Re: What is Productivity ?
Posted: December 1st, 2017, 2:04 pm
dspp wrote:For my sins I get to go into various factories around the world.
On a like-for-like basis the UK factories I see are low productivity zones due to an under-investment in capital goods (machinery) and a resulting lack of automation, i.e. labour substitutes for capital. The typical UK employee in these factories is lower skilled, i.e. they would not be able to run the factory machinery in the corresponding non-UK factiry without substantial training. Many of them do not have the basic education (or inclination) to accept that training, and of course in any case if the capital investment were to be made the result would be to eject many of them from the workforce (replaced by machinery). This goes back 80-90 years, it is not a recent phenomenon.
Up to a point that is to be expected. But what is not being acknowledged is the scale of the issue facing the UK. Take Brazil as the comparison with a per capita GDP of $15k vs the UK per capita GDP of $40k. So the UK worker needs to upskill and to take a two-thirds salary cut in order to get to level-peg with a country that is considered a middle-income-trap candidate. Now if you were a factory owner considering an investment in a piece of machinery and you had to choose between putting it in the UK or in Brazil, why on earth would you choose the UK. Why on earth would you risk your capital on the UK workforce upskilling and taking a 2/3 salary cut just to get to a level-peg outcome. It is a no-brainer: you don't gamble, the investment goes into Brazil, or China, or Bulgaria, or Ukraine, or Mexico, or India. I go to many of these places by the way.
Doesn't developed Europe like Germany have the same problems with competing with undervoped manufacturing countries in Eastern Europe and Asia? This is not a phenomenon restricted to the UK.
So that does indeed leave a load of unproductive people who are already under-employed and who will become even more under-employed. One small welding factory I know in the UK has about 40 staff all doing hand work. I know the jobs going through it and they cry out to be replaced by robots, so down to half a dozen staff and three dozen unemployed. That factory is in the supply chain of one of the companies the pro-Brexit lot la-la about by-the-way. It happens to be kept going by the skills of about 20% of the staff who are non-UK nationals and who are prepared to do the nightshifts thereby keeping utilisation up - without them the factory is likely to go pop. So either way you cut it I see that factory ejecting three dozen UK semi-skilled (20k-£30k/yr) staff out and there are not jobs in the local economy for them.
I listened to a r4 Today interview recently where the respondent was simultaneously bemoaning the lack of primary school teachers and the number of under/unemployed. They mentioned as an aside the lack of skills/education/capacity of many of the unemployed (my memory was they talked about learning disabilities). So get me right: they think that a good outcome is to take people with learning disabilities (whatever they are) and make them the primary school teachers of the next generation, oh and on of course good wages which are public sector payroll.
Strange because I would have thought teaching was an attractive profession with good benefits, for which there should be many applicants, considering the number of graduates this country produces. Yet from family experience, many secondary schools cannot get good teachers, and there is an amazing amount of staff turnover. AIUI much of this can be attributed to a very challenging work environment with difficult to control and motivate kids, poor support from senior staff, and a PC and box ticking culture which seems to ignore why kids are in school to start with. OTOH I would have thought primary schools would have a better environment and therefore be more successful in retaining staff.
Basically the UK has to get real with itself that the journey it has been on for the last 40-years has barely begun. During those 40-years the UK has just about kept afloat courtesy of the Thatcher era changes and the gift that kept giving of North Sea oil. Both have run out of steam, hence the ever-weakening pound (take the long view and call up a 40-yr chart) and the perennial balance of trade deficit (they are the two sides of the same story). You do realize that the period of the petropound caused a huge rise in the exchange rate, and it was that more than anything else which decimated UK manufacturing under Thatcher?
My personal opinion is that the Brexit vote was by-and-large a vote against globalisation. The bad news is that the journey is not over and the UK has just switched to the high-pain pathway. Income disparities will go up (not down) as a result, and it is likely that unemployment and underemployment will increase. Any gains, such as they are, will accrue even more to London - there have been no economic uplifts outside of the London/SE area to really speak of in my working lifetime (absent a very few pockets), and I expect that to get worse.
My take on the Brexit vote was that outside of the SE and particularly financial sector driven London, the UK regions were being hammered by too high an exchange rate, and failure of the Govt to understand the importance of business in general and manufacturing in particular to provide jobs and livelihoods in these areas. It is IMHO a hangover from the Gordon Brown model of the UK economy, which held that the Govt could raise huge taxes from the banks and the like, to pay for vote winning projects and make work schemes, and therefore didn't have to worry about dirty industry. With the financial sector crashed, Britain has to learn how to make things again.
How to fix it ? Well being honest about where the UK is is a good place to start, and heading in a different direction that the utterly stupid Brexit direction is a better pathway to take. But even with that it is going to hurt a lot more. With those two encumbrances it is going to be very bad indeed for most UK people.
I think the competitive exchange rate is already fixing it (http://www.telegraph.co.uk/business/201 ... facturing/)
[edit : macroecomic productivity = GDP/people, i.e. per capita GDP. That is why I used the GDPpc numbers above. But before you all shout at me and say that shows UK is 3x as productive as Brazil, what you have to recall is that the UK is highly skewed upwards by the City etc, and Brazil is skewed downwards by last generation of rural poor, i.e. the trend is against the UK. That is the problem for the UK]