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Phil Wallace

Are Britain’s Regional Divides Large or Small? A Response to Chris Giles

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Philip McCann1
University of Sheffield
16 May 2019

There are major problems with Chris Giles’ piece “Britain’s Regional Divide is Smaller than it First Appears”, Financial Times 9 May 2019.2

Chris Giles states that the evidence on regional inequality is much more complicated than often presented and he proceeds to argue that the UK regional inequality measures are somewhat distorted or even illusory due to “…the unique way the UK defines its administrative boundaries for international comparisons…”. He then compares London, Reading, Milton Keynes and the Wirral – and on this basis suggests that the gap between the highest and lowest urban areas in the UK is largely typical of other countries. He also compares Camden and The City of London with Torbay to argue that household income is a better and more equal measure of regional differences than GDP per capita. On this measure UK interregional inequality is much lower than for GDP per capita.

Yet, many aspects of Chris Giles’ argument are simply not correct. There is nothing ‘unique’ about how the UK defines its administrative borders; all countries display such idiosyncrasies. This is why it is essential to ensure comparability as far as possible when comparing different countries – exactly what the OECD data are designed to facilitate within individual classification or definitional schemes.

Chris Giles also jumps around between different spatial classification types, namely OECD-TL2 areas, OECD-TL3 areas, and OECD Functional Urban Area definitions. These spatial units cannot be compared in such a manner.

Finally, regional variations in household income will always be lower than regional variations in GDP per capita, so this observation tells nothing new. Household income and per capita GDP are measures designed to tell us different things. While Chris Giles may prefer the former most economists working in the fields or urban and regional economics and economic geography consider the latter to be a much better measure of regional productivity and prosperity, the proper focus for regional policy.

Once we compare like-with-like across 30 countries and for 28 different measures of interregional inequality, amongst the advanced economies which the UK considers as its peer group, the UK emerges as the most unbalanced and unequal country across the largest range of indicators, including disposable income.3 Indeed, apart from five countries at much earlier stages of development, namely Chile, Mexico, Turkey, Bulgaria and Romania, the only OECD or EU country which is more interregionally unbalanced than the UK is Slovakia. As such, the argument that UK interregional inequalities are typical of other countries is simply not correct.

In order to understand the degree to which the UK is interregionally unequal three further observations are very useful.

(a) Immediately after reunification in 1990 Germany was, not surprisingly, the most interregionally unequal advanced OECD economy. However, over three decades Germany has become more interregionally equal, while the UK has become more interregionally unequal. In terms of the ratio of the top 10% over the bottom 10% of GDP per worker levels, the UK became more interregionally unequal than Germany in 2008 and the same is true in terms of the top 20% over the bottom 20%. In terms of the top 10% over the bottom 75% of GDP per worker values, the UK became more interregionally unequal than Germany in 2004. The result of these trends is that today almost half of the UK population live in regions whose productivity (the best proxy for economic prosperity) is no better than the poorer parts of the former East Germany.

(b) Close to half of the UK population today live in regions which are poorer than the poorest US states of West Virginia and Mississippi (McCann 2016) – places which are often the focus of UK journalists aiming to articulate why people vote for President Trump.

(c) Out of the 179 NUTS3 areas within the UK, 159 areas have productivity levels below the UK average.4

Chris Giles has also tweeted5 on the subject “It’s rarely wise to rail against the conventional wisdom on regional divides in Britain. But look at some facts people…”.

This argument is also incorrect.

The longstanding conventional wisdom in the UK, and especially in many of the central institutions and think-tanks, has been that UK interregional inequality is not really important or significant in any way. The recognition that Chris Giles refers to on the part of some politicians and some economists actually represents a very recent, and still very incomplete, shift in thinking. Indeed, the conventional wisdom in many high-level circles is still that UK interregional inequality is still not a major issue. In this context the arguments put forward by Sir Angus Deaton this last week at the launch of new IFS enquiry into inequality were especially pertinent, highlighting the fact that many different indicators of UK inequality are evident interregionally.6

Chris Giles further contributes to the confusion by arguing that “There is no doubt that place has become a serious UK faultline, dividing north from south, urban from rural and cities from towns”. Yet, a careful reading of the OECD, Eurostat and ONS data7 shows that much of this recent conventional wisdom is also incorrect in that within the UK there are few, if any, major gaps in prosperity between urban and rural areas, or between cities and towns. Contrary to some of today’s popular narratives, the UK gaps between cities and towns and urban and rural areas are actually small by international standards.

In other words, the real geographical inequalities and imbalances within the UK are between regions; they are not between cities and towns or between urban areas and rural areas, and by international standards UK interregional inequality is very high. Indeed, the same IFS report referred to by Chris Giles also points out that household income today in most of the Midlands, Northern regions and Wales is equivalent to household income in the South East during the 1990s. In the case of GDP per capita the differences are even greater. I would suggest that many people are well aware that their communities are literally decades behind.


[1] I would like to thank Sir Paul Collier (University Oxford), Professor David Bailey (University of Birmingham), Professor Raquel Ortega-Argilés (University of Birmingham), Dr Paolo Veneri (OECD, Paris) and Ben Gardiner (Cambridge Econometrics) who all provided constructive feedback on earlier drafts of this short paper. The views advocated here reflect my own understanding of the issues.
[2] See: https://www.ft.com/content/d965d8c2-71af-11e9-bbfb-5c68069fbd15
[3] “Perceptions of Regional Inequality and the Geography of Discontent”, 2018, Discussion Paper, Productivity Insights Network PIN-D1, See: https://productivityinsightsnetwork.co.uk/publications/
and:
UK2070 Commission Discussion Paper http://uk2070.org.uk/wp-content/uploads/2019/01/01-McCann-UK-Regional-Inequality-Debates.pdf
A variant of this paper is forthcoming in Regional Studies. See:
https://doi.org/10.1080/00343404.2019.1619928
[4] See: https://twitter.com/bencgardiner/status/1121021008046174208
[5] https://twitter.com/ChrisGiles_/status/1126513798452408321
[6] https://www.theguardian.com/inequality/2019/may/14/britain-risks-heading-to-us-levels-of-inequality-warns-top-economist
[7] “Understanding Spatial Labour Productivity in the UK”, UK Office for National Statistics, 03 May 2019, See:
https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/articles/understandingspatiallabourproductivityintheuk/2019-05-03

The value of adopting a systems approach to the productivity puzzle

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Is policy to blame for lagging productivity in the UK?
Since the 2007 financial crisis, productivity growth in the UK has been persistently weak confounding policy makers and prompting a flurry of research around what has become known as the productivity puzzle. There are many theories about the roots of this poor performance but one constant is the perception that public policy ought to be able to intervene to improve outcomes. While most acknowledge that there is likely no silver bullet there is emerging consensus that the evolution of productivity policy in the UK has not (yet) yielded predictable or positive impacts on productivity performance. We argue that the siloed nature of productivity policy may be hindering the development of an effective productivity programme and that adopting a systems approach to policy may provide new insights into the productivity puzzle.

