Better ways to boost UK productivity?

Sam Dumitriu of the Adam Smith Institute commented on UK Chancellor Philip Hammond’s budget and the OBR’s prediction that UK growth will be a sluggish 1.5% or lower for the next five years whilst the USA is growing at twice that rate

Hammond has offered support to boost R&D spending and sort out the housing crisis so people can move to higher-paying jobs of the future – but the measures announced “won’t do enough to move the needle”

Hence Dumitriu recommends the following:

Housing:

  • The housing crisis is a key driver of the productivity crisis
  • The current stock is becoming increasingly unaffordable because the UK is simply not building enough
  • This is due mostly to a ‘broken planning system’ which needs:
    • Revision of green belt rules, especially near railway stations
    • Making it easier to build up as well as out
    • Encouraging land held by public bodies to be sold, with planning permisiion
    • Scrapping stamp duty altogether as it ‘gums up the market’

Business investment:

  • Only Greece and Portugal invest less than the UK as a % of GDP
  • The UK tax system encourages consumption at the expense of long-term investment – corporations can deduct all daily expenses such as stationery from their taxable income, but only part of any investment in productivity-improving investments in new machinery as it depreciates
  • Firms should be able to deduct capital costs from taxable income in full, and up front

Infrastructure:

  • UK cities and towns need to be better connected – and everyone should have a fast connection to the web
  • Money going to HS2 should be devolved to the ‘Northern Powerhouse’ and ‘Midland Engine’ and let them decide how best to spend it on transport
  • Road pricing is needed to reduce congestion and boost speeds
  • Firms should be incentivised to invest and grow their customer bases by improving people’s access to the web

Conclusion – All good macro stuff for government ministers to consider – but no apparent recognition that, for national productivity to get back on trend or do better asap, managers of individual organisations, public and private have by far the greatest impact – so it’s them at their micro-level that need most support

 

Brexit – a fillip for UK

The EU was originally set up after WW2 for defence and security reasons – to deter a WW 3 following the ravages of the first two wars

Since then, it has steadily grown from the original six founder nations (Germany, France, Italy, Belgium, Netherlands and Luxembourg) to the current 28, including the UK

Poor European countries have clamoured to join this EU club – cynics say “more to get help for their own ailing economies than help others”

And, throughout its development, EU leaders have kept wanting to centralise control rather than devolve it more by creating:

  • A common market for greater economic power, protected from outside world competition by tariff barriers
  • A common currency, the euro – this meant member countries lost the ability to devalue their own currencies if markets turned against them and left many vulnerable to economic disaster – note the suffering of the Med nations such as Greece, Portugal, Spain and even Italy
  • A common legal system, with an ECJ – an unelected but all-powerful European Court of Justice comprising judges from member countries which can over-rule decisions taken by any member country
  • An accumulation of power for EU leaders themselves, despite them being unelected, unknown, overpaid and largely unaccountable – hence, even EU official accounts rarely pass muster yet it continues at ‘full steam ahead’

 

In addition, the EU insists on free movement of populations between member countries as well as goods and services – the Schengen agreement – this has become an essential requirement of being in the EU

Naturally, most of such population movement has been outward from the poorer EU members, and inward to the rich few like Germany, France and the UK – so complaints about foreign immigration levels have inevitably risen in these richer EU nations

Essentially, current EU attitudes could be summarised as follows:

  • Averse to the devolution of power to member nations, more keen on accumulating it at the centre
  • Dogmatic about its rigid rules to uphold the value of the euro which forces inequality on many of its members
  • Turns a blind eye to many members’ economies which are steadily getting worse as protectionism from outside competition is condoned
  • Content to ignore the plight of outside poor nations by not letting them in to their common market – EU charity begins and ends in Brussels
  • Lacks a common agreed foreign policy, so always argues or dithers about any action needed internally or externally, thus making arguments made for a common army risible

 

Conclusions:

  • The British people have decided there are more negatives than positives to being an EU member:
    • They want back control of their borders, their laws and who they can trade with
    • They want to rule themselves, choose their own leaders and get rid of them if they’re not liked – it’s why they fought WW1 and WW2, to avoid being ruled by others from abroad
  • Economically, the UK may or may not be better off in the EU but that’s not their main issue – they managed well before the EU so there’s no reason why the same or better cannot happen again
  • The EU may be the UK’s biggest export market but, at present, it’s still only a small % of our total output (~ 8%):
    • There’s a lot more growth and demand potential in the rest of the world outside the EU
    • We should first start strengthening trade relations with the huge market called ‘the Commonwealth’ – already more nations, more population and more demand than the EU
  • Whatever Brexit option is finally implemented, overall it will probably be worse for the EU than the UK – we should weep crocodile tears on our departure given the EU comprises economies which are mostly basket cases – our current 8% exports to them would have been heading south anyway
  • Yes, there will be certain joint initiatives with the EU which might stop or be stalled e.g. joint research efforts, fights against terrorism – this will be a pity if they are stopped but they’re not game-changers
  • Back within the UK, the four home nations are now heavily inter-bred – essentially, they comprise one family, one tribe, one nation – Scotland seeking to break away is a Nicola Sturgeon pipe-dream – the vast majority of Scots know on which side their bread is buttered – they also want to be ruled by their own, either in Edinburgh or Westminster, not by unknowns in Brussels
  • We will welcome immigrants who come here to better themselves, their families and the nation or who desperately need sanctuary – however, we will not welcome others who simply want to enjoy a slice of our successful economy or its publicly funded services when they have done nothing to pay for them

 

In addition:

  • David Cameron should be appointed President of the UK on the Queen’s demise – and installed in Buck House, that well-known Central London council house
  • Why?
  • Despite being a devout ‘Remainer’, he allowed the UK to vote on whether to continue being a member of the EU or not, thus enabling us to ‘jump ship’ before it sinks
  • The UK has much to be thankful to him and the law of unintended consequences

 

Shoot the productivity messengers?

One groans when leading economists, senior government ministers, even John Humphries on the BBC’s Radio 4 ‘Today’ programme, trot out the same old message about the dire straits of the UK economy viz:

  • “Woeful productivity gap”
  • “Grim reading”
  • “More austerity”
  • “We’re in a new paradigm of lower productivity growth”

 

Philip Hammond, the dour UK Chancellor of the Exchequer, weighs in with: “Regrettably, our productivity performance continues to disappoint” – so we know what his crystal balls are telling him

None of these experts seriously question the basic data they use in order to reach their conclusions about national performance levels and trends – and all position themselves at the leading foggy edge of technology when offering solutions, ignoring bigger opportunities staring them in the face

What’s needed is some fresh thinking from outside the tent – some optimistic devil’s advocates with clout who can counter all this pessimistic guff

At present, nobody is shouting about the enormous waste of costly resources that’s ongoing everywhere – in many organisations, over 50% of total costs – not 1 to 2% as many think

But waste reduction is also viewed as dirty, downmarket and intellectually low-brow – hence, it’s not even measured by most managers, academics and economists – hence, there are few serious drives to cut it

Instead, managers bleat for more and more input resources and investment, and continue to waste the same % of them because they also assume their current methods of operation work well – which they don’t

For example, imagine the tax-payers’ reaction if they found out the NHS did not need the extra £20 billion per year of their money promised by the government – simply by cutting waste everywhere – but the data is missing, so the public never find out, and an overall drive on NHS waste is never started

And it’s not just the NHS – the great majority of organisations, public and private, could improve their productivity by at least 20% without having to invest in expensive, latest and best technology

But the great majority of managers don’t realise this

They not only lack good performance measures

Their leaders also continually bombard them with ‘doom and gloom’ rather than messages enthusing about an exciting and prosperous future

Government action for big productivity improvements

Words are all very well but good measures leading to worthwhile actions matter most to people and nations

And, to boost national productivity, governments must look to:

  • Boost their private sectors by helping them produce the profits which pay for everyone’s SoL (Standard of Living) and underpin their QoL (Quality of Life)
  • Ensure all public sector service units offer the tax-payers who fund them good VFM (Value for Money)

PRIVATE SECTOR:

“There’s no magic money tree” said both Prime Minister Theresa May and Home Secretary Amber Rudd i.e. the nation has to cut its cloth to what it can afford

Nevertheless, to boost its private sector, the government must seek to offer it a mix of the following:

  • More generation of new technological ideas, patents and intellectual capital via more incentives for firms to do this aided by more investment in government-owned R&D organisations and university research – plus:
    • More links/ knowledge transfers between them all
    • More commercialisation of new ideas, especially via access to venture capital which does not seek a quick buck
  • More investment in the labour workforce to provide the skills firms need rather than leave individuals to choose what to study without any guidance
  • More encouragement for the private sector to form clusters of firms in specific fields so each firm is close by and either helps or competes with others there, so all rise with a productivity improvement tide
  • More investment in better infrastructure to reduce work delays, improve service levels and increase labour pool sizes for many needy geographical areas
  • More incentives to build more houses, not only to address current shortages but also encourage more workers to move to where they’re needed most
  • Better use of performance measures and BPDBs – Best Practice Data Bases – in all public sector units to identify current waste and inefficiency levels and establish where extra funds clamoured for are truly needed
  • More devolution of power to major cities to let them decide how best to use local tax-take to meet local economic needs

At the same time, they should fund a major HMRC drive to minimise the immoral but legal tax avoidance schemes employed by major behemoths such as Apple or Starbucks who apparently hide enormous profits offshore leaving other businesses at home and the population to fund the public services and supply the demand on which they rely for their gains

Overall, there’s no one silver bullet for government here – politics will determine priorities for each of the above – and all will take time, some maybe decades, to be fully effective

PUBLIC SECTOR ACTION:

As a nation’s private sector grows and becomes more successful, so it also provides more taxes for the government to fund better public services to meet the population’s demand for them – and once one need is satisfied, more and better is wanted across the board

Politicians then have to decide which public services to fund and how much cash to allocate to them given there is no bottomless pit of tax-payers’ money available

They also have to ensure the tax=payer gets good VFM (Value for Money) for each pound of tax he pays – ‘the most bangs for his bucks’ – to maximise the number and quality of public services that can be afforded

But government ministers and civil servants are not productivity experts so they hire others who claim to be so – outside advisers, top management consultants, academics and economists who are at the leading-edge of thinking in how organisations and national economies can become more efficient and grow

And what do ministers get, mostly?

