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There were two bits of news earlier this week which revealed two deeply conflicting pictures of Britain’s corporate life – one was full of cheer and hope while the other was downright depressing.
First came the fantastic news that thousands of Greggs workers will be receiving a £300 one-off windfall this month after the Newcastle bakery chain had another supersonic year. Sales of the UK’s biggest baker were fuelled by Greggs’s brilliantly hyped vegan sausage roll as well as booming sales of its traditional pastries and pasties. Trading has been so strong that Greggs chief executive, Roger Whiteside, is handing staff a £7m pot to share after shareholders received a special dividend of £35m last year.
Whiteside, who turned vegan himself after watching the Netflix programme The Game Changers, will be giving the £300 payment to all 19,000 staff who worked for the baker before March last year while the remaining 6,000 workers will get £75 for each quarter they have worked at the company. The payments come on top of profit-sharing scheme that Greggs already operates in which the chain gives out 10% of profits to staff.
Something is working well in the Greggs recipe because the 80-year-old baker opened 138 new shops last year and plans another 100 this year.
Now for the not so good news. Britain’s workers are still among the least productive in the world, less productive than the Irish, the Danes, the Italians, the Germans of course, and, dare one admit to this, the French who work a 35-hour week yet manage to finish their working week by Thursday’s déjeuner while we Brits take until Friday afternoon.
The latest ONS figures for the three months from July to September last year show that labour productivity – as measured by output per hour – was a blip higher at 0.1% compared with the same period in the previous year. Although it’s hardly worth mentioning, it is at least a step in the right direction after a decade of flatlining. The rise was mainly due to better figures from services of 0.1% but for manufacturing, there was a disappointing 1.9% decrease.
While falling productivity since the 1960s is a global phenomenon, the absolute level of productivity per worker in the UK is now one of the lowest in the developed world and shows little sign of shifting. It is now way below its long-term average of 2.4 per cent which was recorded from 1970 to 2007. The financial crash was the trigger for the decline. Soon after the financial crisis, the UK, along with the US, reported one of the lowest productivity-growth rates and steepest declines in productivity growth with falls of 90 percent.
Then, between 2010 and 2015, UK productivity growth flatlined at 0.2 per cent a year, way lower than its industrial competitors in the EU or around the world. Since 2014, the productivity picture has improved a little, with productivity growth averaging 0.9 per cent a year between 2014 and 2017.
No one quite knows why British workers are so much less productive than their overseas peers. Not even our most quizzical economists can agree on the reasons behind the appalling numbers.
Yet what is certain is that this so-called “productivity puzzle” is arguably the thorniest economic question of our age, and one which Boris Johnson’s government has to solve if it is to boost economic growth across the regions in a post-Brexit age.
So puzzling is it that in December last year, the Royal Statistical Society said the estimated average annual increase in UK productivity in the decade or so since the financial crisis was the “statistic of the decade”. Hardly a statistic we should want being given its own accolade.
So what is going on? Are British workers amongst the laziest people in the world? Are they deluding themselves that while nine-to-five has become 24/7 because of social media, we are wasting most of all that additional working time? Or do we dislike and feel so unrewarded by our work, as many surveys persistently show, that the majority of people are merely paying lip service to their working lives, skiving off when they can and doing as little as they can get away with?
Does the sight of so many captains of industry being paid squillions of pounds – often unjustly as in the case of Persimmon’s notorious chief, Jeff Fairbarn, or more recently, the huge dividends earned by Neil Woodford of the eponymous investment funds – make many workers shrug their shoulders at the injustice and put them off working?
What is blindingly obvious is that the many companies paying workers fairly – and operating profit-shares schemes such as Greggs – or running employee share ownership trusts such as John Lewis, show far higher levels of productivity. Surely that is no coincidence?
There’s another possibility, suggested by some economists, which is that in this technical age of phones and computers, the traditional way of measuring productivity is simply wrong and more difficult to calculate.
Or is the productivity puzzle because of more structural issues? According to a recent McKinsey report on productivity, there are four factors which have contributed to the UK’s poor performance. They are the financial sector’s boom and bust, the stunning employment growth that we have seen over the last decade which has seen employment at a 50 year high but stagnant wages, a decline in capital investment and uneven digitization.
The report points out that the slow-down in the last decade since the crash was because the finance sector, and manufacturing, both had a bigger impact relative to their share of the economy. While they make up around 20 per cent of UK value added and employment, the decline in productivity growth in these two sectors combined accounted for nearly half of the productivity-growth slowdown. Output from the finance sector, for example, fell by 6.1 per cent, a greater fall even than in the US.
McKinsey also suggest that both these sectors saw significant growth pre-crash, so the fall afterwards was all the more dramatic. Since then, the uncertainty over Brexit has led to many companies delaying investment decisions, particularly investment in capital goods, preferring to hire cheap labour than expensive machinery.
By contrast, the French prefer to invest in new equipment rather than expensive labour because of the country’s rigid labour laws which is why they have higher productivity but also a much higher unemployment rate.
Swings and roundabouts. Indeed, Andy Haldane, chief economist at the Bank of England, says the UK is a tale of two countries. He points out that many of the UK’s smaller companies have not made any significant advances in technology in the last 100 years or so. At the same time, the UK has some of the brilliant and efficient “frontier” companies in the world based in high-tech centres like Cambridge.
There are a myriad of reasons for this lack of investment: small family companies which fear over-expansion, succession problems at many of the country’s SMEs, a tax system which penalises R&D and makes it difficult for families to hand over their businesses to staff, often leading to overseas sales.
But all is not lost. McKinsey is confident the UK can get back to productivity rates of 2 per cent a year if it concentrates on just a couple of areas: better skills and training, adopting more cutting edge and digital technologies, better access to finance and helping companies export more – an area of huge potential.
Interestingly, these are all topics which Johnson’s chief consigliere, Dominic Cummings, has already said he wants to boost in his efforts to get Whitehall – and the country – shifting into a higher gear. He should head up to Newcastle to chat to the Greggs boss to see if there might be also be a link between higher productivity and fairer rewards for making sausage rolls and sandwiches.
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Iain Martin and the team make sense of the news, providing commentary and analysis on the stories that matter in politics, geopolitics, economics and culture.