It’s complicated: systems and productivity policy
We observe that even when a productivity policy in the UK was explicitly defined it was conceptualised as a bundle of separate policy areas rather than as a coherent policy programme. Even though there have been efforts to join-up policies and work cross-departmentally the policies affecting productivity have largely been enacted in disconnected silos.

The policy model depicted in Fig 1 (from the Industrial Strategy) illustrates this kind of thinking, which assumes that policies created in silos will aggregate to produce positive outcomes. Yet problems rarely conform to these assumptions. Policy spaces are messy, complex, and, sometimes even chaotic. There can be relationships between phenomena that appear stable but are subject to sudden shifts, or relationships that seem like they should function a certain way but do not. In fact, the ‘working whole’ is not reducible and cannot be described by the attributes of its parts alone.

Systems approaches focus on mapping and explaining systems or processes characterised by complexity – in other words systems that lack order and stability and universal laws. Fig 2 reimagines, in a vastly simplified form, the productivity landscape as seen through a systems lens. The core tenets of systems thinking are that outcomes are driven by intersections and interdependencies between elements within a system and that these relationships are (a) imperfectly recognised in the state of the art of research and policy and that (b) these relationships are not easily knowable.

What can systems approaches offer policy?
Here we highlight two of several high-level implications of adopting a systems approach to productivity policy.

First, bundling disparate policies is not enough. Rather, policies should be conceptualised to uncover, understand, and act on the interdependencies inherent in the system. This is not an easy task but will certainly remain elusive as long as policy silos dominate. Here there is an opportunity to build bridges between policymakers and researchers to better map and model the policy landscape.

Secondly, systems approaches encourage the adoption of experimental policy practices. These are interventions designed to engage with core stakeholders in targeted programmes and are explicitly designed to process feedback to better understand policy effects and uncover missing links. These policies emphasise experimental policy designs that incorporate rigorous and collaborative evaluation processes as well as the potential for frequent course corrections in response to findings. While experimental processes have been adopted in some areas of policy at present they tend to be small-scale and disconnected projects.

The Productivity Insights Network aims to contribute to the development of more effective policy by adopting a systems lens to mapping the systems and subsystems that affect productivity. The project’s mandate specifically aims to uncover intersections and interdependencies that have been overlooked or underplayed in an effort to better understand the dimensions of the productivity puzzle.

Dr Jen Nelles, City University of New York
Professor Tim Vorley, University of Sheffield

Read the full report here.

Early Career Researchers Changing the Tone of the Debate

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The worlds of academia and UK research councils are increasingly interested in interdisciplinary research due to its ability to generate new insights and perspectives on often complex and intricate topics and issues (Phillipson and Lowe, 2006). There is also a body of research to suggest that interdisciplinary research teams that include early career researchers have mutual benefits for the both the ECR and research organisation; the ECRs develop their research and interpersonal skills and the organisation can retain and development new talent (Sobey et al., 2013).

In March 2019 PIN was delighted to welcome back early career researchers (ECRs) old and new to our second ECR workshop in Sheffield. PIN, with the full support of the ESRC  and under the leadership of Professor Leaza McSorley, is committed to developing ECRs interested in cross-cutting themes that affect productivity. Building on the success of our first ECR sandpit in November 2018, we hosted our second two day ECR event to incorporate the expertise shared at the PIN conference and mentoring from a range of experts in the field.

On the first day of the ECR event participants joined the PIN conference and heard fascinating insights on a range of productivity issues from our keynote speakers Professor Sir Paul Collier, Professor Jennifer Rubin, and Murray Sherwin. Lively debate and discussion ensued as our esteemed panel experts shared views on productivity in places, practice and prospects. For an overview of the conference, see our Advancing the Debate blog.

On the second day we heard from Lukas Nüse and Armando García Schmidt from the Inclusive Productivity project at Bertelsmann-stiftung, an organisation whose programmes deal with the challenges that result from globalization, demographic change and the growing diversity of Germany’s population. Lukas shared their approach to inclusive productivity and the Q & A that followed raised what for some was a surprising insight into Germany’s productivity divide between the North and the South, not dissimilar to the issues facing the UK.

This was followed by a bid writing development workshop from Professor Tim Vorley. Tim provided an overview of the PIN open call  along with sharing advice and valuable insights on bid preparation. Having heard from the German and UK productivity research landscape in the morning it was the New Zealand perspective that followed after lunch. Murray Sherwin built on his key note speech delivered at the conference to answer questions and share his views on the pressing issues that merit further research. Full of questions, our ECRs were then mentored by PIN members including Professors Leaza McSorley, Philip McCann and Dr Rob Wapshott, who advised them on the questions that they had about their own research.

We look forward to continuing our support for the network of talented and engaged ECRs that we are seeing emerge with the encouragement of PIN. There will be further opportunities for the ECRs to become part of the PIN network and updates on this will be shared via the mailing list and Twitter.

References

Phillipson, J. and Lowe, P. (2006) ‘Special Issue Guest Editorial: The Scoping of an Interdisciplinary Research Agenda’, Journal of Agricultural Economics. doi: 10.1111/j.1477-9552.2006.00044.x.

Sobey, A. J. et al. (2013) ‘Incorporation of Early Career Researchers within multidisciplinary research at academic institutions’, Research Evaluation. doi: 10.1093/reseval/rvt004.

