Zipf’s Law

Zipf’s law is a mysterious, empirical law – it’s also linked to Pareto’s rule:

  • It suggests limits on the size of companies and their share of markets
  • According to Annalee Newitz, the editor of i09, in 1949 linguist George Zipf noticed that people used a very small number of words most of the time – we minimise what we need to convey our messages
  • In particular, Zipf found that a pattern emerges – the most popular word is used twice as often as the second most popular, three times as often as the third, and so on
  • A mere 135 words cover 50% of all the words we ever use on a regular basis
  • The most popular three words are:
    • The = 7% of occurrences
    • And = 3.5%
    • Of = 2.3%
  • Zipf’s law must surely offer a clue as to how Alan Turing and his Bletchley Park team were able to break the Enigma code – although I’m guessing here
  • Zipf then found his law also applied elsewhere:
    • To income and wealth distributions in any given country, where the richest have twice as much money as the next, and so on – much as Pareto observed many years before him
    • To the size of cities, where the city with the largest population in any country is generally twice as large as the next biggest, etc. – this only applies where cities are economically integrated, with common language, laws and institutions, as in any nation – it does not apply to any group of nations like the EU
    • To the size of firms in any sector – the biggest firm is twice the size of the next one, three times the size of the next, and so on – hence, it’s inevitable to end up with a group of Big 4, 5 or 6 companies in any sector
  • Other interesting applications include:
    • Books borrowed from libraries
    • Web sites visited
    • Earthquake sizes
  • Quite why the pattern is followed so closely is not understood
  • However, it offers useful predictability for economists and businessmen alike

Wealth gains and distribution

US Fed Chairman Jerome Powell believes our two greatest challenges for the next decade are ‘the widening wealth gap and sluggish productivity’

But Lawrence Fuller, in an article for Seeking Alpha, claims the Fed’s attempts to create a wealth effect by inflating the value of financial assets has mostly benefited the top 10%, and even more so, the top 1% of the population

New found wealth has not trickled down to the middle classes in the form of wage gains – according to data from the Congressional Budget Office, income gains since 1980 are as follows:

  • 242% – Top 1%
  • 79% – Next 19%
  • 78% – Middle 60%
  • 46% – Bottom 20%

Given the above, one might have thought a surge in investment in plant, equipment and employees would follow

Not so

Instead, corporations have returned capital to shareholders via stock buybacks and dividends – some even took advantage of very low interest rates to borrow capital to fund them

This simply filled the pockets of managers and shareholders but did little for productivity improvement and employees’ wages and their quality of living – it also reduced the latter’s demand for more goods and services and so the revenue and earnings of those same corporations

Hence the wealth moat between the very wealthy and the rest has been widening over the last few decades

However, Fuller expects ‘wealth disparity and income inequality to revert to the mean’ over the coming decade:

  • Current trends are not sustainable 
  • Economies should work for everyone
  • Strong headwinds are expected as capital shifts from the ownership to working class

“Our economy cannot be considered healthy when 40% of adults can’t come up with $400 in the case of an emergency”

4 day weeks to boost productivity

new report by Autonomy – a thinktank focusing on the future of work – argues that a shorter working week should be a central pillar of our economic future.

They say calls for a shorter working week have gathered pace in recent years, with the TUC, the Green partylarge and small unions and now the shadow chancellor, John McDonnelljoining the chorus.

Why so?

Because we are working longer days but for stagnant wages and receding state pensions – and some of the most productive economies in the world work far fewer hours collectively than the average UK worker.

They say productivity relies not just on the sheer number of hours put in but on the wellbeing of the workforce – as well as investment in labour-saving technology.

At present, they claim heavy workloads, work-related stress and anxiety are costing millions each year, with one in four sick days being lost as a direct result of workload pressures – shorter working weeks and greater worker control over working time would mean fewer sick absences, fewer in-work accidents and higher motivation on the job – all of which would be good for business too.

Hence the Wellcome Trust has just announced plans to trial a four-day week without a loss in pay this year, possibly making it the largest company to do so anywhere.

