Productivity in Practice

To many, the concept of productivity is confusing. Taken in its simplest form, it is the idea that the more an economy produces in output (like goods and services) with less input (labour costs, materials, maintenance of machinery), the more productive that economy is likely to be. Taken from an individual basis, this concept is used as a moral imperative for an individual to work harder, or longer, or in a more efficient manner—producing more for less.

Generally, the route to this increased productivity is seen in terms of automating and deskilling work, reducing the wage costs associated with production to invest in more powerful machinery. As the theory goes, productivity improvements will ultimately benefit even those workers who have had wages suppressed, as the price of the goods they produce plummets with increased availability to a level at which they can be afforded.

The problem is that outside of specific historic periods, this framework doesn’t consistently work. Despite huge technological advances and productivity output (including the computing and internet communications revolution) in the Western economies where these new technologies have been most prevalent, productivity has been stalling for decades.

This phenomenon is known as the Solow Paradox, and it isn’t restricted to Britain. In 1987, in response to the US productivity crisis of the 70s and 80s, economist Robert Solow quipped that ‘you can see the computer age everywhere but in the productivity statistics.’ Not only had productivity growth slowed—despite massive increases in technological investment—but it had often slowed the most in sectors which were most heavily invested.

The Solow Paradox now affects most advanced Western economies, particularly since the 2008 crash, with some more badly hit than others. Despite cutting edge efficiency saving technology and investment, an increasing productivity lag has enabled much of the ‘developing world’ to catch up with—and in some cases overtake—Western economies. Are Western workers unilaterally becoming more lazy and less effective?

Clearly, something else is at play. In 2018, an Office for National Statistics investigation into British productivity offered one explanation: in terms of productivity, not every economic sector is equal, and Britain has shed many of its most productive economic sectors, particularly in manufacturing. The paper noted that excluding financial and insurance services, manufacturing in general exhibited a higher level of productivity than the service sector, concluding that a significant factor in lagging productivity growth is about the relative loss of manufacturing within the economy.

Productivity did increase in most Western economies during the 80s and 90s, but rather than being driven by increased output and quality of goods, these advances came from ‘work intensification’ practices. Stress was placed on the workers through techniques like ‘just-in-time’ work acceleration, workplace surveillance, and shift and wage ‘rationalisation’. As such, productivity went tandem with increased unemployment rates, growing inequality, and declining growth in real terms wage increases.

Back to the Future?

Another impact of that declining growth in real pay is a potential diminishment of the ‘multiplier effect’—through which well-paid employees drive productivity in other sectors through the creation of demand through their excess income. The ONS notes that real terms pay rises have weakened in every decade since the 1980s, with real terms wages falling since 2010. As higher wages generally track to productive economic sectors, the relative loss of high-paying jobs in these sectors could also be feeding a diminishment of the ‘multiplier effect’.

Perhaps, it would seem, the source of Britain’s current productivity woes was the same process of deindustrialisation which was touted at the time as advancing the new ‘efficiency’ of the future. It would indeed be ironic if the ‘levelled up’ economy of the future in fact starkly resembled the one of the industrial past—and all the more ironic that the organisation now calling this phenomenon out is the pro-business, free market CBI.

That deindustrialisation is a block to productivity growth is the conclusion given by a research paper by Fiona Tregenna and Antonio Andreoni, who argue that advanced manufacturing is essential to provide consistent economic and productivity growth in countries with a high level of economic development. Their paper confronts the notion that a move from an industrial to a service economy is the precondition for countries reaching a high level of GDP, countering that ‘once a country has entered a certain high-tech manufacturing subsector, it can increasingly (and relatively) employ more people in this sub-sector group, and that the latter will keep increasing its relative share of contribution to GDP.’ The paper concludes that these lessons are

especially important for understanding countries’ success in moving into more advanced manufacturing, which is crucial for sustained high rates of productivity growth. For advanced economies, competitiveness in high tech manufacturing is instrumental in maintaining an industrial sector and for growth more broadly.

Such comments stand in stark contrast to the economic direction our country has taken for four decades—wilfully and often happily shedding its manufacturing and productive capacity in favour of less ‘productive’ sectors of the economy such as retail and services. As our politicians and economists stand around scratching their heads at the ‘productivity puzzle’, the answer lies in plain sight. Their own worship of neoliberalism and the serious lack of investment into traditional industry lies at the heart of our stagnant economy.