Management-speak, buzz words and gobbledegook before any business commonsense – major projects set up but most end up making major losses and only a few clock small wins

How so?

Ministers and service unit managers nod through project proposals after diagonally reading them – and they don’t want to ask too many questions for fear of looking ignorant in front of their peers – meanwhile, the workers affected soon ‘cut through all the crap’ and become even more disengaged

Public sector productivity thus falls further, managers pleas for money to continue wasting money as before grow ever louder, opposition MPs bang on about incompetent ministers and also shout for more funds given votes for them in doing so

And despite a litany of project failures, especially when employing latest management fads – once it was TQM, now it’s LEAN – the ‘top boys and girls’ keep on peddling them as the panacea for the sectors’ ills

Someday, government ministers will recognise how much they are being conned here by admittedly bright people – indeed, one wonders how the latter don’t dig a little deeper and figure things out for themselves rather than spout their groupthink bulls..t

It’s not leading edge fads, nor rocket science, that’s needed to make a big difference to the productivity levels of each of the public sector services – it’s simply:

  • First, good productivity measures installed at all levels in each service unit which highlight the % waste of costly resources and time, and the % waste of capacity of each process or task team
  • Then process and task teams taking time to study and understand where and how they waste so much – after which, they apply business common sense, not complex mathematics or IT, say, to massively reduce this waste and make better use of existing resources – only then might fads, IT or outside advisers be considered appropriate – usually, they’re not!

Currently, billions upon billions are being wasted by the public sector – ministers are on the back foot and cave in to much of the demand for even more funds – they keep on believing what top advisers tell them to do, and thus waste more and more – they ignore other consultants who have demonstrable success employing their own versions of the above broad approach – “it can’t be as easy as that”

So tax cuts to give a boost to the overall standard of living and economic growth are off their agenda

It’s a national scandal, just waiting to be addressed by some brave public sector minister itching to make his or her mark and climb the Westminster ‘greasy pole’

 

Investors need to be ‘patient’, not greedy

In an article by Dr Paul Benneworth, Senior Researcher at the Center for Higher Education Policy Studies, University of Twente in the Netherlands claims that: “German companies, often envied by the UK, take a long-term view and plough the bulk of their surpluses into investment”

Their workers also accept wage moderation because they see that profits are kept low to fund these investments and future growth

Workers and owners thus co-operate and accept less cake today but a bigger share of a  bigger cake tomorrow

In contrast, UK owners have typically extracted maximum profits by minimising investment and wage growth, and that has made many workers militant

The UK industrial power needle keeps swinging from one side to the other – from factory/ capital owners to Trade Union leaders such as Red Robbo (British Leyland) and Arthur Scargill (National miners) in the 70s/ early 80s, then back to capital owners in the late 80s/ 90s thanks to Thatcher legislation and, again, many are abusing their positions and fleecing their companies at the expense of their employees and the nation

 

There are examples galore of this, from the Rover Cars to Carillion today where senior UK executives load up their companies with debt, award themselves huge and unjustified pay rises, pay out mega-dividends to shareholder, including themselves, then declare the company bankrupt and flog off remaining assets for cash

In addition, as soon as a fledgling business takes off, we allow it to be sold to foreign owners – jobs and future profits are thus lost – ARM, the micro-chip designer, is a recent example – a few senior managers pocket all the spoils whilst the nation, which provided much on which their success relied, is left with nothing and has to start again creating more job opportunities and increasing the wealth pie for all

Patient money is the answer – not money for sickly firms which deserve to die but money from investors who will be patient and only seek long-term paybacks, not quick bucks

Nissan has shown what a British car company can achieve (versus Rover) when ‘patient capital owners’ are paired with North East workers, an area crying out for investment in new industrial companies since the demise of much of the chemical, steel, shipbuilding and coal mining industries there

Nissan (Sunderland) is now one of Europe’s most productive car plants and has been rewarded with wave after wave of investment, job creation and rising wages

The same patient approach is needed right across the country, We need a sea change in how we invest in business – and we need it now!

 

Sector mix explains ‘productivity puzzle’?

Once upon a time, we humans kept on inventing/ innovating/ improving tangible stuff:

  • First to meet our basic needs for must-haves such as food, shelter and/ or defence
  • Then, to make our lives easier with like-to-haves
  • And, nowadays, with many of those needs sated, we chase after love-to-haves which make our lives more enjoyable

 

It was the agriculture sector which led the way – the manufacturing sector then emerged in the 18th century – and, by the end of the 20th century, it was services which dominated so-called developed economies

To climb this ‘hierarchy of needs’ as Abraham Maslow called them, we needed inventors and innovators to come up with the bright ideas for all the goods and services needed, plus capital investment to supply them

And, as people evolved ways to produce more, they also earned more so they could afford more other stuff – and not just more must-haves but more like and love-to-haves too

Hence national wealth pies grew, eventually enabling national education and health services to be afforded, followed by personal services such as house cleaners, chiropodists or dog trainers

But this growth curve now seems to be flattening out

Developed nations find themselves at a watershed, moving from an old world focused on meeting people’s material needs and increasing their standard of living to a new world meeting their mental needs, focused on improving their well-being and quality of life

As Winston Spencer Churchill said: “The empires of the future are the empires of the mind”

However, this ‘new world’ presents a problem for official bean-counters when they try to measure national output and productivity:

  • Output in the old world was essentially tangible stuff and relatively easy to count – costly inputs were restricted to labour numbers or hours, again relatively easy to count
  • But those days are over
  • In the new world of both tangible and intangible stuff, the full value of all outputs is no longer easy to count – and costly inputs can be much more capital investment in offices, machines, ICT, robots or  AI rather than just labour, thus making any labour productivity measurement unrepresentative of the total national productivity picture

 

So let’s dig a little deeper

First, where are we now?

Over just the last 300 years a clear hierarchy of sector groups has emerged

                                C. 21st century – ‘ Love-to-haves’ – to make lives more satisfying and enjoyable: 

              • Services:
                • Private – Leisure, entertainment, media
                • Public –
              • Manufacturing – iPhones (+ freebies)
              • Personal – Hobbies, Charity work, Sports clubs

__________________________________________________________________________________________

                      B. 20th century – ‘Like-to-haves’ – to make lives easier/ increase positives of life:

          • Universal services:
            • Private – Airlines, Hotel chains, Holidays, Telephones
            • Public – Universal health/ education, water supply, communications
          • Personal services – Hairdressers, dog trainers
          • Manufacturing – Cars, motorbikes, airplanes, yachts, computers 

_________________________________________________________________________________________________

          A. 18-19th century – ‘Must-haves’ – to survive/ reduce negatives of life:

        • Agriculture – Food, Drink
        • Manufacturing – Steel, Cotton, Wool
        • Public services – Defence

______________________________________________________________________________________________________

 

As each human need was met and original suppliers were seen to do well, other suppliers would pile in to their markets – competition thus grew – productivity improvement became vital to stay competitive – to succeed, market share growth became the aim – eventually, profitable sectors would become over-supplied whilst demand growth would stall when most targeted customers had ‘enough’ existing stuff – they merely replaced it when worn out rather than adding to it – their ‘old needs’ having been met, their spare pennies moved on to buying radically new stuff on offer either from existing sectors or completely new sectors

And, as sectors mature, the scope for finding fresh new radical stuff within them diminishes – hence, growth in any sector eventually stalls unless new customers, and so demand, can be found in new geographic markets:

  • The good news is most ‘old’ sectors do not ‘fade away’ – the human needs they meet do not disappear – indeed, most actually continue to grow in volume and value offered, albeit slowly – it’s just that new sectors often grow much faster – agriculture thus gave way to manufacturing – now, despite producing more volume and value than ever before, their combined share of the total UK economy has shrunk to less than 20% over just the last 100 years – at the same time, they both continually shaved their labour needs – some of the off-loaded labour was able to move on to new, even better paid, sectors – others to ‘gig employment’
  • The bad news is it seems the material countable world has run out of new sectors to continue on its remorseless growth curve – hence GDP and so national productivity levels have flattened out, not least because there are fewer opportunities for productivity enhancing investments plus many of those workers off-loaded from productive sectors have no option but to work for existing ‘low productivity/ low wage’ sectors where labour supply often exceeds demand, thus keeping wages low despite society valuing some of those services highly e.g. elderly care

 

So how might all this explain the current oft-quoted ‘productivity puzzle’ – why does the UK never close its ‘productivity gap’ with the G7 – and why does Japan always come last in the G7 productivity league table?