Advancing the Debate (#PIN2019)

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In March, we were delighted to bring together a diverse audience of policymakers, businesses, academics and many others who have a desire to address the UK’s productivity puzzle. We are very grateful to our host Lord Jim O’Neill and keynote speakers; Professor Sir Paul Collier, Murray Sherwin and Professor Jennifer Rubin, for leading an action packed day of discussions around all of aspects of UK productivity now and into the future. In this short overview blog, you can access some of the talks from the conference as well as hearing about next steps. You can also check out the full conference brochure by clicking on the photo below and get a sense of live commentary on the conference Twitter wall.

In a return to his native Sheffield, Professor Sir Paul Collier kicked off the conference with a bang with a rousing keynote speech entitled “Restoring Convergence: Productivity and Prosperity in Britain’s Regions”. You can watch Sir Paul’s talk in its entirety below.

Keynote speaker: Sir Paul Collier, Professor of Economics and Public Policy at the Blavatnik School of Government, University of Oxford. Sir Paul’s research covers fragile states; restoring growth in African economies, the implications of group psychology for development; migration and refugees, which are the subject of his two most recent books; urbanization in poor countries, a program which has just won challenge funding from the Foreign Office; and the crisis in modern capitalism, which is the subject of his most recent book, The Future of Capitalism, published in October. Sir Paul received a knighthood in 2014 for services to promoting research and policy change in Africa and has been listed as one of the hundred most influential public thinkers in five of the past ten years.

Our first panel discussion of the day looked at “Productivity in Place” and was chaired by our own Advisory Board Chair, Lord Jim O’Neill. Professor Sir Paul Collier stayed on stage and was joined by Dame Kate Barker (Industrial Strategy Commission), Dr Joaquim Oliveira Martins (OECD) and Paul Swinney (Centre for Cities). Panellists discussed a wide range of topics such as:

• The opportunities to work in partnership through local industrial strategies to create more prosperous and productive communities.
• How the UK’s Shared Prosperity Fund will tackle inequality by raising productivity.
• The focus on place based growth can address regional imbalance between London (and its hinterland) and elsewhere.
• Alternative perspectives on the regional productivity agenda and the wellbeing of places and their populations.
• Lessons and best practice from places that have successfully addressed the challenges of regional inequality and low productivity.

Panel 1 at PIN2019 featuring Lord Jim O'Neill, Dame Kate Barker and Dr Joaquim Oliveira-Martins in the photo

Following a lively panel Q & A with the audience, a short break allowed attendees to digest and further discuss some of themes covered so far. Indeed, one of the primary aims of the PIN conference was to create these sorts of discussions and connections in the room.  Professor Tim Vorley, Co-director of PIN, picked up on the theme of creating connections and multi-disciplinary working to break down silos, by announcing the second round of the #pieceofthepuzzle campaign.  Have you got an innovative idea related to UK productivity? We’d like to hear from you. Tim also provided an update on the regional events that PIN is running in order to test and refine our insights. All of our evidence reviews to date can be found in the upcoming “Productivity Perspectives”; a book written by our team of thematic experts which will be published by Edward Elgar in Summer 2019. You can watch Tim Vorley’s 15 minute update below.

We were delighted to have a number of international guests at #PIN2019, sharing learning from their own national contexts as well as global research. None travelled further than our second keynote speaker, Chair of the New Zealand Productivity Commission, Murray Sherwin. The New Zealand Productivity Commission has been looking into the country’s own productivity issues for around 10 years and Murray shared from this rich experience.

Keynote Speaker: Murray Sherwin, Chair, New Zealand Productivity Commission. Murray is an economist with over 40 years of experience in a wide variety of public policy roles. He has been Chair of the New Zealand Productivity Commission since it commenced operations in April 2011. The Commission – an independent Crown entity – conducts in-depth inquiry reports on topics selected by the Government, carries out productivity- related research, and promotes understanding of productivity issues. Murray’s previous appointments include: Chief Executive and Director General of the Ministry of Agriculture and Forestry; Deputy Governor of the Reserve Bank of New Zealand; member of the Board of Executive Directors of the World Bank; and member of the Prime Minister’s Advisory Group.

Next to the stage was our panel of experts looking at the nitty gritty of “Productivity in Practice”. Chaired by Andrew Paterson, Deputy Director, Local Growth Analysis (BEIS), the panel lineup included Dr Melissa Carson (Be the Business), Dr Douglas Dawson (Liberty Industries Group) and Sonali Parekh (Federation of Small Businesses). The panel discussed a wide range of issues through short inputs and discussion with the audience, including:

• Whether a lack of skills is responsible for poor productivity performance in UK firms.
• The extent to which small businesses or particular sectors are the reason for poor productivity in the UK.
• The extent to which under investment by UK companies explains poor productivity growth.
• Weak leadership and poor management meaning businesses do not have clear strategies for business growth.
• The importance of supply chains in promoting productivity of particular sectors and places.
• The extent to which innovation and knowledge based capital will be the future driver of productivity in firms.

We caught up with Sonali Parekh after her panel discussion to ask what she felt were the key issues around productivity. Watch below to hear what she had to say.

Our final keynote speech of the day was from Professor Jennifer Rubin, Executive Chair of the ESRC. Professor Rubin spoke on “Widening the Lens on UK Productivity”, including the valuable place that social sciences has in the debate and the wide range of initiatives supported by ESRC in this space including the Centre for Economic Performance, What Works Centre for Local Economic Growth, What Works Wellbeing evidence programme and the Skills Employment Survey.

Professor Rubin also spoke about vital the role of social sciences research in supporting the foundations of the UK’s Industrial Strategy and it’s associated ‘Grand Challenges’.

Professor Jennifer Rubin

The final panel of the day looked to the future of UK productivity, with the topic ‘Productivity Prospects’. Chaired by Nesta’s Head of Innovation, Jen Rae, who welcomed Murray Sherwin back to the stage alongside a fantastic array of experts: Professor Julia Black (LSE), Shamus Rae (KPMG), Armando García Schmidt (Bertelsmann Foundation)

• What we should be focusing on in terms of stimulating both future productivity growth and societal wellbeing.
• Implications of automation and AI on the future of work.
• Corporate philanthropy: 19th century growth was influenced by philanthropy of industrialists through educational institutions etc., how could we rejuvenate that spirit?
• What governments aren’t doing or need to do differently to unlock the productivity puzzle.
• Financial services regulation: what are the rules of the game in which our economy works? How do we move forward?
• Thoughts on the regulatory context behind the swing towards property and asset holding for wealth creation, rather than more productive routes (a debate led by Sir Paul Collier) – can we and should we changes this situation?

