Productivity Puzzle
The UK Productivity Puzzle
It is now almost a month since the death of Stephen Hawking, one of the worlds most celebrated scientists. He received many honours and awards during his lifetime although the Nobel Prize for physics eluded him. But famously he is said to have refused a knighthood in the 1990s http://www.bbc.co.uk/news/uk-43396008 over issues with the UK government's funding of science. It's interesting then to read through the House of Commons Briefing Paper "Productivity in the UK" https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06492#fullreport which shows in Table 3.1 that by 2020 £2 billion out of £5.5 billion of the National Productivity Investment Fund will be allocated to Research and Development (R&D). Perhaps then, in addition to his legacy of work on black holes, he will be remembered for his principled and successful stand against cut-backs in research funding. The parliamentary report indicates that the UK government wishes to raise expenditure on R&D from 1.7% of Gross Domestic Product (GDP) to 2.4% of GDP within 10 years.
The puzzle of UK Productivity is that it is persistently lower than competitors such as the USA and Germany. The UK government has belatedly recognised low R&D expenditure as a possible explanation of this anomaly and is preparing to invest significantly.
The House of Commons briefing provides many insights into UK productivity. There are significant regional variations in productivty with London having a high level comparable with the USA and Germany. Both Wales and Northern Ireland have low productivity at only just above 80% of the UK figure. Surprisingly, productivity in Northern Ireland has declined relative to the rest of the UK from 87.5 to 80.9 in the period from 1997 to 2015 despite the signing of the Good Friday Agreement in 1998. Somehow peace might have been expected to encourage productivity enhancing investment but that doesn't seem to have been the case. This makes the current negotiations with regard to the border with Ireland post-Brexit all the more important. The Northern regions of England have all had levels of productivity at around 90% of UK levels for two decades which strongly suggests that Northern Powerhouse projects need to be accelerated. In contrast Scotland has improved its productivity performance in the past two decades and now has the same level as in the UK as a whole. Make what you will of the facts but a strengthening of political leadership in Manchester and other northern cities looks like a good development.
More generally the period of stagnation in productivity following the 2008/2009 recession seems particularly puzzling. The media is full of stories about robots replacing people and of artificial intelligence (AI). You would expect productivity to be soaring but it isn't. And it isn't just a UK effect. Figures for Germany show a similar weakening of productivity growth. Machines have been replacing people since the first industrial revolution in the UK starting in the late eighteenth century and it could be that AI, although significant, is less significant than previous waves of mechanisation and automation. Other explanations of the stagnation such as weak lending by banks don't seem credible given the current very strong performance by many banks. Productivity is surely a complex and important issue that could use a detailed quantitative analysis of the data to get down to root causes. Perhaps good old time wasting on social media is to blame...
The puzzle of UK Productivity is that it is persistently lower than competitors such as the USA and Germany. The UK government has belatedly recognised low R&D expenditure as a possible explanation of this anomaly and is preparing to invest significantly.
The House of Commons briefing provides many insights into UK productivity. There are significant regional variations in productivty with London having a high level comparable with the USA and Germany. Both Wales and Northern Ireland have low productivity at only just above 80% of the UK figure. Surprisingly, productivity in Northern Ireland has declined relative to the rest of the UK from 87.5 to 80.9 in the period from 1997 to 2015 despite the signing of the Good Friday Agreement in 1998. Somehow peace might have been expected to encourage productivity enhancing investment but that doesn't seem to have been the case. This makes the current negotiations with regard to the border with Ireland post-Brexit all the more important. The Northern regions of England have all had levels of productivity at around 90% of UK levels for two decades which strongly suggests that Northern Powerhouse projects need to be accelerated. In contrast Scotland has improved its productivity performance in the past two decades and now has the same level as in the UK as a whole. Make what you will of the facts but a strengthening of political leadership in Manchester and other northern cities looks like a good development.
More generally the period of stagnation in productivity following the 2008/2009 recession seems particularly puzzling. The media is full of stories about robots replacing people and of artificial intelligence (AI). You would expect productivity to be soaring but it isn't. And it isn't just a UK effect. Figures for Germany show a similar weakening of productivity growth. Machines have been replacing people since the first industrial revolution in the UK starting in the late eighteenth century and it could be that AI, although significant, is less significant than previous waves of mechanisation and automation. Other explanations of the stagnation such as weak lending by banks don't seem credible given the current very strong performance by many banks. Productivity is surely a complex and important issue that could use a detailed quantitative analysis of the data to get down to root causes. Perhaps good old time wasting on social media is to blame...
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