Their relative positions are bound to persist because:

  • National economies comprise different mixes of sectors which tend to focus on what those nations are good at, build on their strengths  and leave other nations to provide their other needs – and those national sector mixes cannot change overnight
  • Some private sectors have proved to be a lot more productive than others, whatever the nation viz:
    • High – Manufacturing, Big pharma, Digital, Oil extraction, Media
    • Medium – Education, Financial services, Retail, Construction
    • Low – Health and Social care, Tourism, Hospitality, Catering – and small farms in Japan
  • The proportion of vanguard versus long-tail organisations per sector also varies little
  • Finally, the output value of public sector services, offered with no price tags,  is assumed to be equal to their ‘cost of inputs’ – a dubious assumption which encourages a culture of always seeking more cash inputs rather than best value from limited inputs – and one which attaches a huge lead-weight to any improvements made elsewhere affecting GDP and productivity

 

Conclusions:

  • The reason current (labour) productivity gaps persist for so long is mostly due to the mix and size of each sector in each nation’s economy, neither of which can be changed quickly
  • Equally, national outputs and productivity levels have stalled, in all developed nations at least, because the world has reached an economic watershed, moving from an old material world, where most human needs have been met in a limited, zero-sum exchange for cash, to a new mental world where most human needs can be met in unlimited, positive-sum exchanges
  • Current official bean-counters thus need to update their systems of measurement concerning national output to cover not only countable goods and services that people buy but also stuff, currently deemed uncountable, that enhances their well-being
  • At present, their gloomy results depict a world which is stagnating – in fact, we may already be on a new, unlimited and exciting growth curve

 

 

GDP – National output

According to Professor Diane Coyle and economist Benjamin Mitra-Kahn in a paper entitled ‘Making the future count’, an entry and eventual winner of the Indigo prize:

  • Economic statistics (i.e. state data) originated with governments wanting to raise taxes to wage wars i.e. wanting to know the availability of resources
  • Then, in the early 20th century, they added economic progress i.e. economic welfare
  • Then John Maynard Keynes et alia set up an aggregate GDP (Gross Domestic Product) to measure the total flow of money in any economy from the production sector to households in return for consumers paying for the goods and working for a wage – household expenditure, output sales and total incomes were thought to be identical

Since then, when statisticians attempt to measure a country’s output, they tot up everything it makes, everything it buys and everything it earns – and since one person’s spending is deemed to be another person’s earnings, in theory the answers should be the same

Hence, in the UK, the ONS – Office for National Statistics – uses three definitions of GDP to determine the market value of all goods and services produced within the UK’s borders in a given time viz:

  1. Output measure – the value of all goods and services produced by all sectors of the economy, including the government
  2. Expenditure measure – the value of goods and services bought by households and government, investing in machinery and buildings, and net exports
  3. Income measure – the value of income generated mostly in terms of profits and wages

In theory, all three should produce the same final number for GDP – whilst each measures different things differently, together they are said to act as a check on the accuracy of each other

The accepted formula for GDP is:

                            GDP = C + I + G + (X-M)
    • C = Private consumption of final goods and services
    • I = Gross investment in the economy, public and private, in new buildings, highways, ports, plant and equipment, IT
    • G = Government spending on labour, goods and services (n.b. purchases of weapons but not ‘benefits’) and capital investments
    • X – M = Net foreign trade = Balance of (Exports – Imports)

Overall, calculation of quarterly GDP figures is a major exercise:

  • The ONS collects data from a wide range of sources including some 46,000 firms as well as government departments
  • They produce a first estimate of GDP 25 days after a quarter has ended based solely on the output measure
  • And they have to break this number down into increases in value due to inflation versus rises in real output, which ‘is not easy’

Hence, their first figure is more a guestimate which often has to be revised later

Indeed, there have always been serious doubts about the accuracy and so usefulness of GDP figures raised by many economists – although usually silenced by the retort: “There’s nothing better out there”

CONCLUSIONS:

  • GDP is an 20th century old-economy measure still in use for the 21st century new-economy – it’s relevant to the old physical/ tangible world but incomplete for the new mental/ intangible world
  • GDP is not a comprehensive measure of human welfare
  • We need complementary measures to complete the modern well-being picture

SoL and QoL outcomes sought from productivity

Productivity is always in the news, not least because Nobel economist Paul Krugman says: “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise output per worker”

Productivity not only determines the SoL (Standard of Living) of everyone in the land but it also has a significant impact on their QoL (Quality of Life):

  • SoL is determined mostly by the cash wealth people have to be able to afford a certain volume and quality of goods and services – the tangibles of life – ergo, it’s a measure of a population’s success in climbing the old materialism ladder
  • QoL is determined mostly by extra factors which add to the mental well-being of individuals, including improvements in their physical and mental health, communications with family and friends, social lives, education levels, environment quality and leisure/ pleasure activities – ergo, it’s a measure of a population’s success in the newly emerging mentalism world

 

WHO – the World Health Organisation – goes further and defines QoL as: “An individual’s perception of his position in life in the context of the culture and value systems in which he lives and in relation to his goals”

But why do improvements in national SoL and QoL rely on productivity?

  • SoL improvements depend on unit costs and so prices being lowered, enabling more people to afford more goods and services they like-to-have on top of those they must-have – and, at the same time, increasing firms’ overall sales revenue and profits enabling them to pay higher wages so people can afford other stuff once out of their reach
  • QoL improvements depend on innovation and technology offering them additional goods or services they like-to-have which provide them with more information, leisure and pleasure at very low prices, even for free, in exchange for valuable information on their buying habits and preferences which suppliers then analyse to better target their sales and marketing efforts

 

SoL improvements thus lead to more material comfort – QoL improvements lead to more mental satisfaction – hence, most people focus on improving their SoL first by seeking wage rises and climbing promotion ladders – then move on to higher QoL issues

So does more money make one happier?

  •  Princeton University professors established that, once people earn more than $75,000 per year (about £50,000), the extra income doesn’t bring them more happiness, nor less unhappiness or stress:
    • Up to that point, their enjoyment of being able to afford more material goods and services steadily rises
    • Beyond, however, it levels off so they look elsewhere for more in life
  • However, Michael Norton, a professor at Harvard Business School, asked 2,000 millionaires how much more they’d need to be perfectly happy and, overall, they said: “two or three times as much” so the curve of desire to become even richer clearly does not fully flatten out

 

Clearly there is a point nowadays for many people in developed economies who find themselves at this watershed between materialism and mentalism:

  • Their material SoL needs have been largely met – they have ‘enough’ – how many cars, fridges or TVs does any one person need?
  • They’re now tentatively seeking to meet their higher QoL needs, unsure which way to go and so following all others – hence most wear the same branded gear, have their own iphone, use the same social media

 

Sadly, global communications are so good and extensive, they’re extinguishing vital differences between both individuals and nations – sit in a hotel in any modern capital nowadays, look out of the window, and you could be in any one of them

However, on a more positive note:

  • There are billions of people in undeveloped or developing countries who still do not have anywhere near ‘enough’ goods and services – their SoL is such that most continue to endure many negatives of life, and can only dream of positives – so there’s enormous unmet demand out there for existing businesses to do well
  • And this century seems likely to be dominated by demand to improve QoL for everyone, thus offering businesses worldwide enormous potential

 

A dismal future?

Not one bit!

 

Continuous productivity improvement

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”

Malcolm Gladwell, in his book Outliers, said you can master anything so long as you practise it for 10,000 hours – but make the same mistakes in each of those hours and you will not become perfect – you need to adjust/ correct/ improve plus seek out constructive criticism so as to make marginal improvements as you go

That way, cumulatively, marginal improvements can ultimately make a huge difference, as many Japanese companies demonstrate

Lyons thus 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

CBI calls for more companies to use digital technology

According to the CBI – Confederation of British Industry – the UK needs ‘more companies skilled to find and adopt available technologies and management best practices known to improve productivity and pay’

In particular, the use of cloud computing, mobile technology, e-purchasing, cybersecurity and on-line procurement could result in a £100 billion boost to the country’s productivity levels

“The gains made from computerisation of business models and processes have been about 10 times as large as the direct investments in computer hardware itself”

Somehow, they also calculate that ‘the embracing of technology could reduce inequality by 5%’, whatever that means

Then, out of the blue, the CBI claim UK businesses are years behind their Danish counterparts when it comes to using computer systems to facilitate e-purchasing, ERP (Enterprise Resource Planning) and CRM (Customer Relationship Management) – a fact which might not send too many shockwaves through too many boardrooms

More importantly, they highlight that the majority (69%) of UK firms are at the lower end of the productivity spectrum – comparable figures for France and Germany are 65% and 60%

Carolyn Fairbairn, the CBI’s Director-General, says: “While the eyes of the business world can often be on the next big thing in cutting-edge technology, too many firms are missing out on what’s right under their nose”

“Failing to adopt to the nuts and bolts technologies of today is leaving a yawning gap in productivity and pay between businesses”

“In too many areas of diffusion, we struggle against our international competitors, with more workers being employed by less productive firms here in the UK than in France and Germany”

 

AI will create millions of jobs

Professor Robert Gordon of Northwestern University, USA, says: “No invention in the last 250 years, since the first Industrial Revolution, has caused mass unemployment

“Though jobs are constantly being destroyed, they are also being created in even larger numbers – there is enormous churn in the job market – at present, there is actually a shortage of workers, not a shortage of jobs, even in fields such as construction, skilled manufacturing and long-distance truck driving”

“Quality of jobs is also nothing new – over the past decade, more good than bad jobs have been created:

  • Most AI – Artificial Intelligence – spending has been in marketing to date, yet marketing jobs have flourished
  • There are now more bank tellers than there were before ATM machines were introduced
  • We have 1 million fewer bookkeepers and clerks since the introduction of the spreadsheet, but 1.5 million more financial analysts”

 

Professor Joel Mokyr, from the same university, believes technology changes will accelerate, not decline – for him, product innovation is likely to create new jobs that were never imagined before such as:

  • Video game designers
  • Cybersecurity specialists
  • GPS programmers
  • Veterinary psychologists

 

Mokyr concludes that we can’t know what new jobs will exist in future, although he dares to suggest there might be:

  • More caring for the elderly and less caring for children as there will be fewer children
  • More creative jobs, building on ‘tacit knowledge’ – intuition, instinct and imagination – which are not qualities associated with machines (yet?)

