Economist explains why Britain is poor

[Harry23]

There was talk on GB News this morning about how productivity is lower in the UK compared with our peers. I forget the exact figures as I was still half asleep, but I've heard similar claims for years. I don't think we're poor in world terms, but low productivity won't help.

[AWOL]

There was talk on GB News this morning about how productivity is lower in the UK compared with our peers. I forget the exact figures as I was still half asleep, but I've heard similar claims for years. I don't think we're poor in world terms, but low productivity won't help.

The real question, is why is UK productivity lower. There are two main theories both with reasonable evidence supporting them:

1. Underinvestment in health care. The UK doesn't spend much on health care (combined public and private) compared to other developed world countries although we expect similar results to higher spending European countries. We do remarkably well for the level of spending (https://www.ons.gov.uk/peoplepopulation ... 2019-08-29) however we aren't happy with it. Moreover, there is research showing that each pound we spend in health generates a return of £4 for the economy (there are studies suggesting higher values). Some common sense comes into this as well, when people are ill/on waiting lists they are off sick more often, have time off work for appointments to manage conditions, etc.

2. Lower inward investment. We attract less inward investment than our wealthy European neighbours. It's also been shown that companies that invest in R&D etc. are about 40% more productive than average.

I have seen papers with sound arguments and data showing that either of these explanations can cover the productivity gap. Our government has overseen the widening of this gap and politicians are not proposing changes which would improve it. Since 2010 we have seen both inward investment and health care spending lag behind our competitors and productivity has followed.

Liz Truss, Kwazi Kwartang and other like minded Tory thinkers penned a book called Britannia Unbound where they explained that outside the City of London and London taxi drivers in particular we are increasingly lazy and this is the root of the productivity gap (there "solution" was to be more like China!). They offered no evidence for any of this but Tory MPs continue to trot out this nonsense. The data doesn't back there idiocy but I will fight anecdote with anecdote as they would doubtless prefer that and say that I have worked all over the world and haven't found the British to be any more feckless than anyone else. Shirkers and strivers can be found in all corners of the world and most people are in between.

There is a third explanation that I have seen given and that is the quality of British Management versus US, European, and here I think there may be a point but only against the US. My belief is that we have failed to invest in health, R&D, sensible infrastructure (HS2, cough), and Education and we are wreaking the rewards. Our political class have not served us well and the declining level of national debate doesn't inspire hope. However perhaps this deal with the EU over NI is the start of politicians starting to take Britain's future prosperity seriously.

There is an interesting interview with Jonathan Haskel of MPC fame here where Productivity is discussed https://theovershoot.co/p/the-bank-of-e ... han-haskel

[Nimrod103]

There was talk on GB News this morning about how productivity is lower in the UK compared with our peers. I forget the exact figures as I was still half asleep, but I've heard similar claims for years. I don't think we're poor in world terms, but low productivity won't help.

The real question, is why is UK productivity lower. There are two main theories both with reasonable evidence supporting them:

There is a third explanation

There is also a 4th explanation. From Google:

The UK constructs its hours worked estimates differently to other G7 nations, using a direct method rather than a component method. The OECD found evidence that using a direct method may bias the estimate of hours worked up, and thus lead productivity to be understated.20 Jan 2022

International comparisons of UK productivity (ICP), final ...
Office for National Statistics
https://www.ons.gov.uk › productivitymeasures › bulletins

[Lootman]

There was talk on GB News this morning about how productivity is lower in the UK compared with our peers. I forget the exact figures as I was still half asleep, but I've heard similar claims for years. I don't think we're poor in world terms, but low productivity won't help.

The real question, is why is UK productivity lower.

Isn't the real question whether productivity even matters? In the same way that I argued earlier that GDP is not necessarily a good indicator of how rich people are. A lot of wealth is created in the UK by people investing in property and shares, rather than by going to work. So on paper the UK might look poorer than Germany or Japan, but that does not mean that Brits are poorer than Germans or Japanese.

[Lanark]

Wealth is always desirable; equality may or may not be.

My old constitutional affairs teacher at skool used to drum into us that it is 'equality of opportunity' which is so desirable, not plain 'equality'. Plain 'equality' being the road to hell and mediocrity. AND he was a leftie!

I never hear this suggested nowadays but i think he was so right, if you'll forgive the unintended pun.

Equality vs Equity:
https://achievebrowncounty.org/2021/05/ ... d-justice/

[XFool]

..."From each according to his ability, to each according to his needs"?

[Nimrod103]

..."From each according to his ability, to each according to his needs"?

Take that discussion away to the Current Affairs board. This is about the Economy.

[XFool]

...You think Karl Marx has nothing to do with economics?

[ursaminortaur]

There was talk on GB News this morning about how productivity is lower in the UK compared with our peers. I forget the exact figures as I was still half asleep, but I've heard similar claims for years. I don't think we're poor in world terms, but low productivity won't help.

The real question, is why is UK productivity lower.

