paid jobs will not be helpful in the long term, never get on the housing ladder or even rent a place. Just increasing the social divide. Granted some job is better than nothing, but I fear we storing up trouble in the future.

  27. Dennis
    Posted May 17, 2015 at 4:38 pm | Permalink

    JR says, ” The North Sea is now a province in sharp decline, so we have just lost a lot of highly productive output.”

    He points out this fact but never relates this to other of his concern to raise productivity and to boost economic activity using up bio-capacity etc. JR seems so blinkered.

    Reply What is blinkered about showing how the loss of oil output hits productivity and incomes, and urging that we now extract shale gas can do a lot to replace this lost output.

  28. ian wragg
    Posted May 17, 2015 at 5:08 pm | Permalink

    I don’t know why we are discussing productivity when CMD has appointed Amber (not a fag paper between me and Labour on climate change) Rudd as minister for blackouts.
    We also have the chairman of SSE in todays Telegraph bleating about the positive contribution onshore windfarms make. That would be the £1.4 million daily in subsidy in Scotland alone.
    Let’s examine the productivity of onshore and offshore wind farms.
    Lets examine the productivity of 3 gigawatts of diesel generators being paid for to do nothing under STOR arrangements.
    When we start to get rolling blackouts and brownouts in the near future, then lets see what happens to productivity.

  29. Iain gill
    Posted May 17, 2015 at 9:50 pm | Permalink

    High productivity depends on leading production processes, which you need to protect from competitor nations. We are bad at this and our best production intellectual property leaks abroad far too fast. It also depends on quality of production not just quantity.

  30. DaveM
    Posted May 18, 2015 at 7:54 am | Permalink

    I might be being naive here, but there seems to be a lot of mincing around with words and statistics.

    The way I see it, it is fairly straightforward.

    1. Germany and China are rich because they make things and sell them abroad.

    2. That brings more money into their countries thus growing their economies and allowing them to have sovereign funds etc.

    3. Simplistically, if I was a child and I wanted to make money I would make stuff and sell it to my neighbours (at a profit against raw materials – home grown is even better because there is little or no cost) or I would offer services such as car washing and grass cutting. That would be productivity.

    I could do the same things for my dad or sell stuff to my mum (or make her cups of tea), but that wouldn’t bring any more money into the house, it would just move it around. Now, if there was a third party who taxed me or my dad everytime money changed hands, that would make money for the third party.

    What you seem to be talking about, Mr R, is sharing cash, and the ability to raise money for the aforementioned third party by taxing transactions, as opposed to actual productivity.

    Reply China is a lot poorer per head than we are, and is now trying to grow domestic services to get richer like us!

    • DaveM
      Posted May 18, 2015 at 9:54 am | Permalink

      As a country they have more in the bank do they not? How they share it around or spend it is up to them. The point I’m making is that productivity is surely producing stuff or providing services to sell elsewhere so that money comes into the country from outside, thus growing the economy.

      • Edward2
        Posted May 18, 2015 at 9:30 pm | Permalink

        But “elsewhere” can be just up the road.
        Why does it have to be another country?

        • DaveM
          Posted May 19, 2015 at 8:19 am | Permalink

          The house in my analogy is the country. Up the road therefore is abroad. I was careful to use the word ‘simplistic’!!

      • Aatif Ahmad
        Posted May 18, 2015 at 10:19 pm | Permalink

        That’s old fashioned mercantilism. You need to fast forward 2 centuries.

        • DaveM
          Posted May 19, 2015 at 8:21 am | Permalink

          Maybe so. I’m not a businessman or an industrialist.

          But I still don’t see how passing money around inside a country is productive for anyone other than the taxman – that’s obviously assuming no tourists, no foreign businesses moving here and investing, etc.

          Reply Anything produced and sold within the country satisfies demand from others and contributes to total output and income. You could have a very rich and successful larger country with little external trade. You can be rich and self sufficient.