 

In particular, according to a report by TechRepublic, AI is ‘set to create millions of new jobs – businesses need to begin adopting AI technologies to help them do work, or risk being left behind’

They offer eight examples of ways companies are already using AI to increase their productivity:

  1. oMelhorTrato.com – an Argentina-based credit firm:
    1. They use deep learning to automate part of their hiring process
    2. It combs through CVs of job applicants, sorting the good from the bad by searching for certain qualifications – a boring, manual and repetitive task
    3. This saves HR a huge amount of time which they spend interviewing the best candidates instead
  2. Premium Retail Services – a project management company:
    1. PRS uses AI to assist clients by creating predictive maintenance models and identifying trends
    2. They gather data to predict what stores need to be visited, how long an employee needs to travel there, and how much it will cost to reimburse that employee
    3. Projects that used to take a week now take only hours
  3. Blackbelt – a marketing firm:
    1. AI tracks time spent by employees on computer activity – and answers clients’ questions much faster on its marketing platform
    2. “Timesheets may be the bane of professional services but they’re critical for profitability and client transparency”
    3. “With AI, you can do many things smarter”
  4. Coseer – a cognitive automation company:
    1. AI automates cognitive workflows and reduces tedious work that is unpopular with programmers
    2. Employees now look forward to jobs involving such work because they use AI as if it were a team working for them to complete the job
    3. Productivity has risen substantially allowing the company to handle more customers than normal – “payback comes within months, if not weeks”
  5.  EY – Ernst & Young – one of the Big Four accountancy firms:
    1. AI is used to investigate frauds and disputes, and review contracts during audit assignments, a process that can take many hours manually
    2. AI also helps them eliminate repetitive tasks and make recommendations for less mundane tasks
    3. “By combining AI and human eyes, their new systems are faster and more accurate”
  6. National Parks Depot – an e-commerce company:
    1. NPD relies on social media platforms for marketing and customer service so they created AI-driven chatbots that automatically start a private conversation with anyone who comments on a designated post, answers most of their FAQs and even offers promo codes and special offers not available to the general public
    2. This frees up team members’ time for ‘deeper connections and interactions with customers’
    3. They believe the bots also help retain top customers and regain those who may have had a problem in the past
  7. Outreach – a sales engagement platform:
    1. AI has been used to automate customer interactions during the sales process – it lines up and then prioritises sales calls
    2. It also identifies which sales opportunities are best and what sales call order will work best
    3. Instead of focussing on who to call next, the system thus allows reps to focus on less mundane tasks, like sales pitching
  8. Mobiliya – a global enterprise mobility company:
    1. They use humanoid robots as secretaries at their HQ in Dallas to take over simple repetitive tasks – training them is not needed, freeing up time for other tasks
    2. Robots ask visitors ‘how may I help you?’ as they walk in, then book appointments and track footfall
    3. “A lot of businesses can incorporate AI technology into their day to day processes and tasks, especially banks, insurance firms and other customer service intensive businesses where basic support functions can be automated”

 

Conclusions:

  • In each of the above cases, the main benefits of using AI were:
    • For employees, less boring work and more time for more interesting work
    • For the company, increased productivity, more sales and quick AI investment paybacks
  • AI’s future is clearly unstoppable

Train in what employers need, not what employees like

According to a report by the OECD – Organisation for Economic Co-operation and Development – and the University of Warwick Institute for Employment Research: “Many employees say their skills are not used effectively at work”

Encouraging employers  to make the most of their employees’ skills can improve productivity, reduce inequality and contribute to economic growth

In particular, they claim matching skills to jobs boosts happiness, productivity and innovation:

  • Better use of existing skills in-house leads to better job satisfaction and pay for the skill-holders than for those whose skills are not stretched
  • Better matching of skills to those needed by specific jobs improves retention of workers. higher productivity and better industrial relations
  • So better understanding of and publicity for the skills employers need is vital to boost productivity and economic growth

But which organisations truly test how well they’re using their skills in-house – or which they have been developing, sometimes over many years, albeit to what purpose?

We’re not talking about  ‘a re-organisation of work-forces here – more the more productive use of existing work-forces and even more if more people with the right skills were available

To date, governments have focused on a shot-gun approach to the education of workers and encouraged youngsters to up-skill themselves, regardless of ‘what in’ – and universities, business schools, technical colleges et alia have followed suit

Hence, thousands of new graduates, for example, now find themselves shelf-stacking or selling burgers whilst lumbered with huge student loan debts

Meanwhile, potential supply of goods or services is lost, and demand is met by others abroad – sales, profits, job numbers and pay levels suffer – all for the lack of skills that could easily be provided

Clearly, better use of existing skills will improve outcomes for individuals, employers and economies – but how much better might things be if youngsters were nudged towards those skills that employers need

To do this well, vital statistics are needed to tell us where major skills gaps lie – statistics which quantify current numbers of mathematicians v engineers v doctors v plumbers v cooks v carers that the nation has versus needs

Government, educators and employers should then get together to plan how best to close these gaps, including considering financial incentives for skills employers need

At the same time, training in subjects that qualify only as tickets for a three/ four year fun-ride at some obscure university should remain prohibitively expensive, if not become more so

 

 

 

Knowledge ladders

All animals, humans included, are born with a brain within which resides an instinctive control system, ticking away 24/ 7 much like a Microsoft operating system

This subconscious system controls most of what we need to survive and protect ourselves, procreate, feel pain and pleasure

It also stores knowledge acquired by learning by rote and practice enabling people to be better at mental arithmetic and playing the piano or golf

And, over time, it stores the experience of what works or not enabling more mature reactions to situations and better decision-making, sometimes credited as sixth-sense or gut-feel

If in any doubt about the power of the subconscious, ask how a humming bird is able to build its delicate and complex nest without any training from its parents or attendance at its local technical college – and without any Google website to help either

Then there’s the conscious side of the brain – a side many think is unique to we human animals – I’m not so sure

Watch the self-conscious shame of a dog when caught stealing food from the kitchen cupboard or the playfulness of rooks dive-bombing each other whilst enjoying the up-currents from wind colliding with cliffs – such emotions surely belong to the conscious, not unconscious, side of brains

However, we humans have been able to develop this conscious side of the brain – it’s what got us to the front of the pack in Charles Darwin’s evolution stakes – and we now go to great lengths to develop it further

As well as feeling emotions, our consciousness enables us to think, make connections, sort out correlations, discern patterns, select priorities, solve complex problems, come up with new ideas, create great music, art and designs

Other animals can demonstrate basic logic skills, usually in order to obtain more food – lionesses hunting together to isolate a wilderbeest, rooks picking up cockles on the beach then dropping them from some 30′ above onto stones below to crack them open, apes using sticks as tools to dig deeper into tree trunks for the goodies inside – but none can compare with the mental skills developed by humans

However, man appears limited in his capacity to know everything about everything – there comes a point for us all when our conscious side seems to become full and will absorb little more

Even at school, in the UK at least, most 15-16 year-olds have to choose between arts and science subjects before taking their ‘A’ level examinations because they cannot cope with both

And at work we have to specialise to become good in any field if we are to progress

It’s a rare beast that’s able to master two quite different subjects – and mastery of just one takes us much time, study and experience

Conclusion – There’s a multitude of knowledge ladders for us to climb, and no short cuts for climbing any of them

 

Employee engagement drives productivity?

Employee engagement is nowadays seen as essential if an organisation is to perform well

Gallup report that business units in the top quartile of employee engagement outperform bottom units with 17% higher productivity, 20% higher sales and 21% higher profitability – all big performance differences

MGI – McKinsey Global Institute – report that productivity increases by 20 to 25% when employees are connected with effective internal communication channels

Ross Rowbury, CEO of Edelman Japan, a PR company, thus asks: “What makes for good employee engagement?” – is it:

  • A great company newsletter?
  • A regular town hall meeting?
  • Use of chatbots to allow employees to access company information?

Such tactics can indeed be useful – but the big performance improvements arise when organisational culture changes – when employees:

  • Understand and then focus on delivery of the corporate strategy – when they feel an emotional connection with it and are inspired to deliver their best
  • Are empowered to support each other, share ideas and tackle performance problems
  • Understand what customers want, are keen to deliver great service and are proud of what they do

To bring this about, Rowbury says top management must:

  • First understand and then act this way themselves, all hours of the day, to ensure employees see they not only ‘mean what they say’ but ‘do as they say’
  • Clearly explain what the corporate strategy is and why it is exciting
  • Regularly update them on what customers overall are saying about what is being offered them – especially what they’re complaining about, which often comes as a surprise, and the likely impact on sales
  • Instal performance measures for all to measure their performance progress
  • Introduce training programmes to support empowered employees with ways and means to help them improve performance by themselves
  • Design incentive schemes to encourage employees to seek to improve performance and then reward them if successful
  • Continually remind them all of what’s in it for them, what’s expected of them, and why it matters

Clearly, regular communication between managers and their teams is a vital ingredient here, with face-to-face talks being far more effective than occasional dry memos hoping some employees will read them – ‘over-communication is impossible’

But if a major culture change is needed, and quickly, one way is to employ an event likef the PPF – Putting People First – programme we first delivered back in the 80s for British Airways using upmarket venues such as the Rose Room at Twickenham rugby football ground

Essentially, PPF comprised:

  • A member of BA’s top management first explaining the company’s aims and strategy – ‘To be the world’s favourite airline’ – BA became so back then – sadly, 30 years later, they can no longer make this claim
  • An audience at each event of some 150 plus employees, carefully selected from different areas of the company, being encouraged to ask all sorts of questions of the top manager on the stage, the more awkward the better to show the honesty of the day – however, to avoid any career terminating results, an outside facilitator for the day collects all their questions and puts them to the top manager anonymously
  • External and internal customers’ wants of the company are then discussed, including a series of complaint letters being read out – many are found to be ‘news’ to the audience
  • After a good lunch at the upmarket venue – as the event is partly to demonstrate how the company values its employees, it must never go cheap – the audience is split up into several small groups, mixing people from different departments – they’re asked to list the most important problems facing them and produce ideas for solving them
  • The result can be thousands of good ideas collected – a treasure trove which can be used to generate huge financial and motivational benefits in both the short and longer term

Sadly, at BA, little was done with these ideas which obviously lessened the initial employee enthusiasm for the whole exercise

However, at the time, the objective of Colin Marshall, CEO, and Lord King, Chairman, was to change attitudes and make all their employees understand the importance of meeting what their customers wanted, both internal as well as external

To that extent, the programme was judged to be a great success, and credited with being a significant driver of BA’s success for many years after

 

Has innovation really peaked?

