The Puzzling Productivity Problem

By Dr Tom Buckley , Lecturer in International Business Strategy at the University of Sheffield

Do you have a problem? Maybe you do, maybe you don’t. Perhaps you had a problem last week, that you managed to solve and so is no longer a problem this week. You may not have a problem today but you may have a problem that needs resolving tomorrow. The United Kingdom has a productivity problem. It is a problem the UK has had for quite some time and, to be sure, solving this problem is critical to the long-term economic health and prosperity of the country. It will not be easy; make no mistake – it is a really big problem.

In its most recent analysis of UK productivity the Office for National Statistics estimated that in 2016, labour productivity in the UK economy was approximately 16.3% below the average level of other G7 Economies. Over the decade, 2008 and 2017 Labour Productivity[1] grew at an average rate of 0.51% per annum in France and 0.74% per annum in Germany; while in the UK average annual growth was 0.19% (The Conference Board: 2018). Addressing the productivity problem was at the heart of the UK Government’s Industrial Strategy, whose stated aim was to set a path in order to improve productivity not only through putting the UK at the vanguard of high-tech and digital industries, industries, that will define the fourth industrial revolution but also – and just as importantly – through pledging to address the ‘long tail of lower productivity firms.’

How the government’s industrial strategy can address the lower productivity of firms in this long tail, specifically in the low-wage retail and hospitality industries was one of the two central themes of a one-day conference organised by the Joseph Rowntree Foundation. The second, and by no means less important, theme addressed how raising productivity could help improve the pay and welfare of workers in these two sectors. The dual aspects of the conference thus helped focus delegate’s minds on the fact that productivity is, in itself, not a goal. Rather it is a route to a goal. To actual people, productivity is not real value added per employee over a quarter; it is about finding happiness and satisfaction in the workplace, a sense of fulfilment in the job they are doing, being engaged with the organisation that employs them, and having meaningful relationships with co-workers and managers.

Who better then to have as the keynote speaker Lord Mark Price, the former managing director of Waitrose and deputy chairman of the John Lewis Partnership and, more recently, a former government minister of trade and investment? The combination of Lord Price’s commercial and policy expertise informed an authoritative consideration of why workplace happiness matters. In so doing Lord Price made a compelling 21st century case for Adam Smith’s concept of enlightened self-interest. The key idea: happier employees improve all aspects of a company’s performance.

It was on this basis that the first panel, which included the Joseph Rowntree Foundation Chief Economist, Ashwin Kumar; the Chief Executive of the British Retail Consortium Helen Dickinson and the Deputy General of the TUC Paul Nowak considered the practical difficulties of cracking the UK’s Productivity Puzzle. Reflecting their backgrounds each speaker elected to emphasise different aspects of the puzzle – the need for the diffusion of best management practice; the need for collaboration; the need for flexibility in order to retain talent; the need for a holistic understanding of productivity (social and environmental productivity, not just fiscal productivity); and giving voice to the workforce. In so doing a clear vision of where efforts needed to be directed in order to improve productivity emerged. The starting point has to be organisations (whether in the public or private sector) that are structured to allow talent to emerge. This talent needs to be embedded in systems that allow it to flourish. This talent needs to be developed through training, retaining and if necessary retraining. Practises need to be established that encourage flexibility and incentivise commitment; and have the ability to affect how the organisation grows. If this sounds all too idealistic and blue-sky, that is not a reflection of this being an unachievable objective. Rather, it is a symptom of how much British companies need to do in order to make this state of affairs a reality.

That this state of affairs is not unrealistic, wishful, thinking for an ideal, but has in fact been achieved by a number of UK companies was illustrated in the panel following the lunch break which consisted of speakers form a range of companies from LUSH cosmetics to the bakers Greggs. Although I am far more familiar with one of these company’s products than the other (I will let you decide which) the forward thinking nature of both companies, demonstrated that there are in no fact no limits to what British businesses can achieve.

Business though does not exist in a vacuum and the final panel of the conference considered what the role of local and national government in driving performance in the retail and hospitality sectors should be. As demonstrated in the previous panel, there are some fantastic British businesses operating in the retail and hospitality sector. The UK government needs to support such companies. If Government is serious about addressing the ‘long tail of lower productivity firms,’ then Government needs to listen to what the needs of these companies are, and take appropriate action. To act effectively though, Government also must be self-aware; it has to know what it can do but equally what it cannot do. Through acknowledging its limitations, Government can achieve the appropriate balance between being proactive and reactive which is critical if policy is to have a meaningful role in stimulating productivity growth. As the Chief Economist of the Confederation of British Industry, Rain Newton Smith, eloquently stated it is about long term commitment to projects and people; supporting learning throughout a person’s working lives, providing them with high quality homes and giving companies access to the skills and labour retail and hospitality industry need in the future.

So how now to solve the UK’s productivity problem? If there was a single prevailing idea that emerged from the conference it is that this problem cannot be solved a single, direct solution from a single source. As with any problem; a problem shared is a problem halved. What is necessary if the UK is to final solve its productivity challenge is a concerted effort from a cross section of society. Only together, in partnership, with joined up thinking and a recognition of the mutual interdependence of all aspects of the UK’s society and economy, will the puzzle be solved.

[1] Real output per hour worked