To close the conference, Professor Philip McCann, PIN Co-director, shared our gratitude to all those who joined us and continue to work alongside us to help advance the debate on UK productivity.

While delegates continued their conversations, we pulled a few aside to tell us why they think productivity is so important. With about a minute’s notice, we think Andrew Williams came up with a fantastic summary! We’ll leave you with Andrew’s thoughts:

Pictures of graphs and pie charts

Local Industrial Strategies and the need for economic assessments

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The UK Government is implementing its (national) Industrial Strategy (after consultation, this was announced in November 2017) by recognising the importance of ‘places’, specifically through Local Industrial Strategies (LIS). In December 2018, BEIS stated “… The entire country will be able to benefit from developing a local Industrial Strategy… We will work in partnership with places to develop Local Industrial Strategies that will be long-term plans based on clear evidence and aligned to the national modern Industrial Strategy… (it) will build on unique local strengths to ensure every community, and the country, reaches their economic potential and creates high quality good jobs” (BEIS, 2018, emphasis added to original).[1]

As with the national strategy, improving productivity is at the centre of the development of a LIS. But to know what drives productivity at a local level, indeed how different local economic partnerships (LEPs) rank on this metric, needs more information. Hence in January this year, BEIS put out a tender for work to be done between now and the end of May that provides baseline information that can made available to LEPs while they develop a LIS.

PIN is well-placed to help deliver on this need, given its access to firm-level data sources made available by the ONS via the Secure Data Service.[2]

This allows LEPs to consider how well firms in their area do on a wide range of metrics all associated with productivity, such as:

• R&D and innovation
• Exporting
• The importance of foreign-owned and outward FDI firms
• Absorptive capacity in LEPs
• Firm-level estimates of (labour and total factor) productivity

The rest of this ‘blog’ is just a few examples of the range of information available, based on these ONS data sources. This will give the reader a flavour of the richness of the data sets.[3]

Figure 1: Labour productivity (£’000 per worker) in 2016 in each LEP for selected sectors

(a) Advanced manufacturing

(b) Digital

(c) Biologics

The above show some contrasting differences across LEPs, and labour productivity has the advantage of being easy to calculate and relatively easy to comprehend; it has the disadvantage of being potentially misleading, especially if comparisons are undertaken across very different sectors (in terms of their capital- and intermediate-input intensity). That is, labour productivity will be higher when firms use relatively greater amounts of plant (e.g., chemicals) and/or intermediate inputs (such as motor vehicles, which is heavily reliant on – often overseas – supply-chains providing much of the semi-finished goods and services that ultimately combine to produce the final product). Similarly, labour intensive industries de facto have low labour productivity. In contrast total factor productivity (TFP) measures the extent to which a firm efficiently produces output relative to all factors of production (labour, capital and intermediate inputs), taking into account changes in technology over time. What is most important in productivity terms is the role of efficiency and technical progress (both captured by TFP), and less so whether a firm increases output-per-worker through outsourcing and/or substituting capital for labour (i.e., automation).

So what does TFP look like? Figure 2 provides two examples, showing that the London LEP has the highest productivity in most all parts of the distribution; and in advanced manufacturing the Tees Valley LEP does well.

Figure 2: Distribution of ln TFP for LEPs and sectors

(a) Advanced manufacturing

(b) Digital

How about some key drivers of longer-term productivity? Figure 3 shows the value of the R&D stock, perhaps not surprisingly showing it is generally concentrated in the south and south-east of England

Figure 3: R&D stocks in 2016 in each LEP for certain sectors

(a) Advanced manufacturing

(b) Digital

(c) Logistics

Figure 4: Percentage of sales exported in each LEP

(a) Advanced manufacturing

(b) Digital

(c) Logistics

Figure 5: Innovation activity in each LEP for 8 sectors aggregated (Advanced Manufacturing to Biologics)

(a) % product innovating

(b) % process innovating

(c) % ‘blue-skies’ innovating

Figure 4 shows a more diverse pattern in terms of exporting intensity (the proportion of goods and services exported abroad), while Figure 5 shows the dominance of the central LEPs (including Oxfordshire and Cambridge & Peterborough) in terms of product innovations and ‘blue-skies’ innovations (the latter are new to market – for product – and new to the industry – for process).

Presumably the work that will be done for BEIS will capture similar information to that produced here, helping LEPs develop their own, unique LIS which is based on local understanding of the productivity issues they face.

Professor Richard Harris
Professor of Economics
Durham University Business School
r.i.d.harris@durham.ac.uk

[1] Source: https://www.gov.uk/government/news/local-industrial-strategies-to-drive-growth-across-the-country.
[2] https://www.ukdataservice.ac.uk/get-data/how-to-access/accesssecurelab.
[3] This work contains statistical data from ONS which is Crown copyright and reproduced with the permission of the controller of HMSO and Queen’s Printer for Scotland. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates

Productivity: It isn’t just what economists say it is…

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Productivity and the UK’s problem with it compared to other economies is becoming a favourite subject for politicians, economists and commentators. But there’s little evidence of it becoming a hot topic in boardrooms or a key focus of management and workforce meetings in the workplace.

Although Productivity issues for UK manufacturing were highlighted by Make UK (previously EEF), in their 2018 report “Unpacking the puzzle: Getting UK Manufacturing Productivity back on track”, there remains a limited amount of information from UK manufacturers themselves about how productivity is discussed and assessed within firms, and the factors that contribute to productivity success and failure.

We are addressing this deficit in a project that explores the productivity realities in UK manufacturers: “Unlocking the productivity narrative in manufacturing organisations”  This is a collaborative project with colleagues at the Universities of Aston (Professor Ben Clegg), Bristol (Professor Palie Smart) and York (Professor Peter Ball), funded by the ESRC via the Productivity Insights Network We are examining what (if any) ‘productivity narratives’ are shaping ideas in UK manufacturers at workforce, management and boardroom levels today.