In this same vein, at the recent World Economic Forum (WEF) in Davos, Gitura Mwaura says the world was urged to embrace the four-day working week, busting the notion that long working hours lead to more productivity – a shorter working week not only improves productivity by some 20% but has an overall effect on the well-being and work satisfaction of employees

Examples put forward include:

  • South Korea which ranks near the bottom of OECD (Organisation for Economic Co-operation and Development) countries for labour productivity despite having a culture of working very long hours
  • Greece which has one of the longest working weeks but comes out bottom in the OECD’s measure of GDP per hour worked
  • And Japan which also has a culture of long working hours but emerges bottom of any G7 productivity list – hence, they are now deliberately cutting down on working hours, including overtime, to alter this position

However, other studies show there to be no correlation between long working hours and productivity — Germany is said to be more productive but works fewer hours on average than the UK

And in Sweden the WEF observes that “although employees report an improved quality of life, with less stress and more time to spend with their families, it can also be an expensive experiment for some businesses which have to hire extra workers to make up for the shortfall in hours”

Aidan Harper, the Autonomy report’s editor, concludes:

  • The past century has shown us that automation technologies have more often than not been introduced by employers as a way of simply maximising productivity without sharing the surplus time and/ or the profits with employees
  • The proceeds of automation should be shared evenly — in the form of a working time reduction
  • Machines should liberate us from work, not subject us to ever-increasing inequality
  • But few suggest workers should enjoy any of the benefits

This mindset clearly cannot continue

Companies would do well to consider a report by Minda Zetlin, co-author of The Geek, in an article for Inc. magazine on a company moving to a much shorter working week

Could you run your company just as well if employees worked a five-hour workday instead of an eightt-hour one?

If Australian financial services company Collins SBA is anything to go by, you probably could. And you’d benefit from better work-life balance, higher employee morale, and improved recruiting and retention. Your staff would take fewer sick days, and productivity would likely rise.

It may all sound too good to be true, but Collins SBA has been offering its 35 employees the opportunity to quit work between 1 and 2 p.m. for two years now, and it’s been a resounding success, managing director Jonathan Elliot told TNW. The shortened workday came about because the company, like all companies, was struggling to recruit the talent it needed in a very tight labor market. At the same time, Collins’s wife became ill with cancer. She needed surgery and chemotherapy and went through a long recovery process. The couple also had a 6-month-old daughter, which meant that Elliot needed to spend much more time at home taking care of them both than he ever had before.

He learned to be incredibly efficient. He stopped spending time chit-chatting with colleagues at work. He cut out unnecessary meetings. “I just focused on work and got home in time to look after my family,” he said. 

When his wife got better, Elliot was free to go back to working longer hours. That’s when it struck him that he didn’t really need to. By working shorter hours more efficiently and cutting out meetings and lunches, he’d been able to get the same amount of work done that he’d previously been doing during a full workday. And so, partly inspired by Tower Paddle Boards, which cut its workday to five hours without sacrificing any productivity, Elliot pitched his colleagues and shareholders on trying out the new schedule throughout the company. They agreed.

Elliot didn’t simply declare that everyone could now work five-hour days. The new workday came with a few new rules. First, employees must arrive between 8 and 9 a.m. if they want to leave between 1 and 2. Second, their work responsibilities remain the same, and they must get their work done, even if it takes more than five hours. Third, unless specifically approved, they can’t have any personal appointments during their workday. And finally–of course–they shouldn’t go out for coffee or lunch. Instead, Collins SBA provides coffee and healthy snacks in the office. The company also now holds no one-hour meetings unless there’s absolutely no choice. And all employees have gotten training to help them manage their email more efficiently.

Can Collins SBA employees really get done in five hours everything that they were previously doing in eight? Well, no. Most employees have some workdays that last five hours and others that last six or seven, Elliot told TNW. But they don’t often work 40-hour weeks, or even 38 hours as specified in their contracts. In the end, what Collins SBA offers employees is really a flexible work schedule and the opportunity to leave work after five hours if they’ve finished their tasks for the day. In essence, it’s a powerful motivator to be more efficient, and to home in on the 20 percent of effort that yields 80 percent of results, as the Pareto Principle says. There has also been a 12 percent reduction in sick leave.

