Why UK productivity remains so stagnant

The basic reason why UK wage growth has been virtually flat for a decade, at a level still 6% below pre-2008-9 levels, is Osborne’s relentless squeeze on benefits, tax credits, low pay and public expenditure.   But there are two other very important contributory causes.   One is that the proportion of our national income which we invest each year rather than consume is far too low.   Since the onset of the crash in 2007 UK investment as a proportion of GDP (excluding R&D) has fallen from 18.2% to 14.5% now. Not only is this a drop of a fifth, which is a very serious shortfall, it is also barely half the world average which remained at 25.5%.   As ONS figures show that depreciation of existing UK assets is running at about 11.5% per year, only 3% of the current total of 14.5% is left, which is not even enough to keep up with our population growth of at least 500,000 a year, let alone sufficient to build up our total assets per head of the population.

Crucially, also what little we do invest does not go to where it will produce the highest returns.   Only just over a quarter of our total investment (28%) goes to manufacturing.   Almost all the rest is devoted to other forms of investment – roads, schools, hospitals, industrial and commercial buildings, housing, ports, airports, etc. – all of which are important, but almost none which provide anything like the total return to the economy which comes from manufacturing.   Again, ONS figures show that much the largest contribution to increased Gross Valued Added – 26% – came from manufacturing, even though it accounted for just under 12% of GDP over the period..

Ever since the Industrial Revolution it has been the combination of mechanisation, the application of technology and the efficient use of sources of power which are the key factors in increasing output per head.   So how do we overcome these problems?   Clearly we have to invest a higher proportion of our GDP and then devote a higher share of what we do invest in the future into manufacturing.   We have to produce conditions which make it profitable for investment to be undertaken in a wide swathe of manufacturing, including low and medium-tech industries, where because at present they are unable to compete internationally investment in them is so low.   That immediately raises another key issue.   The UK exchange rate is far too high, making it far more expensive to produce most products in the UK rather than elsewhere.   Only if we get manufacturing back to around 15% of our GDP rather than the current 10%, will we be in a sustainable position both to pay our way in the world, to avoid endless deflationary balance of payments problems, and to attain a reasonable growth rate and steadily rising wage levels.

 

One thought on “Why UK productivity remains so stagnant

  1. I am afraid this whole investment thing is confusing. You say: ” We have to produce conditions which make it profitable for investment to be undertaken in a wide swathe of manufacturing, including low and medium-tech industries, where because at present they are unable to compete internationally investment in them is so low””… MM.

    I have two distinct difficulties with this statement:-

    1/.. Who will buy these consumeables? We are currently lumbered with the Feudal Party.

    2/.. Isn’t it the case that investment has traditionally involved risk? It is this recognition of risk that makes large profits semi respectable. Once a market opening is identified the Entrepreneur gives it his/her all, with rewards for those that get it right. The financial markets are swimming in free money supplied unlawfully by the world government (central banks); So why is investment holding back? What exactly are the conditions necessary to encourage investment? The government can revert to the Bradbury pound if it so wishes and invest wherever it wishes. Central Banks are only necessary for two reasons:-

    A/.. Banksters’ free lunch.

    B/.. Government Debt (unlawfully placed upon the people) requiring income Tax imposition granting GovCorps the means to act independently of the peoples’ wishes: Wars, Black Ops, insider criminality, Investment using public money to enrich insiders etc.

    Will Labour restore the Bradbury Pound? Kicking the Bankster Mafia into touch. Let us wait and see.

Leave a Reply

Your email address will not be published. Required fields are marked *