What do UK manufacturers really think about productivity? Do employees understand what productivity means and how they might affect it? Are people within manufacturing firms actually talking about in their boardrooms and shop floors? And, if they are, are they talking about the same thing as the economists and politicians? These are the questions we are seeking answers to.

We also want to give a voice to manufacturing companies – to let them tell us not just what they think about productivity but their experiences of it. What has helped or hindered? Where do the future challenges lie and what support is needed to address these?

All of our team are founding members of the EPSRC Manufacturing Futures group and have spent years working with UK manufacturers to improve their operations.  Much of the focus that we have seen over the last 20-plus years has been around efficiency – reducing waste by using approaches such as lean, six sigma, re-engineering – rather than productivity. Efficiency and productivity are often confused – but they are not the same.  This was highlighted by Mankins, in his 2017 Harvard Business Review article “Great companies obsess over productivity, not efficiency” , which suggests that in the current economic climate, it is not enough to focus on shrinking the input (and doing the same with less). He argues:

“At a time when so many companies are starved for growth, senior leaders must bring a productivity mindset to their business and remove organizational obstacles to workforce productivity. This view differs substantially from the relentless focus on efficiency that has characterized management thinking for most of the last three decades, but it is absolutely essential if companies are going to spur innovation and reignite profitable growth.”

This limited information about how productivity is viewed and discussed within the firm constrains our understanding about what is really happening in firms and, in turn, limits how we might improve productivity success.

We have the opportunity to explore these issues and address this lack of firm-level perspective by asking employees to tell us their views. We are finding out how different levels of the firm hierarchy perceive productivity and view their role in its improvement. The voices of those actually doing the work are key, something emphasised recently in Jonathan Boys’ blog about the CIPD Winter 2018 Labour Market Outlook report, where he highlights the variation in awareness and perception of productivity, and calls for us to “continue research into firms attitudes and awareness  of the issue”

So what are we doing in our project to make this happen?

We are speaking to employees from the shop floor to the boardroom in four key UK manufacturing sectors: food & drink, automotive, aerospace and pharmaceuticals, hearing what they really think about productivity – how is it viewed, does it matter and what factors influence its success and failure?  As part of this, we are giving manufacturers the opportunity to:

• Highlight their key concerns to policymakers.

• Suggest what is needed to identify future challenges.

• Discover what other companies are doing to improve productivity.

• Learn about what support is available to support productivity.

• Participate in forums for industry and Government to inform Government policy

We are also engaging with a number of stakeholders from industry and economic development organisations such as Make UK, Be The Business, CBI, IET and Scottish Enterprise, and hosting a series of round table workshops bringing together industry and policymakers.

By the end of the project, we want to provide a much-needed firm-level perspective about how productivity is viewed and measured, the factors that drive, constrain and enable it, and the future challenges that UK manufacturers face.

We will share our findings with industry and policymakers with the aim of influencing the productivity conversation by recommending how we can more accurately reflect productivity in UK manufacturing, leading to a broader consideration of productivity and alternative measurement metrics. We also want to highlight the challenges faced by companies and the improvements needed to the support provision

If you are interested in finding out more about the project, or in sharing your views with our team, please contact us.

Professor Jillian MacBryde and Dr Helen Mullen
The University of Strathclyde

Jillian.MacBryde@strath.ac.uk
Helen.Mullen.100@strath.ac.uk

Puzzle Cube

Getting People In Place To Sustain Productivity Improvements

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The productivity puzzle is often couched in complex statistics, endogenous and exogenous variables, and the variety of policy levers that might or might not impact on our national wealth. It is at least clear that there is no simple silver bullet. The Productivity Insights Network is gathering new insights on the different components of the puzzle.

At City-REDI, we successfully bid for small project funding to revisit a programme which had tested different ways to engage employers in the productivity debate and ways to improve management skills and workplace practices. The UK Futures Programme (UKFP) was run by the UK Commission for Employment and Skills (UKCES) from 2014 until its closure in 2016. The UKFP tested innovative ideas with industry to test ‘what works’ in addressing workforce development and productivity challenges. UKCES co-invested £4.4m over two years in 32 projects across five so-called ‘productivity challenges’, each focussed on a specific labour market problem hampering productivity and growth, including Progression pathways in the retail and hospitality sectors and Developing leadership and entrepreneurial skills in small firms through anchor institutions.

A short-term evaluation, published in 2016, identified a series of policy implications arising from the UKFP, but small project funding from the Productivity Insights Network offered an opportunity to explore whether the projects had sustained success over the longer-term and if so, how and why.

Our evaluation study comprised interviews with ten project leads, taken from the Retail & Hospitality and Local Anchor Institutions challenges and further interviews with beneficiary or partner employers in five of those projects. Interviews were conducted between October 2018 and January 2019.

Sustained activity, in some form, was found in nine of the ten projects examined. This was not at the same scale or intensity as during the funding period, but:

• some courses remained available;

• tool-kits developed during UKFP were available and marketed to a greater or lesser extent; and

• learning was being transferred to other programmes.

People and relationships were at the core of sustained activity. We found high levels of staff churn in the Retail & Hospitality sectors which impacted on continuity of learning. More sustained staffing within local anchor institutions enabled products or ideas to take root. The evaluation pointed to the importance of different types of people:

Project Champion – the strategic lead, usually the idea generator within a business or intermediary organisation;

Project Manager – the operational lead, usually funded by the UK Futures Programme and usually no longer in place when funding ended;

Managers at all levels in a business are critical in the sustainability of a product or idea by ensuring it is embedded in firm strategy, ethos and practice;

Project Pioneers – ‘testing’ was a fundamental requirement of all projects in the UK Futures Programme. In most projects ‘Project Pioneers’ were involved in the early testing or early adoption of a product or service and who sometimes were also used to help with wider dissemination of changes in practice.

Not all four needed to be in place for sustained activity, but it was clear that each group played an important role and weaknesses were apparent in the absence of any one of these groups of actors.

For example, in one case a Project Champion maintained an ambition and ability to apply for other funding even though there was not a Project Manager in place after the initial funding ended to enable continuous development in the meantime. In another case, while new improved recruitment practices were still in place, turnover of Managers and Pioneers led to questions as to how embedded the change was: Had it impacted on organisational culture? Did new Managers really understand the purpose of the practices introduced?