Not everyone loves the new schedule. Some employees left because of it. Elliot says the idea has proven surprisingly polarizing. And while most clients have supported the idea, a few have blamed the shorter workday when they were unhappy over other issues. However, this didn’t happen until the change had been widely reported in the press–before that, clients hadn’t noticed it. That in itself proves the new workday is a success, Elliot said. “If we can implement this covertly, we are doing it right.”

As you might expect, those same press accounts caught the attention of prospective employees. Elliot says the company’s candidate pool is bigger than it was, and some candidates are contacting the company to inquire about working there even when they weren’t responding to a specific ad for a job.

It’s also helping the company screen out some candidates who would likely make unproductive employees. “If a job candidate brings up our five-hour workday very early on, that’s a red flag,” Elliot says.

Productivity tops Brexit

An article by Peter Barker, Gui Tao and Xinhua – www.xinhuanet.com

Improving productivity, instead of the Brexit issue, is the primary task facing the British economy at the moment, says renowned British economist Jim O’Neill

“The UK being in or out of the EU (European Union) is not the most important thing facing our economic future, and I strongly believe that,” O’Neill, chairman of Chatham House think tank in London, told Xinhua in a recent exclusive interview

For O’Neill, Brexit is very much a short-term problem and he has a longer vision when he looks at economic issues. “Doing something about our productivity performance and our geographic inequality and our inter-generational inequality, these things are way more important (than Brexit),” he says

Britain has suffered a slump in its productivity growth since the financial crisis – (according to official, albeit highly suspect, national data) this slowdown has been more dramatic than that of any major Western economy, with annual growth in productivity falling from an average annual rate of about 2.3 percent before the financial crisis to 0.4 percent in the past decade

“So, even a hard Brexit, which would be very bad at first, isn’t as important as those things. The contradictory part is — why the hell would we deliberately make our productivity challenge even worse by choosing to have no trade arrangements with the single biggest economic trading zone in the world?”

“It doesn’t really make a lot of sense.”

CHALLENGE TO INDUSTRY

O’Neill cited his own industry of finance and the successful industry of auto assembly as areas where the economy could suffer after Brexit because there could be greater friction and costs to both trade and imports, which would eat into businesses’ profit margins.

In 2017, the British auto industry built 1.3 million cars for export, accounting for 12.8 percent of total British exports, according to motor industry statistics.

“The auto industry, which in modern Britain is arguably the most successful of any traditional industry, produces more cars today than 40 years ago — it would be decimated under World Trade Organization (WTO) rules,” O’Neill says

“Some of the world’s most productive auto plants are in the UK, and if we go out under WTO rules they won’t stay that way because the profit margins are too thin — I’m sure there are many other industries where that’s true.”

“My old industry of finance would have some interesting challenges,” O’Neill adds, and challenges the idea that Britain could leave the EU with a managed no-deal.

ISSUES OF GLOBALIZATION, LEFT-BEHIND PEOPLE

“There are a lot of people in the Western world who don’t believe, because of the circumstances they’ve lived in, that the past 30 years have helped them at all,” O’Neill says

“When our Chancellor of the Exchequer often says ‘we didn’t vote to make ourselves poorer,’ actually a lot of people that are poor in the UK might have voted to make themselves poorer, because they want to shake up the system.”

“They don’t really understand the degree of sacrifice they might make, but they don’t mind sacrificing growth in the UK, because they’ve not benefited from (it) anyhow,” he added.

“There’s a commonality with this (thinking) in the U.S., there’s some commonality of it in many parts of Europe, and it is clear that — as fantastic as globalization has been for China and for many other places, and for the elite world that I’ve lived through — there’s a lot of lower-income, working people that have not benefited much from the past 30 years, and it’s easy to blame globalization.”

