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In 2019, the Royal Statistical Society declared its ‘statistic of the decade’ to be 0.3%: the average annual increase in UK productivity since the 2008 financial crisis. 

That dubious honour provides an indication of the seriousness of the productivity crisis: 0.3% a year represents the worst decade for productivity since the early 1800s. By comparison, if the pre-crisis trend of 2% growth had continued, overall productivity would be a fifth higher than it is today. As a result of that shortfall, the average worker is estimated to be over £5,000 worse off in terms of their wages. 

Productivity growth is not just fundamental to our prosperity – it is little exaggeration to say it is the basis of our civilisation. Productivity measures how much the average worker can produce in an hour. Increasing productivity represents the process by which one person can come to do the work of ten on a farm or in a factory, freeing the other nine to work in a wider range of jobs and sectors, and driving up the wages they can all command. 

That image should make clear that productivity is fundamentally driven by technological change. It is possible that a burst of innovation could be on the horizon to jolt us from our current malaise – techno-optimists anticipate we are on the cusp of a ‘fourth industrial revolution’, exploiting widespread internet connection and advances in fields such as artificial intelligence, computing, energy capture and storage, robotics, and nanotechnology. On the other hand, pessimists fear that “ideas are getting harder to find” and that the dramatic productivity improvements of the twentieth century may not be repeatable.

There are things that governments can do to nudge along innovation: fund research and development and encourage private firms to do the same, invest in education, and reform the incentives in intellectual property law. However, these can only be expected to have a marginal impact: to a rather frightening extent, technological progress falls like manna from heaven, beyond the control of policymakers.

Telling a country to improve its productivity by increasing innovation is therefore rather like telling a person to solve their financial troubles by earning more. It is basically correct, but hard to put into practice and reliant on factors beyond their control. Helping them to improve their planning and budgeting is not as transformative, but it is likely to be more useful. 

Similarly, the task for businesses and policymakers is as much about how to make the most of the technology and ideas that we currently have, as it is about generating new ones. To a significant extent, that involves stimulating investment in infrastructure like housing, transport, and the internet, which allow people to work more effectively, connecting a wider range of jobs with a wider range of people. 

It also requires upskilling the UK’s workforce. Improvements across the education system, from early years to university, can contribute to this task, but there is a particular need for focus on adult education and training, which have been deeply neglected in recent years. 

The aspect of a productivity agenda I would like to draw attention to here, though, is improving the quality of management. In 2017, the Office for National Statistics carried out the Management and Expectations Survey, in which 25,000 businesses were asked whether they used a range of techniques, including tracking performance and having procedures for employees that fail to meet expectations, setting clear targets, and offering pathways for personal development and promotion. 

They found that organisations with more ‘structured’ management practices were considerably more productive. Accounting for factors like firm size, age, industry and employee education level, moving a business from the bottom quarter of firms for management to just the average is associated with a 19% increase in productivity. 

While some aspects of good management are tied to personality or context, there is evidence that certain general principles and effective behaviours can be taught. However, managers may not appreciate the benefits of such training – an international study found that the typical manager rates their own skills as seven out of ten, well above average. In this context, the Government should continue to support initiatives like ‘Be the Business’, which provides firms with mentorship and helps them benchmark their performance against peers. It should set an example and review management skills and training within the public sector. It should also promote management education as part of a broader investment in lifelong learning. 

When it comes to productivity, there is a lot that we cannot control. Expecting to ‘fix’ the problem is to set ourselves up for disappointment, but through focused attention on the things within our grasp, like improving management, the Government can help us all work a bit smarter.

Aveek Bhattacharya is the Chief Economist at the Social Market Foundation. This article first appeared in our Centre Write magazine The Great Levelling?. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Microbiz Mag]