People also played a fundamental role in the initial engagement of employers. Trusted local anchor institutions adopted a relational approach to engagement of individual businesses. Small employers were persuaded to consider their leadership skills by larger firms. Project Champions could galvanise employers where there was a mutual benefit – for a sector, for a local area, or in a supply chain relationship. Pre-existing local relationships and reputations were critical in initial and sustained engagement.

But relationships also needed funding. Without the funding for a Project Manager to maintain networks, even pre-existing relationships are not necessarily strong enough to tackle the complex issues surrounding productivity improvements on a sustained basis.

Some of these issues may seem difficult to tackle from a policy perspective. Whilst many of the features of the UK Futures Programme seemed to be well received, the end of funding left many projects unable to make further progress. A potential solution to this is to be more realistic in the time it takes to address these problems. None of the projects examined had initial funding for more than 18 months. Longer-term funding for a Project Manager, dependent on achievement of goals detailed in a logic chain demonstrating potential for impact on enhanced workplace productivity, could have enabled some of these projects to develop further – for instance by sharing staff and enabling progression across firms, keeping skilled and talented staff within a sector, etc.

The longer-term evaluation of  the UKFP as a whole, leads us to suggest that a series of place-based rolling reflective learning projects, with ongoing evaluation and dissemination and involving organizations with aligned goals might be one way of helping address productivity deficiencies. These projects need to be supported strategically by a trusted Project Champion (in a respected intermediary/ employer organization) working alongside advocates in senior positions in beneficiary organizations who can provide employer leadership. While this does not preclude staff churn, it may provide some insurance and reduce the unknowns in the productivity equations.

Professor Anne Green, City-REDI, University of Birmingham
Carol Stanfield, Carol Stanfield Consulting
George Bramley, City-REDI, University of Birmingham

The meaning, measurement and importance of productivity to UK firms

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Summary of research from the CIPD Winter 2018 Labour Market Outlook

In 2014 the CIPD surveyed human resources leaders on the meaning, measurement and importance of productivity. This culminated in the report Productivity: Getting the best out of people. Since this time UK productivity has barely moved. We therefore revisited the questions to explore how far employers have internalised the national productivity challenge.

Business awareness of productivity

Respondents were asked if productivity is a term often used when discussing performance, and half do so. However, while productivity is a term familiar to employers in most manufacturing and production firms (71%), the term is used by just 18% of Education employers. In part this is because productivity is a term more commonly used in business: it is often used by 57% of private sector employers, compared with 36% of public sector employers and just 16% of voluntary sector employers.

Productivity measurement

Businesses employ numerous measurements and KPIs from financial ratios to measures of customer satisfaction. Measuring productivity is easier for some than others and we find large differences by industry. It is much easier to measure the value of a car that is openly traded in the market than a teacher’s lesson. This probably explains why only 51% of education sector organisations measure productivity compared with 72% in manufacturing and production.

Businesses that use the term productivity often when discussing performance are much more likely to also have measurements for productivity.

Is productivity a priority?

Improving productivity is a middle-ranking priority for employers. However, objectives that are more common, such as managing costs or improving quality of service, are likely to improve an organisation’s productivity.

The proportion of employers that said improving productivity was a priority varied by sector, with 41% of private sector employers prioritising it compared with 28% in the public sector and just 10% in the voluntary sector – which is not surprising, as voluntary sector employers are less likely to use the term in the first place.

Perhaps businesses are not prioritising productivity because they do not perceive it to be a weakness. When asked what their productivity performance was relative to their peers, 88% believed their organisation to be average or above. Taking out the ‘don’t knows’ (5%) leaves just 7% of employers who believe their organisation to be below average. Few employers believing they are below average could be a recipe for inertia.

The importance of people management

In 2018 the Office for National Statistics published the results of a survey of 25,000 businesses in Great Britain looking at structured management practices and productivity. The study reinforced earlier findings on the link between management practice and productivity and noted:

‘Among the four broad management practices categories, we find that practices relating to continuous improvement and employment management – such as those relating to promotions, performance reviews, training and managing underperformance – were most correlated with productivity.’

The ONS research suggests that increasing the quality of structured management practices, particularly those relating to the management and development of people, could boost firm-level productivity and help tackle the long tail of underperforming businesses in the UK.

High-performance working practices and productivity

 Given the ONS research we also looked at the prevalence of key formal people management and development practices, also known as high-performance working (HPW) practices, and their links to firms’ attitudes to and awareness of productivity.

Naturally some practices, such as having an equal opportunities policy (70%), are more prevalent than others, such as Investors in People accreditation (17%). But, for every single HPW practice considered, organisations that said they have HPW practices in place were more likely to say they are measuring their productivity.

Conclusion

Many employers live and breathe the language of productivity, but many do not. There is a strong call to action here. The challenge is to convince employers and employees that productivity isn’t a distant academic concept, but something within their reach. To do this we must continue research into firms attitudes and awareness of the issue. What are the barriers real or perceived to the firms in which productivity is not a priority, and that neither measure nor use the term? We must then trial real interventions in businesses. The finding that management practices and, in particular, people management practices, may hold the key gives businesses of all sizes and industries a place from which to start. One example of such an intervention is The CIPD’s People Skills Two project. Building on a successful pilot in 2017, the project is putting HR consultants into small businesses to improve the capability to develop good people management practices. With robust evaluation, projects like this develop our knowledge of how to tackle the productivity challenge.

Jonathan Boys
Labour Market Economist at the CIPD
j.boys@cipd.co.uk

Stop button on board a bus

Real Journey Time, Real City Size, and the disappearing productivity puzzle.

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For a year we’ve been tracking most of the buses and trams in The West Midlands; the UK city region centred on Birmingham. We do it by polling the live departure screens that you see at bus stops, even at stops where they aren’t installed.

So far we’ve recorded 40 million bus departures, a total of 16GB of data. And we’ve written tools to explore it in seconds.
You can try for yourself at www.realjourneytime.co.uk. You can see how long every bus took to connect any two bus stops anywhere in The West Midlands, and calculate averages over tens of thousands of bus journeys at specific times, to see how bus journey times change over the course of a typical day.