Isn't the real question whether productivity even matters? In the same way that I argued earlier that GDP is not necessarily a good indicator of how rich people are. A lot of wealth is created in the UK by people investing in property and shares, rather than by going to work. So on paper the UK might look poorer than Germany or Japan, but that does not mean that Brits are poorer than Germans or Japanese.

Investing in shares and property on the secondary markets just moves wealth around. The primary markets increase profits for house building companies when you buy a new property or provides capital to companies when you buy shares in an IPO (or participate in a rights issue etc) which might then lead to greater wealth depending upon how those companies use the extra money.

As to UK productivity another explanation I have heard is that the UK is a predominantly service economy nowadays and that the traditional methods of accessing productivity don't measure that very well since it should really be about the quality of the service rather than efficiency.

[Lootman]

Isn't the real question whether productivity even matters? In the same way that I argued earlier that GDP is not necessarily a good indicator of how rich people are. A lot of wealth is created in the UK by people investing in property and shares, rather than by going to work. So on paper the UK might look poorer than Germany or Japan, but that does not mean that Brits are poorer than Germans or Japanese.

Investing in shares and property on the secondary markets just moves wealth around.

That short and simplistic assertion probably deserves its own topic.

The UK has a long and proud tradition of investing overseas. Meaning that UK individuals and investment vehicles can add value and wealth by doing that well.

Now you might argue that is merely "moving wealth around". But it is moving it from overseas to the UK.

As for houses, if you sell your London home to a foreigner, again the UK wins.

[ursaminortaur]

Isn't the real question whether productivity even matters? In the same way that I argued earlier that GDP is not necessarily a good indicator of how rich people are. A lot of wealth is created in the UK by people investing in property and shares, rather than by going to work. So on paper the UK might look poorer than Germany or Japan, but that does not mean that Brits are poorer than Germans or Japanese.

Investing in shares and property on the secondary markets just moves wealth around.

That short and simplistic assertion probably deserves its own topic.

The UK has a long and proud tradition of investing overseas. Meaning that UK individuals and investment vehicles can add value and wealth by doing that well.

Now you might argue that is merely "moving wealth around". But it is moving it from overseas to the UK.

As for houses, if you sell your London home to a foreigner, again the UK wins.

If you buy shares on the secondary market in a foreign company then , assuming those shares are held by a foreigner, you give money to the foreigner in exchange for the shares. If you sell your UK house to a foreigner then the foreigner gives you money for the house. Logically these two transactions are in exactly the opposite directions hence can't both create UK wealth. All they do, assuming that the purchase/sale of the shares and house are at fair value, is move money around in exchange for assets of the same value.

[Lootman]

Isn't the real question whether productivity even matters? In the same way that I argued earlier that GDP is not necessarily a good indicator of how rich people are. A lot of wealth is created in the UK by people investing in property and shares, rather than by going to work. So on paper the UK might look poorer than Germany or Japan, but that does not mean that Brits are poorer than Germans or Japanese.

Investing in shares and property on the secondary markets just moves wealth around.

That short and simplistic assertion probably deserves its own topic.

The UK has a long and proud tradition of investing overseas. Meaning that UK individuals and investment vehicles can add value and wealth by doing that well.

Now you might argue that is merely "moving wealth around". But it is moving it from overseas to the UK.

As for houses, if you sell your London home to a foreigner, again the UK wins.

If you buy shares on the secondary market in a foreign company then , assuming those shares are held by a foreigner, you give money to the foreigner in exchange for the shares. If you sell your UK house to a foreigner then the foreigner gives you money for the house. Logically these two transactions are in exactly the opposite directions hence can't both create UK wealth. All they do, assuming that the purchase/sale of the shares and house are at fair value, is move money around in exchange for assets of the same value.

No, the profit from my overseas shares adds to (my) UK wealth.

The profit from my London house sale adds to (my) UK wealth

[GoSeigen]

There was talk on GB News this morning about how productivity is lower in the UK compared with our peers. I forget the exact figures as I was still half asleep, but I've heard similar claims for years. I don't think we're poor in world terms, but low productivity won't help.

The real question, is why is UK productivity lower. There are two main theories both with reasonable evidence supporting them:

This question was asked on The Motley Fool about fifteen years ago. IIRC only Hallucigenia attempted an explanation and I can't recall what that was!


GS

[ursaminortaur]

Isn't the real question whether productivity even matters? In the same way that I argued earlier that GDP is not necessarily a good indicator of how rich people are. A lot of wealth is created in the UK by people investing in property and shares, rather than by going to work. So on paper the UK might look poorer than Germany or Japan, but that does not mean that Brits are poorer than Germans or Japanese.

Investing in shares and property on the secondary markets just moves wealth around.

That short and simplistic assertion probably deserves its own topic.

The UK has a long and proud tradition of investing overseas. Meaning that UK individuals and investment vehicles can add value and wealth by doing that well.

Now you might argue that is merely "moving wealth around". But it is moving it from overseas to the UK.

As for houses, if you sell your London home to a foreigner, again the UK wins.

