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Nov 21

Continuous, not one-off, productivity improvements

Gerard Lyons, Chief economist at Netwealth, quoted a report from the Centre for Economic Justice: “There is no magical solution to low productivity – instead, marginal improvements can make a difference”

But they were wrong – cumulatively, marginal improvements can make a huge difference, as many Japanese companies demonstrate

Nevertheless, he puts forward four ways in which the UK, and others, might continuously improve their productivity:

  1. Offer incentives to attract big firms to form clusters of excellence where similar firms cluster together as suppliers or customers, each supporting the other – such local competitive advantage is crucial

  2. Invest in both physical and human capital – productivity enhancing equipment and training, reinforcing the need for more innovation and investment in technology

  3. Address the UK’s low productivity sectors, five of which (apparently) account for one third of UK output and half of all jobs, by continually identifying and then cutting waste plus making better use of existing resources – such sectors help mop up many unskilled and semi-skilled but also tend to pay them lowly, so national unemployment levels look good but not average pay growth rates – and the national productivity growth is also restrained

  4. Improve the national infrastructure, especially road pinch-points and the lack of rail and air capacity where obviously needed – the cumulative cost of delays, the waste of time and the reduction in service levels all add up to a huge cost to the nation

Overall, Lyons believes:

  • The UK can compete globally on both price and quality

  • If we focus on price, alone someone somewhere else will do it cheaper

  • We need to compete on quality – it matters now more than ever

Conclusions:

  • There’s no quantum leap in national productivity levels waiting in the wings

  • Improvement in productivity, standards of living and quality of lives will only come from lots of improvements being made continuously in all quarters of the economy

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