          • DaveM
            Posted May 19, 2015 at 10:45 am | Permalink

            Of course you can if they have the right natural resources and knowledge. I’d like to ask the BoE governor exactly what he meant by his statement.

          • Ken Moore
            Posted May 19, 2015 at 11:20 am | Permalink

            I’m with DaveM on this one – in a world of rising oil and food prices, the country with goods and services that people from all over the world want to buy, will win.

            It’s no accident Britain made her wealth as a trading nation – we seem to have forgotten that.

            If I buy a coffee the shop owner and barrister get a little richer and I get poorer – the amount of real wealth in the economy stays the same. It’s just an exchange of spending power between us with a little going back to the state.

          • Edward2
            Posted May 20, 2015 at 10:00 pm | Permalink

            Wealth is not finite Ken.
            If I buy a coffee off you, you are one coffee wealthier.
            I leave your establishment happier and refreshed and go out and crsate more wealth for me and all who I employ.
            You are too pessimistic.
            Look at the rise in the standards of living of the Western democracies since 1945
            Not all due to international trade.
            PS food prices and oil prices are falling.

  31. Aatif Ahmad
    Posted May 18, 2015 at 9:18 pm | Permalink

    The main problem still remains – too much debt. Nothing has been done about it. More debt has been incurred by the government and households are being encouraged to take on mortgage debts and credit card debts . The debt ratio of 400% of GDP is one of the highest in the world. Expecting some growth miracle in this environment is wishful thinking. Undertaking QE and printing money is playing with Fire for very little upside (Japanese tried it in early 2000s without success).

  32. Ken Moore
    Posted May 18, 2015 at 9:50 pm | Permalink

    I’m not sure Dr Redwood’s line on oil productivity holds water.

    It wasn’t that long ago that oil was being traded at $25 a barrel albeit when volumes were much higher.

    Production has more than halved since the peak in 2002 but the price has tripled.

    Reply I can assure you the very large decline in output has cut total output and tax revenues, and is part of the Bank’s explanation for productivity problems

  33. a-tracy
    Posted May 20, 2015 at 7:04 pm | Permalink

    Perhaps we need more investment in Sales training, sales apprenticeships, a healthy respect for good sales people, there’s no point making stuff you can’t sell at a profit!

  34. a-tracy
    Posted May 20, 2015 at 7:28 pm | Permalink

    Chelsea Flower Show is a good example, just told we import 90% of all cut flowers! the solution I think she called it ‘buy don’t fly’ buy British grown flowers, it’s all a bit negative, what about grow, fly and export our beautiful flowers. Where are the sales people? Why aren’t we selling abroad? Why are’ we seeing British grown flowers promoted in our supermarkets, it must be as cost effective as flying them in.
    Sales is a dirty word in the UK and it is a skilful, demanding job and we’re obviously poor at it. We need to look at what the Germans do to train their export sales employees, how much better are the most successful European exporters at training sales people.

  35. david murphy
    Posted May 26, 2015 at 9:57 pm | Permalink

    UK productivity is low because of lack of capital investment. Rates of return for over 50 years have been so low that international capital has not come to the UK and capital in Britain has migrated (as with manufacturing and jobs and tech and skills) abroad. Half of the 6K’s manufacturing has been lost since 1939, and two thirds if that since the late 1970s. You will remember that this was the time when you were a fresh young eager faced participant in the Thatcher “revolution”. Now as one of the longest evangelists of the capitalist free market (nay: free-for-all, particularly those with the most economic clout) ideology unfortunately now making a temporary comeback, you have been cropping up at regular intervals in the media, to spout your particular brand of hardline toryism.

    Enjoy this Indian summer my friend. It will be very short lived. Then you can crawl back into the wood work with your Thatcherite cronies.

    Reply More manufacturing and manufacturing jobs were lost under Labour 1974-9 and 1997-2010 – remember all the steel and coal closures of the 1970s? Productivity at UK car plants is now very high by world standards. Appearing occasionally on tv does not determine whether someone is influential or not!

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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