Thatcher’s Skills Bonfire

The skills and infrastructure lost to deindustrialisation—the experience, expertise, and knowledge—have been vast. At the core of this lost knowledge, the privatisation of previously nationalised industries and sectors has had a particularly acute impact.

In 2014, Techradar produced a fascinating article detailing the scuppering of plans for full-fibre optic cable rollout in the UK during the early 1990s, following the privatisation of British Telecomm (BT). From 1979, BT had been introducing plans for a full replacing of Britain’s ageing copper wire network; from 1986, the company was building factories to manufacture the new system. At the time, Britain was world-leading in taking this approach. However, Margaret Thatcher abruptly ended the programme in 1990, deeming it to be ‘anti-competitive’, and sold the two factories to Fujitsu and HP—who stripped them of their assets and shipped the work to South East Asia.

This is not the only example of deindustrialisation undermining Britain’s capabilities and what is needed to modernise sectors of the economy. ‘Clean coal’ technology was pioneered here in the 1960s, following research commissioned by the National Coal Board’s Research Establishment—which employed over 100 scientists by the late 1970s. Such technology was, once again, victim to privatisation and offshoring; a 1993 New Scientist article on the issue claimed that long-term development is the ‘major casualty’ of what it calls the ‘short termism’ of a ‘market-led energy policy’—and warned that ‘Britain is in danger of destroying its innovative industrial base and becoming an offshore banana republic.’

Following its privatisation in 1987, British Steel’s ‘technical efficiency’ was ranked low against that of equivalent nations in 1991. The industry, responsible for thousands of high-skilled and well-paid jobs and the production of key strategic resources such as rail, construction products, and vehicle and transport components, went into terminal decline—vastly increasing Britain’s dependency on imported goods.

The privatisation of British Rail preceded the long-term starvation of rail investment and the closure of lines, culminating in the Paddington and Hatfield rail disasters in 1999 and 2000—as well as our rail network’s dependence on state rail companies from France and Germany to manage our ailing networks. Most recently, the crime of water privatisation has hit the press, following a similar lack of infrastructural investment preventing sewage polluting our rivers and waterways. The examples continue, endlessly.

What Can Be Done?

To reverse decades long trends of deskilling, deindustrialisation, and underinvestment in critical infrastructure, nothing short of a gigantic programme of state investment is required. Manufacturing industries can only be revived from a long-term, well-mapped plan for infrastructure-led growth and concurrent skills training and upskilling on a timescale and enormity that can only be provided by the state.

But we should also take this opportunity to re-examine the concept of productivity which presently lies at the heart of the political policy-focus of government. As much as a clear trend can be seen between manufacturing, industry, and other ‘output’ focused sectors relative to productivity statistics, there are some outliers too. In Britain, the two most ‘productive’ sectors of the economy (by the standard benchmark) are real estate (sales) and finance (services)—two sectors notable for the lack of any real-value creation.

This is due to the crude monetisation of value used by statisticians in assessing levels of ‘productivity’—and in so doing creates a distorted conception of the underlying nature of ‘productive’ work through which efficiency is measured against monetary outputs, as opposed to more holistic measures.

What is the point of our economy, on a human level? Is it a god to be serviced—or is it there to provide for those that make it? The kinds of jobs we deliver in the sectors we build shouldn’t be dictated by rates of profit or notions of ‘value added to GDP’, they should be dictated by the extent to which jobs in these sectors can sustain employees with good livelihoods, and how sectors are able to produce the goods and services that people need and want—and in a way that doesn’t destroy our environment for future generations.

The point of food is to be eaten. The point of a house is to be lived in. The point of a component in a machine is to play its part in the greater whole. A job should be a contract with society, through which an exchange of socially useful work guarantees security, comfort, and independence.

The picture painted here may look somewhat more like the Britain left behind in the 1970s than our dysfunctional economy of today, but we needn’t simply seek to recreate the past. The point is that to win once again, we need the political and philosophical principle that through our shared endeavours and vision, society can shape and build the economy that it wants, not treat it in the neoliberal fashion as an untamable force of nature. And a big part of that is asserting the value of jobs that can be of real value to society in sectors like manufacturing and industrial innovation.