P.S. Sadly, the powerhouse thinker Lord Jim ignores the fact that many Brexiteers voted to leave, not from a misunderstanding of the economic/ productivity implications as trotted out above but for:

  • Control – over immigration
  • Control – over the laws we live and work by
  • Control – over who rules us – better our second rate Brits than third rate unknown foreigners with Germany driving them from the back seat
  • Control – over who we can trade with, worldwide, and how

And as for making no sense ‘having no trade arrangements with the EU’:

  • The EU market is stagnating whilst the rest of the world (RoW) is growing, rapidly is many parts – however, the UK is currently not allowed to address RoW markets separately
  • The UK exports less than 10% of its GDP to the EU, not 50% say, so it will not be catastrophic, overall, if this % is dented – and as the EU exports more to the UK than we do to them, self-interest on both sides will ensure most of this trade will continue somehow
  • In the short term, there may be import supply problems for some sectors – but that may well encourage many UK start-ups to replace some of these imports  and so be good for us in the long term
  • The EU is essentially a ‘rich members club’ which insulates itself from RoW competition by a mix of tariffs and trade agreements so members become richer still – such protectionism is not only bad for EU (and UK) productivity but also morally abhorrent for putting up barriers to other nations, especially poorer nations, seeking to better themselves and so widening, not closing, prosperity gaps

Clusters need roads

An article by Maria Machancoses,  a director at Midlands Connectvestment, is fully reproduced below

For centuries, good roads have influenced the way we live, work and trade

As a nation that makes over 80% of journeys by road, and whose population is forecast to grow to 75m by 2050, investing in our ageing infrastructure is rightly at the top of the agenda.

Rather than developing proposals in isolation, roads investment is now recognised as a boost to productivity and a catalyst for regeneration.

With this in mind, economic road corridor approaches to investment, new central government spending pots and continual digital innovation are set to take centre stage

Economic corridors – Clusters

The need for the UK to forge a new place for itself in a post-Brexit world and strengthen both domestic and global market access has seen the re-emergence of the corridor approach to economic development.

While corridor-led schemes are prevailing in places like Singapore, India, China and Pakistan, ground-breaking strategic proposals are also being proposed here in the UK. They take encouragement from the continued success of the M4 corridor’s so-called ‘Silicon Alley’, the largest tech cluster in the UK outside London, turning over £10bn each year.

Plans for a London-Stansted-Cambridge corridor, a Cambridge-Milton Keynes-Oxford trade highway and Midlands Connect’s own calls for urgent, co-ordinated development along the length of the A46 are all emblematic of this trend.

By linking economic centres to each other and the rest of the UK, corridor development schemes widen access to labour pools, boost business productivity and increase the reliability and resilience of the network.

Promoting nationwide connectivity and collaboration is essential if we’re to address regional inequalities and rebalance our national economy.

Hence a Major Road Network (MRN) should be formally established by the government, following an indicative funding commitment of up to £3.5bn from 2020-2025.

Creating an additional tier of roads between the Strategic Road Network, managed and maintained by Highways England, and local authority roads, Midlands Connect and other sub-national transport bodies have called for greater influence over where this pot of money is spent, to ensure it draws on regional expertise and prioritises schemes with the highest potential for economic growth.

However, MRN funding pales into relative insignificance when compared to the second Road Investment Strategy pot – RIS2 – which is worth over £25bn. Where, when and how this will be allocated to both the delivery of regional priorities and the development of new projects, could be the most important event of the near future

Digital infrastructure

It is increasingly clear that we cannot address the mobility challenges of the future with construction alone. The greater availability of data provides us with new opportunities to better use our existing infrastructure and build networks fit for the future.

The increased uptake of electric vehicles (EVs) and roll-out of 5G networks will change the way we plan, develop and improve road networks in the coming year and beyond.

EVs aside, expect to see an acceleration in the testing of connected and autonomous vehicles and HGV platooning as 5G connectivity and the internet of things continue to revolutionise the way we travel.

As well as incorporating traditional charging points infrastructure into transport plans, we will also see further consideration of more radical technologies such as electric charging lanes, which are already in use in Sweden.

The future of our road infrastructure is inexorably linked to economic regeneration, emerging technologies and new government funding strategies.

As corridor approaches pave the way for enhanced inter-regional and international connectivity, the UK is well placed to become a more balanced, productive and innovative society