But why?

Agglomeration: Big cities are more productive.
We’ve mostly done this work because of the following graph.

Many economists argue that larger cities are more productive than smaller cities, and become ever more productive as they grow due to something called agglomeration benefits.

There are many other factors that contribute to productivity, but this simple law seems to hold well in economies like The USA, Germany, France, and The Netherlands. For example, Lyon, the second largest city in France, is more productive than Marseille, the third largest city, which is in turn more productive than Lille.

Almost uniquely among large developed countries, this pattern does not hold in the UK. The UK’s large cities see no significant benefit to productivity from size, especially when we exclude the capital.

The result is that our biggest non-capital cities, Manchester and Birmingham, are significantly less productive than almost all similar-sized cities in Europe, and less productive than much smaller cities such as Edinburgh, Oxford, and Bristol.

Public transport and city size.
One notable difference between the UK’s large cities and those in similar countries is how little public transport infrastructure they have.

While France’s second, third, and fourth cities have 8 Metro lines between them (four in Lyon, two each in Marseille and Lille) the UK’s equivalents have none.

Manchester and Lyon have similar-sized tramway systems, with about 100 stations each, but Marseille (3 lines) and Lille (2 lines) have substantially more than Birmingham (1 line) and Leeds (0 lines).

Is it possible that poor public transport in the UK’s large cities makes their effective size smaller, and thus sacrifices the agglomeration benefits we would expect from their population?

Our Real Journey Time data lets us ask this question.

Real journey time, and journey time variability.
There is an important difference between bus public transport and fixed infrastructure public transport: reliability. I have used our Real Journey Time tool to calculate the worst-case (95th percentile) journey time on public transport on two routes into Birmingham. This is the time that a public transport user must leave for their journey to ensure that they are only late for work or a meeting once a month.

The first journey is a bus from the South of the city, Stirchley to Birmingham. This 3.5 mile journey takes about 20 minutes between 6am and 7am, and about 40 minutes between 8am and 9am.

The second journey is a tram from West Bromwich to Birmingham. This 8.5 mile journey takes 30 minutes regardless of when it is taken, as the tram route is almost completely segregated from traffic.

While the tram is substantially quicker at all times than the bus, the reliability of its timing, even during the most congested periods, provides an additional large benefit to users.

We think that people generate the most agglomeration benefits for a city when they travel at peak times, to get to and from work, meetings, and social events. Our tool shows us that at the times when people need to travel in order to generate these benefits, buses are extremely slow. And since buses are by far the largest mode of public transport in Birmingham this is likely to have significantly higher impact on Birmingham than in Lyon where the largest mode of public transport is the metro, which delivers reliable journey times no matter the time of day.

Our hypothesis is that Birmingham’s reliance on buses makes its effective population much smaller than its real population. This reduces its productivity by sacrificing agglomeration benefits. For the past six months, using our Real Journey Time tool, we’ve worked with The Productivity Insights Network to quantify that.

At peak times, Birmingham is a small city.
The technique is quite simple. We pick 30 minutes as the travel time by bus that marks the boundary of the Birmingham agglomeration. This doesn’t include walking at either end of a journey, or waiting time, so this figure may well mean a 50 minute total journey.

We then use our real journey time to examine how far from central Birmingham that allowed journey time would let a person live.

For example, by examining six months of journeys on the buses we calculate that at off-peak times a person 5 miles from Birmingham in West Bromwich is part of the Birmingham agglomeration. At peak times, this is no longer the case and the outer boundary of the Birmingham agglomeration is reduced in size to just 3.5 miles away in Smethwick.

Making use of our data on trams we can also imagine a Birmingham where major bus routes are replaced by trams and enjoy fast and reliable journey durations, even at peak times. This then includes people as far away as Bilston, 9 miles away.

By repeating this process for bus route into Birmingham from every direction we create a boundary of the effective size of Birmingham at different times of the day. By summing the population living within each boundary we calculate the real size of Birmingham under three conditions. By bus at peak time, by bus at off-peak time, and in an imaginary future where all buses travelled as quickly and reliably as trams (simulated tram).

At this point you might see why we picked 30 minutes as our travel time. Allowing 30 minutes of travel time using fixed infrastructure such as a tram gives Birmingham a population of about 1.7 million people. Which is very close to its population as defined by the OECD of about 1.9 million.

But at peak time Birmingham’s effective population is just 0.9m, less than half the population that the OECD use.

Birmingham’s effective size might explain most of its productivity gap.
This is where things get very interesting. If we consider that Birmingham has a population of 1.9 million, and we assume that agglomeration benefits should work in the UK to the same extent that they work in France, Birmingham has a 33% productivity shortfall. This underperformance of the UK’s large cities is part of the productivity puzzle that UK economists have been desperately trying to solve.

But once you understand that Birmingham’s real size is much smaller, below 1 million people, the productivity shortfall reduces to just 9% and is no longer significant.

Our hypothesis is that by relying on buses that get caught in congestion at peak times for public transport, Birmingham sacrifices significant size and thus agglomeration benefits to cities like Lyon, which rely on trams and metros. This is based on our calculations that a whole-city tramway system for Birmingham would deliver an effective size roughly equal to the OECD-defined population.

This difference seems to explain a significant proportion of the productivity gap between UK large cities and their European equivalents.

So what should we do?
The good news is that Birmingham’s current plans for transport investment are aimed at increasing its effective size at peak times.

• Using our Real Journey Time tool, TfWM are targeting investment in bus lanes and bus priority measures to improve journey speed and journey reliability on existing bus routes.

• Seven sprint bus routes are being planned, with bus priority measures hopefully delivering journey time reliability similar to a tram.

• Two tram extensions (to Wolverhampton Train station and Edgbaston) are under construction, with two more (to Dudley and Birmingham Airport) under study.

• Station re-openings at places like Moseley and Kings Heath will offer reliable journeys by rail to new areas of the city.

The prize for achieving this is large. If bus journey times became as reliable at peak time as they are off peak the effective population of Birmingham would increase from 0.9m to 1.3m. If we assume that agglomeration benefits in the UK are as significant as in France, this would lead to an increase in GDP/capita of 7%.