US economist Robert Gordon gets a lot of publicity these days for his dismal view that ‘technological innovation is declining in pace and impact compared to those of the 20th century’ – all set out in his book ‘The Rise and Fall of American Growth’

His whole thesis is based on economic growth statistics, GDP and TFP in particular, which purport to show that American economic growth peaked in the middle of the last century and has since fallen to its current lacklustre levels – a phenomenon which seems to have affected all other developed nations too

He cites the great technical innovations – aka GPTs (General Purpose Technologies) – as being electricity, automobiles, radio, telephones, modern housing, urban infrastructures, medicines which made huge differences to human lives

Such innovations kept on meeting new, often ‘higher’ human needs and, at the same time, opening up whole new sectors and creating many more, often better paid, jobs – overall, they continually fuelled surges in economic growth

At first, important innovations tended to focus on minimising the negatives in our lives – the dull, dirty or dangerous aspects – but, more recently, they have moved towards increasing the positive aspects instead – the things we get satisfaction from and enjoy such as via modern information and communication technologies

Gordon’s logic seems to hinge on the fact that, as each new sector appeared, quantum leaps in productivity improvement were soon found, then more became increasingly difficult and costly to find and, eventually, only incremental improvements could be made – so, if most human needs and wants are now being met, the scope and incentive for new innovations and thus new sectors is limited – so economic growth and improvements in standards of living are also limited

We doubt this, even considering just our material world – there are a host of major issues out there crying out for innovative solutions – for example, global poverty, health, energy supply, famine and droughts

Professor Paul Krugman also has doubts: “We cannot extrapolate from the present to predict the future”

And other techno- optimists say we are on the brink of a massive transformation as the era of big data, sensors, analytics and artificial intelligence unfolds to improve search engine results, drive cars, cut energy usage and boost productivity in all sectors

The US Technology CEO Council agrees, believing latest technologies are a game-changer – they estimate the effects of the information revolution have transformed just 30% of the US private sector, and applying them to the rest will add £2.7 trn to the US economy alone

So maybe Gordon should look at the bigger picture, take Steve Jobs’ advice and ‘think differently’

In future, the world will comprise both a material and a mental economy – at present, his thinking seems stuck in the material world alone

At the start of this new millennium, the global economy is at a watershed – a whole new mental world is opening up where we not only live much longer but have more enjoyable work and play

It would be a very foolish person indeed who said we had little new and major to discover there

 

 

 

 

AI to spark a new productivity boom?

A new productivity boom could be sparked by AI – Artificial Intelligence?

Who says so?

No less than two UK government ministers

Culture Secretary Karen Bradley says: “AI has the potential to improve our everyday lives” – precisely what productivity improvement is all about

And Business Secretary Greg Clark claims: “Huge social and economic benefits AI can bring”

Apparently, they and the government want to make Britain the world leader in AI and, in the process, add £630 billion to the UK economy

PWC (Price Waterhouse Coopers), the management consultancy, go further and claim global GDP will be some 14% higher in 2030 as a result of AI – this is equivalent to an extra $15.7 trillion, with the greatest gains being realised in China and North America

Anand Rao, global leader of AI at PWC says: “The value of AI enhancing and augmenting what enterprises can do is large, if not larger than automation”

Businesses that fail to apply AI could quickly find themselves being undercut on turnround times as well as costs and experience, and may lose a significant amount of their market share as a result

Grand aims but how will this happen – and who will make it happen?

According to an article by Darren Roos of SAP change in the digital world is happening rapidly:

  • “We generate more data in a day than we used to produce in a decade
  • AI already helps reduce operational costs by automating manual tasks
  • Consider how, only a decade ago, smartphones were a rarity – now most people have one”

 

The Economist says: “Data is giving rise to a whole new economy – it’s as important to this century as oil was to the last one, creating new infrastructure, new businesses, new monopolies and new politics”

Indeed, AI is already recognised as being the most effective way to gain an edge over competitors

At the same time, according to Gartner, AI will be a ‘net job creator’ in the long run, freeing people from repetitive tasks to do more interesting work which adds more value to them and their employers

So who will make this happen?

Roos says: “It has to be a joint effort between businesses, academia and government”

The UK government has said it will focus on four key areas:

  • Developing AI skills
  • Increasing AI uptake
  • Improving data use and availability
  • Building on AI research

 

Roos applauds these target areas – as long as they are acted on NOW and not some vague moment in the future – otherwise Britain risks being left behind as other developed nations race ahead

He concludes: “AI or machine learning has the potential to directly support the success and growth of UK businesses – the future of our economy depends on us getting this right and the time to embrace it is NOW”

Lifestyle changes are on the move

The UK’s CEBR – Centre for Economic and Business Research – claim an important change in preferences towards work is now on the move

Many people are choosing jobs which offer less pay but more attractive lifestyles or ways to help others

This change in attitude is already ‘a key element in around a third of the UK economy’ and is now affecting the attitude to and nature of work in the other two-thirds

Importantly, it’s having an impact on national productivity levels, GDP and thus public finances

The CEBR believes this change in job preferences – this new ‘lifestyle economy‘ – has reduced GDP growth by 0.4% per annum which ‘could explain’ around a quarter of the measured productivity shortfall

They also believe it ‘could explain’ the persistent public sector deficit – ‘without it, the deficit of £46 billion last year would have been only £10 billion’

They conclude that, if this lifestyle economy trend continues, productivity growth will be held back so either taxes will have to rise or growth in public spending be further constrained

They concede, however, that there are compensating welfare gains too: “It is much better for people to be doing what they want to do than doing jobs they don’t like, even if those jobs are better remunerated”

Indeed, it is estimated that a third of jobs in the UK now could be described as ‘lifestyle based’

The British Social Attitudes Survey supports this assessment – they found that the proportion who think they have a ‘good job’ has risen sharply, from 57% in 1989 to 71% in 2015 – a ‘good job’ is defined as one with at least four positive attributes such as being interesting, helping others and/ or society, offering chances of advancement

Significant changes in UK occupations, according to the CEBR, support this view viz:

  • Managers – Down from 3.9m in 2008 to 2.6m in 2017
  • Professionals – Up from 3.7m to 6.4m
  • Care & Leisure – Up from 2.4m to 3.0m
  • Teaching professionals – Up from 1.298m to 1.556m
  • Health professionals – Up from 334,000 to 563,000
  • Artistic & Literary – Up from 190,000 to 416,000

In particular:

  • ICT professionals – Up from 444,000 to 922,000
  • Business & Statistics professionals – Up from 377,000 to 729,000
  • Scientific professionals – Up from 141,000 to 195,000
  • Sports & Fitness – Up from 120,000 to 188,000

Conclusions:

  • We don’t live to work but work to live
  • Hence, we support the above trend which seems to be ongoing
  • But the significant impact it is claimed to be having on GDP growth has to be treated with great caution given the basic GDP statistic used is, in our view, seriously flawed

 

 

 

Financial data can be ‘dangerously misleading’

Transcript of a second broadcast where the UK’s Ed Smythe is interviewed by the USA’s Real News Network

GREGORY WILPERT: Welcome to the Real News Network. I’m Gregory Wilpert, joining you from Quito, Ecuador. The Bank of England has raised interest rates in the UK for the first time in a decade. The official bank rate has been lifted from 0.25% to 0.5%, representing the first increase since July 2007. Bank of England governor, Mark Carney, defended the move as necessary to respond to rising inflation.

MARK CARNEY: Effectively, what the bank has decided is to take our foot a little off the accelerator. The economy is growing a little faster than its speed limit. That speed limit has come down over the years since the crisis, for a variety of reasons. We’ve got unemployment at a 42 year low. More people in work than ever before. We’re seeing the first signs of waging starting to pick up, but most importantly for those watching, that real income squeeze, which has been hitting households over the course of this year, the worst is ending. It’s starting to turn now.Still, even with this rate move, we’re still providing a lot of support to the economy.

GREGORY WILPERT: Joining us today to discuss what all this means for everyday British residents is Ed Smythe. Ed is an economist and researcher at the financial research organization, Positive Money. He worked for nine years in asset management, and as an equity analyst and micro economist. Welcome back to the Real News, Ed.

ED SMYTHE: Thank you for having me back.

GREGORY WILPERT: Can you briefly describe to us what this decision to raise interest rates will mean, and who we can expect the winners and losers to be as a result of the rate rise?

ED SMYTHE: Okay. Well it’s worth understanding this is a very small .25% interest change, which will benefit, to some extent those people who have deposit accounts if the banks pass this through. It’s quite likely that they won’t do so. The people who will lose will obviously be those people on variable rate mortgages, who will see them reset, or also people who are on fixed rate mortgages, who will see them reset over the next couple of years. There’s certainly winners and there’s losers. And there’s also a case of taking a step back to think about, well what’s gonna be the effect on the micro economic conditions, in terms of the ability for consumers to take on debt, and also for businesses to invest. It’s worth thinking about this effect, not just in terms of winners and losers, but effect on how it will drive the economy going forward.