If you buy shares on the secondary market in a foreign company then , assuming those shares are held by a foreigner, you give money to the foreigner in exchange for the shares. If you sell your UK house to a foreigner then the foreigner gives you money for the house. Logically these two transactions are in exactly the opposite directions hence can't both create UK wealth. All they do, assuming that the purchase/sale of the shares and house are at fair value, is move money around in exchange for assets of the same value.

No, the profit from my overseas shares adds to (my) UK wealth.

The profit from my London house sale adds to (my) UK wealth

And if you had to sell during a housing and stock market crash those profits might well be losses. The transaction at the time is just a swap of money for an asset which is valued at the price paid - when you sold your house your wealth didn't change you just swapped the wealth tied up in your house to equivalent wealth in your bank account (the profit or loss compared with what you originally purchased the house for was already there just tied up in the house).

[Lootman]

the profit from my overseas shares adds to (my) UK wealth.

The profit from my London house sale adds to (my) UK wealth

And if you had to sell during a housing and stock market crash those profits might well be losses. The transaction at the time is just a swap of money for an asset which is valued at the price paid - when you sold your house your wealth didn't change you just swapped the wealth tied up in your house to equivalent wealth in your bank account (the profit or loss compared with what you originally purchased the house for was already there just tied up in the house).

But as long as profits are generated then that is created wealth for the UK at the expanse of more risk-averse foreigners. GDP and productivity numbers do not capture the actual accrual of wealth by Brits.

I retired around the turn of the century. I have not worked since. Yet I am now much richer than I was then, thanks to profits from property and shares. But those GDP and productivity stats do not capture or faithfully report that. Brits are doing much better than it looks on paper, relative to those hard-working but risk-averse Germans and Japanese.

[Nimrod103]

Brits are doing much better than it looks on paper, relative to those hard-working but risk-averse Germans and Japanese.

This may be true overall, but the real hero Brits are the minority who have money to invest and take risks with. And this Government, by lowering the CGT thresholds and abolishing the small dividend tax reliefs, is taking money away from such people to give to the feckless, lazy and risk averse.

So I don't see our advantage continuing much longer.

[ursaminortaur]

the profit from my overseas shares adds to (my) UK wealth.

The profit from my London house sale adds to (my) UK wealth

And if you had to sell during a housing and stock market crash those profits might well be losses. The transaction at the time is just a swap of money for an asset which is valued at the price paid - when you sold your house your wealth didn't change you just swapped the wealth tied up in your house to equivalent wealth in your bank account (the profit or loss compared with what you originally purchased the house for was already there just tied up in the house).

But as long as profits are generated then that is created wealth for the UK at the expanse of more risk-averse foreigners. GDP and productivity numbers do not capture the actual accrual of wealth by Brits.

I retired around the turn of the century. I have not worked since. Yet I am now much richer than I was then, thanks to profits from property and shares. But those GDP and productivity stats do not capture or faithfully report that. Brits are doing much better than it looks on paper, relative to those hard-working but risk-averse Germans and Japanese.

I'm not disputing that investing in shares over time generally increases the investors personal wealth but that is just hitching a ride on the growth of the companies being invested in - your buying and selling shares doesn't itself though create any wealth that is created by the companies (who themselves never see a penny of the money involved in those transactions on the secondary market). The activity on the secondary market redistributes wealth created by those companies but doesn't create that wealth ( and the greater the number of British investors in a company the greater chance that your purchase on the secondary market will just redistribute it from one UK individual to another (yourself) ).

[MrFoolish]

Britain isnt poor. It's a very rich country in many ways.

The UK is a great place to get rich in ways other than showing up for work every day for 40 years.

You can flip properties. Become a BTL landlord. Play the stock market. Marry one of the many rich women who come to the UK to study. And so on.

The Germans think the only way to get rich is to show up at the factory or chemical plant every day. More fool them.

You constantly change what you say. You've previously claimed that we are overtaxed, that the government has killed BTL, and that you'd much rather invest in the US stock market. And you endlessly fret a change of government will make it even worse.

[XFool]

The UK is a great place to get rich in ways other than showing up for work every day for 40 years.

You can flip properties. Become a BTL landlord. Play the stock market. Marry one of the many rich women who come to the UK to study. And so on

So which one did you do?

[Lootman]

Britain isnt poor. It's a very rich country in many ways.

The UK is a great place to get rich in ways other than showing up for work every day for 40 years.

You can flip properties. Become a BTL landlord. Play the stock market. Marry one of the many rich women who come to the UK to study. And so on.

The Germans think the only way to get rich is to show up at the factory or chemical plant every day. More fool them.

You constantly change what you say. You've previously claimed that we are overtaxed, that the government has killed BTL, and that you'd much rather invest in the US stock market. And you endlessly fret a change of government will make it even worse.

The government has killed BTL. But I made my money off that before the policy mistake. And we are over-taxed, but other nations have even higher taxes.

The UK is a great place to get rich in ways other than showing up for work every day for 40 years.

You can flip properties. Become a BTL landlord. Play the stock market. Marry one of the many rich women who come to the UK to study. And so on

So which one did you do?

All of the above.