What’s next?
We have a reached a good point to share our work, but this is just the beginning.

• We are continuing to improve our codebase to ensure that it can handle up to 200 million stored bus and tram departure times.

• We are looking to incorporate trains into our tool, which will boost Birmingham’s effective size, though not by much.

• We are continuing to work with The Data Science Campus at The Office for National Statistics and Transport for The West Midlands on strengthening our methodology for calculating travel isochrones.

• We have already expanded our service to another UK city and continue to search for more, the sole requirement is an open bus departure API that reports a unique ID for each bus.

• We are working to bring our technique to a French city, probably Lyon or Lille, in order to check that the increased amount of fixed public transport infrastructure does make their effective size larger than Birmingham’s.

How was this work made possible.
The project was delivered by Open Transport North, working with The Open Data Institute Leeds.
This work was inspired by a Birmingham City Council hack event run by Deft 153 held in 2016 at Innovation Birmingham and made possible by the Transport for The West Midlands API, which almost uniquely allows the tracking of individual vehicles.

Development has been funded and supported by Transport for The West Midlands, working with The West Midlands Bus Alliance, including National Express. Funding for the development of a method for estimating the economic impact from increased bus journey times was provided by The Productivity Insights Network (an Economic and Social Research Council investment) with specific guidance provided by Professor Iain Docherty of The University of Glasgow.

Additional support and inspiration has been provided by The Office for National Statistics Open Data Campus, Transport API, The Open Data Institute, and Nesta.

Tom Forth
Head of Data at the Open Data Institute Leeds
This work was undertaken with Daniel Billingsley and Neil McClure
hello@odileeds.org

Read about our other funded projects

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Open Innovation, Experimental Entrepreneurship and Productivity

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Paul Romer, the co-recipient of the 2018 Nobel Memorial Prize in Economic Sciences, argues that economic growth and productivity concerns the nature, formation and commercialisation of ideas. Of course, this a dynamic process, and in recent years significant changes have occurred within economies, industries and places with regard to the generation, sourcing and exploitation of ideas, and the innovations these result in. Such changes are likely to be impacting on productivity and productivity growth at a number of levels. As a means of going someway to addressing these issues, I am currently engaged in a study within which I have interviewed more than 120 individuals – to date – in the field of innovation and entrepreneurship in the UK, Germany, the US, China, and Japan. This includes entrepreneurs, venture capitalists, the operators of incubators, accelerators, co-working spaces, universities, policymakers, as well as representatives of large corporates such as Honeywell, Cisco, Accenture, Bayer, and Snapchat.

There are a myriad of issues that have come to light from the work, but perhaps two of the most notable in the context of productivity are the widespread emergence of open innovation practices and what I term ‘experimental entrepreneurship’, both of which are interrelated. First, it is clear that open innovation practices have become prevalent across many industries, especially technology-based sectors. Firms, particularly large corporates, are increasing looking for the latest ideas outside of their corporate boundaries. Alongside traditional joint ventures and collaborations, firms are becoming more and more engaged in a range of new practices from corporate acceleration to open access innovation centres, innovation scouting, innovation competitions and the like. In essence, these mainstay innovation players are moving part of the burden, costs, and to some extent the risk, of innovation to start-up firms, new entrepreneurs, and purely aspirational entrepreneurs, rather than within the safety net of the corporation itself.

These changes are having a potentially profound and complex impact on the relationship between innovation and productivity. For example, the costs, investments, and inputs required to innovate are shifting. In particular, firms are having to invest more and more resources into the networks and relationships that are required to access ideas. Building and maintaining relationships is expensive. There are tangible costs in the form of events – innovation theatre – and the contracting of intermediaries – innovation scouts – as well as huge intangible investment in terms of the time required by firms to generate and sustain the social capital and network capital they need to develop their own innovation ecosystems.

Alongside these inputs, the research undertaken to date indicates that many of the external relationships developed by firms do not result in fruitful outcomes, in terms of innovations that lead to productivity improvements. A lack of compatibility and alignment between internal and external forces, as well as internal resistance, means that many funded ideas and innovations are never implemented. This begins to suggest that despite its undoubted capacity to combine and unleash new ideas, open innovation is not always a practice that leads to efficiency within the innovation process or results in productivity gains.

Partly as a result of open innovation and an unstable macroeconomic climate in recent years, we are witnessing the emergence of a phenomenon that can perhaps be best described as ‘experimental entrepreneurship’. Fundamentally, more and more individuals are experimenting with the idea of becoming entrepreneurs, especially technology entrepreneurs. This goes beyond the usual upturn we see in the numbers of self-employed workers during a crisis, to something that is becoming more embedded and sustained.

Within the technology sectors more individuals across all age groups are taking time to consider if they can develop an idea into a commercially viable innovation and business. The rapid growth, especially in big cities, of co-working spaces and incubators attests to this development. Generally, this can be seen as healthy economic sign, and all cities and regions, large or small, will require this innovation infrastructure if they are to become or remain productive places. It also indicates a role for public policy, and whilst acknowledging the positives of competition, there often appears to be considerable redundancy in terms of the overlap of ideas across experimental entrepreneurs. Many seem to be doing the same thing, all with their own funding streams. For example, within what can be called the ‘App Economy’ there is potentially excessive competition due to low entry costs.

It is noticeable that in areas such as biotechnology and life sciences we do not see anything like the same kind of experimental entrepreneurship. However, there is considerable activity in the area of social innovation among these entrepreneurial groups. Such activity has the potential to have significant positive impacts on productivity, but there appears to be little research that has sought to understand this.

Finally, the current study concludes that the time and external finance many of these experimental entrepreneurs spend is by far from wasted, especially in the long-term. However, the bottom line impact on contemporary productivity is less clear, but perhaps this does not matter to any great degree, and as the urban sociologist and planner Jane Jacobs noted in the 1960s when discussing the economic development of cities, ‘cities are indeed inefficient…the largest and most rapidly growing at any given time are apt to be the least efficient. Cities are economically valuable because they are inefficient’. This appears particularly relevant in the contemporary context and suggests interesting routes for examining the relationship between productivity and efficiency, especially institutional efficiency, with regard to innovation processes.

Robert Huggins
School of Geography and Planning
Cardiff University, UK.
January 2019