GREGORY WILPERT: So the Bank of England governor, Mark Carney, said during the interview, “What we have been doing since the Brexit referendum is doing our utmost to support jobs and activity in this economy.” But is it true that the only options were to either keep interest rates where they were or to raise them? Were there other options, in other words?

ED SMYTHE: Well as it stands, the Bank of England is sticking very much within its conventional thought-set, to the extent it’s used quantitative easing to push down interest rates at the long end of the curve. We argued that effectively it’s risen itself into a situation where it’s facing these incredibly tough choices. If it leaves interest rates where they are, you’ll continue to drive the economy on rising debt or rising asset prices, feeding into a household deficit, which is the highest it’s been in over 100 years, or if you raise them, you risk bringing the whole deck of cards down, to the extent that that debt then becomes vulnerable or asset prices come down. So what we’re saying is that you need a radically new tool, a tool which is overt monetary financing to enable banks, the central bank, to create money, a certain amount of creditably constrained money, which goes directly to government, so that they can boost spending in a sustainable and fair fashion.

GREGORY WILPERT: I mean, what kind of tool are we talking about? Can you give us a little bit more detail?

ED SMYTHE: Over at M4, we sometimes call it QE for people. Is the policy whereby imagine the central bank could produce 60 to 70 billion pounds worth every year to purchase zero interest perpetual bonds from the government, and it would enable the government to then deliver that spending into the economy to deliver jobs, etc., and to spend it on the things that we actually need, like health care, education, and infrastructure. And boost the productive capacity of the economy.

GREGORY WILPERT: Let’s take a look now at the issue of inequality because that’s been one of the major issues that you’ve also been concerned with. Last year, Mark Carney argued that inequality in the UK was actually declining and that the poorest people in Britain saw the greatest gains and wealth as a result of the other kind of quantitative easing that they had been implementing. However, recently you wrote an article entitled The Bank of England’s Depiction of Inequality Data is Dangerously Misleading. Explain to us what your concerns are, with regard to how the Bank of England is speaking about inequality in the UK.

ED SMYTHE: This was the 2016 speech by Mark Carney where the governor set out to talk some hard truths, to talk about some of the issues that people have been talking about, inequality and relation to the policies of QE. Now he presented a chart in this, which talked about the fact that the lowest quintile in terms of those who own wealth, the lowest 20% had gained the most over the period from 2006 to 2008, to 2012 to 2014. On a percentage change basis, they’d seen their wealth go up 43% and all quintiles have benefited. What we did was we looked at the underlying data to see, well what were the absolute numbers for each of the different quintiles. What we found was quite disturbing because actually the lowest quintile, although they had the highest percentage increase, actually had an absolute increase of only 1,600 pounds, so they went from minus 3,800 pounds to minus 2,200 pounds. They were still in debt at the end of this period. If you said the top quintile, the top 20%, they saw their assets go from 980,000 pounds to 1.3 million pounds, so an increase of 320,000 pounds, or 189 times that of the poorest quintile in society. The idea that this can be presented as a chart in which the poorest have gained most, we do think is dangerously misleading. And the real consequences of this is that when Mark Carney says it’s important that the government takes fiscal steps to offset the effects on monetary policy and how it has affected wealth inequalities, it’s very difficult to do so if the government isn’t being presented with its data in an accurate fashion. And also, Mark Carney would do well to perhaps come out with some suggestions about what sort of fiscal policy he would have in mind to help redress such big swings between the top quintile and the bottom quintile of wealth.

GREGORY WILPERT: Let’s just quickly take this back again to the issue of the interest rate rise. What effect would the interest rate rise have on inequality in this context?

ED SMYTHE: Obviously the danger is, if the interest rate does trigger a reduction in investment at a time when actually business uncertainty’s already rising with the negotiations in Brussels. If it does have an impact on the ability for consumers and students to take on extra debt going forward, it does mean that it will put the brakes on the economy at a time when actually the economy and real wages are already struggling. And it potentially creates the conditions for the next financial crisis, or at least front-loads the timing of that crisis. Then the implications to inequality are very significant indeed. If that doesn’t happen, we’re back to the original starting conversation, in terms of there are some people who will be highly leveraged with variable rate mortgages, who will suffer, and in fact it’s more likely that the banks will not pass this on. So few depositors will actually see their interest rates rise to see a benefit here.

GREGORY WILPERT: Okay. Well we’ll continue to keep an eye on this situation with regard to the economy, and we’ll probably get back to you. We were speaking to Ed Smythe, an economist and researcher at the financial research organization, Positive Money. Thanks again, Ed, for having joined us today.

ED SMYTHE: Thanks for having me. Thanks.

GREGORY WILPERT: And thank you for watching the Real News Network.

UK economy depends on private debt!

N.B. This is a transcript of a broadcasted conversation between the USA’s ‘Real News Network’ and UK economist Ed Smythe

G. Wilpert: Welcome to the Real News Network. I’m Gregory Wilpert joining you from Quito, Ecuador.

UK households are spending more than their income at an unprecedented rate. Record-busting levels of privately held debt are also accompanied with stagnant or even falling real wages in the UK. The situation is so bad that members of Parliament have started calling for a public inquiry into 200 billion pounds worth of privately held debt in the UK.

Perhaps even more disturbing is the argument of our next guest who says that the only thing keeping the UK out of recession is the growing and unsustainable levels of privately held debt.

Joining us today to discuss the growing private debt crisis in the UK is Ed Smythe. Ed is economist and researcher at the financial research organization Positive Money. He worked for nine years in asset management and as an equity analysts and macro economist. He recently wrote an article for Open Democracy called “The UK is Hooked on Rising Asset Prices: What Happens When the Bubble Bursts.” Thank you for joining us at the Real News, Ed.

E. Smythe: Thank you for having me.

G. Wilpert: So in your article you say that the British economy is being kept afloat by unsustainable levels of privately held debt. What is the basis of this observation of yours?

E. Smythe: So essentially and in fairness it’s not just debt, it’s also capital gains. So the way to think about this is we can look at the sectoral flow of funds in terms of how the UK economy is growing. At the moment we can see that the UK household sector is running an unprecedented deficit, more than it was before the last financial crisis. And in fact, more than it’s ever done in the 100 years of records that we have. Now the question is, how are they funding that? And in part, that’s coming through debt, but we argue that it’s also coming through massive capital gains over the last three decades or so as interest rates have come down. So it’s the combination of both the debt and capital gains that are funneling and funding that deficit.

G. Wilpert: Some such as David Graber recently also argued, and I think I mentioned in your article, compare the current private debt level to the private debt levels that led to the 2008 global financial crash. So are we in this territory now, and is it likely that the current private debt levels will repeat what happened back in 2008?

E. Smythe: Yes, so I think it’s interesting. We had Mark Carney on record recently in a speech that he made last week talking about the fact that household debt levels are actually down relative to where they were, relative to incomes, before the last crisis. But actually that’s focusing on a bigger metric which includes mortgages. If you just look at consumer and student loan debt, that’s actually rising at the fastest rate ever. So it’s rising at about 31 billion pounds per annum whereas before the crisis it was rising at about 25 billion. It’s also risen to the highest ever level at about 315 billion. So there’s a clear red flag that to the extent that private debt was the cause of the last crisis, it’s absolutely waving it today to suggest that this could be a factor in causing the next financial crisis.

G. Wilpert: I mean, back in 2008, one of the detonating factors was that investors were partly misled about the nature of the debt that they were taking on when they were buying the mortgages and so on. In other words, they were given AAA ratings in the United States when actually they were very questionable loans that had been given out. And when people couldn’t pay them off, then the investors were caught unawares of the type of loans that they had. Is there any chance that something like that would happen? Is there any misleading going on … Or what would trigger, in other words, a possible crisis this time around? Raising of interest rates, what would be so to speak the detonating factor if something were to happen?

E. Smythe: Yeah, so strictly speaking, when we talk about consumer and student loan debt, that doesn’t include mortgages. So it doesn’t necessarily relate to what you talked about in terms of the mortgage coverage and that that occurred prior to the last crisis. But in answer to the question is there a risk that many of these consumer and student loan debts have created on the backs of people who might simply not have the ability to repay? Absolutely. We are seeing signs. Particularly in the PCP pending market for autos that the availability of credit is at an alarmingly high level. There’s essentially a complacency in the market which typically happens after many years of recovery where lenders reduce those checks that should be in place. And therefore, once you’ve done that, you create the condition by which even a small trigger might start to bring down the whole sort of cascade, if you see what I mean.

G. Wilpert: Uh-huh. And so what kind of proposals have you been suggesting to push the UK away from debt-based, consumer-driven economy?

E. Smythe: Well, in reference to the first argument that I made, it’s not just consumer and student loan debt, and also the mortgage debt market. It’s the fact that actually we’ve also been reliant on a massive, massive expansion of net wealth. And in fact, the UK’s net wealth disposable income ratio is now the highest for any developed economy ever, worse than Japan in 1989. So what we’re saying and what Positive Money is advocating is a fundamental shift in monetary policy and the mechanism by which money is being used to sustain economic growth. We want to shift from the policy whereby at the moment we need very low interest rates to boost the price of assets or to enable increased amounts of debt to generate a certain amount of household spending, the deficit which is currently driving the economy, and instead shift to a much more sustainable mechanism whereby money is created by the central bank using zero interest perpetual bonds, an incredibly constrained amount, which allows governments to then spend that directly into the economy to get the sustainable increase in demand that we need. And, in doing so, you could actually turn down some of these other dials of ultra-low interest rates in QE. You could have a reduction for example in asset prices, a reduction in the expansion of ever greater demand of credit. And instead, you’ve got a sustainable demand function. So it’s the policy of overt monetary financing, or QE for people is what we’d call it. And it seems to be the only mechanism by which we can move from the current status quo to something much better.

G. Wilpert: You recently spoke also at the Conservative party conference. What was the gist of your presentation and how was it received there?

E. Smythe: The presentation was cool after the crash, and I suppose our argument was actually when we look at many sort of metrics, it’s very difficult to suggest that the crash ever ended. So we’ve just experienced the worst decade of real wages since the 1860s and perhaps a long time more. We’ve got record low productivity levels, record low investments, record low interest rates, record high asset prices. So what we’re saying is, look, the situation as it stands is simply not a normalized scenario. Therefore we have to be thinking about slightly more radical options, both in terms of the way we hold the central bank accountable, but also think about these other tools of overt monetary financing because it’s the only mechanism this government can achieve its policy objective of achieving an economy that works for everyone, and particularly for the younger generation.

G. Wilpert: The proposal to me sounds a bit like you’re suggesting the government should essentially spend more and essentially steer away from the austerity policies of the past ten years or so. Is that correct? Is that a fair summary?

E. Smythe: It absolutely is, but it’s with a sort of modified agenda behind it as well because I suppose we are currently working within a paradigm whereby governments, when they spend, are necessarily imposing a sort of intergenerational tax on the next generation to pay that debt back off with interest. What we need, particularly given the intergenerational transfers that we’ve seen to date, we need a system whereby we can fundamentally deliver demand into the economy on the things we need, like infrastructure, education, and healthcare, but without saddling the next generation with huge interest costs on this debt. What we need is a policy whereby governments feel that they can spend a little bit more on those things without increasing the potential for interest costs down the line. And that’s why overt monetary financing is the only solution to deliver that step changing government spending and shift us back onto a sound fiscal footing.

G. Wilpert: And how do you think that the Labour Party is on this issue which also just recently wrapped up their party conference?

E. Smythe: Yeah, so we are having interesting conversations with members of both parties. We think, you would imagine, that the Labour Party should be more receptive to these arguments. At the moment they are focused to a large extent on a national investment bank which delivers some small benefits. But we would argue it’s not big enough thinking. If you think about for example the problem in the next 50 years, and I think it’s important that people do, the OBR predicts that the government deficit will increase to a primary deficit of 9% in 2065 just as dependency ratios etc., really kick in. And so what we’re saying is we need a fundamental solution that will stand the test of time. It can’t be gimmicks. It can’t be small tweaks around the edges. We need to be reframing the whole debate about monetary policy and how much governments can spend. And sort of confronting directly some of the misplaced arguments that have often been used to counter this type of proposal.

G. Wilpert: Okay well we’ll probably come back to you again once we see a little bit clearer as to which way the UK is heading on this issue. But thanks so much Ed for having joined us for today.

E. Smythe: Thank you very much for having me. I enjoyed it.

G. Wilpert: I was speaking to Ed Smythe, economist and researcher at the financial research organization Positive Money. Thank you for watching the Real News Network.

Scanning the productivity horizon

First, productivity improvement transformed the agriculture sector providing millions more people with more and better quality of food and drink at more affordable prices

Then it was manufacturing’s turn, providing more and better clothes and shoes, white goods and cookers, bikes, cars or planes – all making lives easier and getting from A to B quicker

Construction improvements also provided more and better houses, energy and sewerage systems and infrastructure e.g. bridges, roads, railways and airports

As some companies grew, they outsourced many of their operations to smaller specialist outfits who could do specific tasks better and/ or cheaper – thus national economies grew

Private services also developed to provide specialist skills companies and individuals needed, often only on a part-time basis e.g. legal and accountancy support

Increased profits and so national tax-takes generated by these improvements in the private sector have enabled some countries to become welfare states by setting up basic public services, again to improve lives e.g. healthcare and education services for all, national police, fire and armed services, local rubbish collections

So far, so good – but we’re never satisfied with our lot and always want more and better positive things in life and less negatives viz:

  • More information – wider and faster broadband
  • More interesting jobs – less dull, dirty or dangerous work
  • More time at home, with the family and enjoying ourselves – less time at work doing things we’d choose not to do given the option

So what may be next around the corner?

Some say:

  • Working hours will be reduced from the current average of 35 to 15 hours per week by 2030, with zero being a strong possibility by 2050 – the great John Maynard Keynes forecast we would already be working 15 around now
  • Automation, artificial intelligence and robots will do all the work we don’t like to do to produce all the goods and services we both ‘must have’ and would ‘like to have’ – and, at the same time, generate the profits needed to fund a social nirvana where 100% of the population do whatever they want to do that’s legal
  • This will require a UBI – Universal Basic Income – to be paid to everyone so none need to work and all can afford the same goods and services – this idea is not as reckless as it seems although there are many ramifications yet to be fully considered – indeed, it has been shown that if you give money to poor people, even petty criminals and drug addicts, they will use it sensibly, usefully and effectively – they don’t waste their own money, so a UBI is unlikely to be an incentive for idleness, laziness or worse

However, such changes will not happen quickly, if ever, so patience is needed

According to Amara’s Law, named after Roy Amara, a Stanford University computer scientist and head of the Institute for the Future:

“We humans tend to overestimate the impact of a new technology in the short run, but underestimate it in the long run”

Matt Ridley in The Times quotes several technologies where this law has applied:

  • Steam locomotives
  • Electric light bulbs and motors
  • Computers
  • The internet

After some initial excitement about their potential, all these ideas were considered to be ‘nuts’ – yet all eventually became GPTs – widespread, hugely popular and effective General Purpose Technologies

So why does it take so long for such major new ideas to catch on – around 15 years according to Ridley?

Economist Erik Brynjolfson explains: “One needs waves of complementary innovations developed and implemented plus organisational changes plus new skills taught before such GPTs really take hold”

So any major new idea which creates major change will also take major time

Hence, we should not expect the above list of horizon ideas, or anything like them, to have universal effect in the near future

 

 

More job satisfaction, more pay!

“Life is not fair – get used to it” – so said Bill Gates

Many bosses might agree with him, if they were honest – they’re good examples after all

As people climb ladders at work, so their job satisfaction also tends to rise – more status, responsibility and power – bigger decisions to make, more interesting problems to solve, more ‘pride in workmanship’ as Dr Edwards Deming, the management guru, called it

But their pay and other employment benefits also rise significantly

How is that fair?

Most people have to work in order to earn money, first to support themselves and their families and then to do other things they enjoy with any surplus, their ‘discretionary income

Sadly, surveys show most would ‘pack in’ their current jobs if they won the lottery

Cash is certainly needed to encourage people to take on jobs which they would not do otherwise – cleaners to sweep floors, nurses to wipe bottoms, firemen to risk terrible burns whilst trying to save lives and buildings – jobs which are dirty or dangerous – and the worse they are, the more pay they might expect up to a level where management feel compelled to seek ways of automating their work

But most jobs are neither dirty nor dangerous – they’re either unskilled, semi-skilled or clerical – most job holders find them dull and can’t wait to get home to do things they enjoy – and most people can do such lowly paid jobs with little training needed so there’s little need to pay them well to attract the numbers needed

That leaves one last broad category of jobs – difficult  jobs – where there’s usually a scarcity of competent people to do the work

According to author Malcolm Gladwell: “Nobody becomes very good at anything without talent and putting in some 10,000 hours of practice” – hence the labour pools to fill highly paid jobs are relatively small, the competition high, and the pay higher – hence one finds Peter’s Principle rife throughout all rungs on the management ladder

To keep pay levels high, some organisations have distorted the market for difficult jobs by restricting supply even further viz:

  • The trade unions once insisted on ‘closed shops’ where, for example, only skilled electricians were able to do electrical work – ditto welders, joiners, plumbers – which greatly reduced productivity, increased unit costs and reduced competitiveness – hence the UK shipbuilding industry is now a pale shadow of what it was only 50 years ago
  • The legal profession continues to bar many qualified barristers from being ‘called to the bar’ and practising in court to keep their numbers down and pay levels up, thus feathering their own nests but depriving most of the population from affordable access to justice when offended against

But such supply restrictions do not explain how some bosses can be paid small fortunes

Average FTSE 100 CEOs’ pay is now said to be over 150 times the average salary paid to their troops, some five times more than most would consider to be fair – and for doing what most of them would probably elect to do anyway because they enjoy the status, power and/ or problems encountered:

  • None seem to recognise that much of their success, if any, has been beyond their control – either as a direct result of the efforts of others within and without the firm or due to a stroke of luck such as a change in legislation
  • Nevertheless, if things go right on their watch, their employment contracts ensure that massive rewards fill their pockets
  • And, if things go wrong, similar rewards still pour in or golden goodbyes and enormous pension pots are paid out?

Heads they win – tails they don’t lose

So how can they do this?

“Because they can” according to President Obama

They appoint their chums – their ‘inner circle’ of top school/ university/ consultancy ties – to become non-exec directors who hop on a carousel of pay review committees – all then see what others earn so vote for each other getting at least the same (transparency levels pay up, not down) – shareholders are kept quiet by short-term actions taken to keep share prices and dividends rising – employee discontent mounts, morale dips, productivity stalls, but few notice or seem to care

It’s a system in disrepute – another ‘ugly face of capitalism’

By all means pay vast amounts to the entrepreneur or inventor who took huge risks, who re-mortgaged his house in order to set up and fund a company which turned out to be successful, employ thousands and pay lots of taxes to help fund good public services e.g. Bill Gates, Larry Ellison, James Dyson

But the great majority of the current crop of CEOs are mere watch-keepers who take few big risks and only order‘steady as you go’

To pay them 150 times the average is obscene, contemptuous of employees, an affront to shareholders and offers ‘two-fingers’ to the nation which provides them with vital support

Such practices must surely be stopped somehow and soon

And ignore any pleas that premier league footballers are paid more outrageous amounts, thousands of times more than their doting fans, and for doing something they’d probably do anyway, most Saturday afternoons, for nothing

Such footballers earn such rewards for the intense pressure to perform well that they endure every time they appear on the park – they have no hiding place – many thousands judge their individual performances every week – if they don’t cut the mustard, they’re dropped, and fast – if the team wins silver, and they played well, they win big-time – otherwise, they’re out – it’s brutal

But surely such criteria also applied in the days of Manchester United’s ‘Busby Babes’, say, some 60 years ago yet they were paid relative peanuts

So why the difference?

Scaleability

No longer do top football teams play in front of a few thousand stood in a small cold stadium – now top teams are watched live by 20,000 to 60,000 in the crowd at each game plus millions more at home and abroad on TV live, plus even more millions later on via recordings or replays

TV companies pay many millions for the rights to televise them depending on their success levels – advertisers then pay the TV companies many millions more to access their viewers

Most viewers want to watch winners, which means ‘top players’, so top players rightly expect to get a fair share of those millions, even though they’ve been organised by the efforts of marketing professionals, global communication systems and corporate advertisers, not them – ultimately, it’s their performance levels that determine their earnings – if they’re talented and successful, the public will want to watch them – if not, they will soon join the rest of us

Such scaleability also applies to the pop music business

But it certainly does not apply to the top FTSE 100 CEO business

 

 

Great performers employ CI

There’s a direct read-across between how the best in business emulate the best in sport

In an article in The Times, Matthew Syed asks ‘What separates greats from wasted talents?’:

  • “Great athletes are hyper-confident – they don’t believe they have any weaknesses – they cannot be beaten – they’re already perfect and so cannot continually improve” – e.g. Mohammed Ali, world heavyweight boxing champion
  • “Great athletes are humble – they’re forever conscious of their weaknesses and this drives self-improvement – they recognise perfection can never be reached” – e.g. Jonny Wilkinson, England rugby fly half

So he asks whether arrogance or humility is best

The answer is both – humility when in private, self-assurance when in public

Humility is needed off the field when evaluating and working on weaknesses, often driven by ‘the fear of failure’ – aka CI (Continuous Improvement) in order to compete more successfully and so win more games or business

And self-confidence is needed when on the field, about ‘to rumble’/ take action/ do the business

Eric Cantona and David Beckham from Manchester United’s football team are named as good examples of the mix

Syed’s main conclusion is that sportsmen and organisations cannot forever believe they know-it-all and are unbeatable – when off the field, they must always be reviewing whether and how they might improve – however, when on the field they must always believe they will win and not suffer self-doubt

According to Cristiano Ronaldo, footballer with Real Madrid: “You can always get better – everyone can improve”

The same applies to all businesses in all sectors, public as well as private

At present, like in sport, the best organisations, the champion 20% premier league players, employ various versions of this CI approach and so enjoy many of the huge benefits on offer

But the rest – the other 80% also-rans – do not and so seal their own fate

 

 

Forget GDP growth?

Jacinda Arden, new Prime Minister of New Zealand and, at 37, the world’s youngest female leader, recently claimed that free markets are a ‘blatant failure’

In future, economic performance should not be measured by GDP growth and unemployment but by whether people’s lives ‘offered enjoyment and meaning’

“We need to make sure we are looking at people’s ability to actually have a meaningful life, an enjoyable life, where their work is enough to survive and support their families”

At present her countryfolk were “not feeling the benefits of any form of prosperity”

Hence her new government would address the failures of free markets through intervention

“Has the market failed our people in recent times?

Yes

How can you claim you’ve been successful when you have growth roughly 3% but you’ve got the worst homelessness in the developed world?”

Her short term agenda thus includes raising the minimum wage and banning foreign speculators from buying houses

P.S. Ms Ardern briefly worked in Britain’s Cabinet Office during the Blair years

‘Flat earth’ brigade rides again

Watch, listen to or read the media and the great and good of the economic world – the heads of the UK Treasury, BoE, IFS, IMF, OECD, OBR or ONS to name but a few –  and, with rare exception, all paint the same dismal picture viz:

  • It’s doom and gloom for the UK economy from now on
  • Productivity has peaked
  • Productivity growth has been negligible for the last ten years
  • The UK is in an even worse state than France, for heavens sake
  • The UK has had terrible productivity growth since WW2, deteriorating GDP and rising inflation which means no end to austerity in the budget
  • We must get used to low productivity and low pay levels from now on
  • The good times are over
  • The ability of the UK Chancellor of the Exchequer, Philip Hammond to borrow or spend from tax receipts will be severely limited

What miserable pessimists they all are

None question the data on which they base these views – they’re deemed to be facts 

No doubt most belong to the same close-knit groups – select chattering classes who meet and argue with each other, read each other’s papers and soon find their views coalesce

Groupthink is the result – a view that gathers momentum by seeking out confirmatory data whilst brooking no dissent – the facts may change, their views do not

It reminds one of the enormous resistance Galileo experienced when arguing against the received wisdom of the day that the Sun revolved around the Earth

Or current attitudes towards Nigel Lawson, ex Chancellor of the Exchequer, when he offers inconvenient facts which raise doubts about man-made influences on apparent global warming, especially when we know Planet Earth has suffered ice ages not that long ago, and tigers roaming the UK not long before that

Best, whenever the mass of opinion claims, but cannot prove, a theory to be scientific and first try to disprove it and why it might be wrong – and only when this fails claim it must be right

Hence, the current consensus that productivity growth is poor and will continue to be so, with dire consequences for the nation’s standard of living, needs to be tested

Already, there are some leading experts who consider the base data on which such forecasts are made to be not only seriously flawed but also dangerously misleading, not least because:

  • National budgets and major taxes are decided based on them
  • Public spending is cut in some areas – austerity is prolonged when it might not be the answer
  • National demand/ consumption falls as people take note and batten down the hatches
  • Businesses and banks become risk averse, so vital capital investment for productivity improvement dives

So, at present, the popular view is ‘gloomy times ahead’ – and actions taken reinforce this view

But what if the doomsayers are wrong?

All we need is data to prove them so – and therein lies the rub

 

Business lives getting shorter

In an article in the Sunday Times, Luke Johnson, chairman of Risk Capital Partners, says turnarounds need exceptional managers or ‘company doctors’ and a radical agenda – and not many are equipped for the job

First, why do many businesses fail in the short term, and virtually all in the longer term?

In 1950 the average life of a company in the S&P index was 47 years – according to McKinsey consultants, by 2020 it will fall to just 10 years

Reasons for this include:

  • Market share lost to new competitors or changing tastes
  • New technology making theirs outdated e.g. Kodak film versus digital cameras
  • Cash generation drying up
  • Diversification reducing focus on winning products
  • Fire, flood, fraud or customer bankruptcy hitting them
  • Lacking good controls
  • Building a grand office before a good business

Good managers must avoid such problems becoming serious

Some, no matter how good they are, will fail at some stage down the line – the information they act on is rarely perfect so there’s always risks involved with any decision they take – one day, they inevitably get things wrong so down they go – it’s the same with democratic governments trying to get things right when protecting their citizens every day against terrorism – the governments have to get it right every day if they are to ‘win’, the terrorist only once

And most managers are not so good, so the odds are much more against them winning in the long term – some bury their heads in the sand, some even deny there’s a problem when it’s staring them in the face – hence, they’re unwilling and/ or unable to do what’s needed – such managers should ‘almost always be replaced’

So what do good relacement managers or company doctors do when brought in?

  1. Analyse the problems
  2. Produce a plan
  3. Take action, with vigour

The action could include:

  • Cutting loss-making products/ areas of the business
  • Cutting costs big-time
  • Eliminating unnecessary overheads
  • Reducing stock, especially slow-moving or overvalued
  • Raising cash for working capital
  • Renegotiating agreements with lenders and suppliers
  • Collecting debtors more vigorously
  • Increasing prices where feasible
  • Offloading and replacing ‘chaff’ management
  • Educating and energising remaining ‘wheat’ management

Note such actions are all within management’s control

However, there are others outside their control which could prevent any rescue efforts succeeding – new competition, technology or legislation for example

Overall, turnarounds are high-risk ventures – even the best company doctors fail at times

Better, therefore, for existing managers to know how to avoid their company becoming yet another sunken ship

GDP anew – Indigo Prize

The INDIGO PRIZE is awarded for the best answers to:

“How would you design a new economic measure for global economies that fully acknowledges not only social and economic factors but the impact of creativity, entrepreneurship and digital skills?

How should your new measure be used to improve the way we measure GDP in official statistics?”

 I sent the following email to the Indigo Prize team

________________________________________________________________________________________

To: Indigo Prize <indigoprize@global-perspectives.org.uk>

I wonder if you are to publish the best of the winning submissions for your Indigo prize?

I ask because I seriously considered entering the fray having written a book ‘Productivity Knowhow’ where Section 20 is devoted to global productivity, the serious flaws currently within current GDP measurement and hence the equally serious flaws within labour productivity figures the ONS and others produce

However, I decided against entering because:

  • You ask for ‘one new economic measure’ when a suite of measures is needed – one all-embracing number is clearly not enough and will hide any useful information – you’ll end up with something akin to MFP or TFP which the BoE rightly called ‘magic fairy dust’ i.e. no manager or government minister understands or uses them
  • You also seek ways to improve ‘the way we measure GDP’ when, in fact, we’re at a watershed as we climb the human hierarchy of needs, especially we who live in the G7:
    • There are basic goods and services, private and public, we ‘need to have’ which we obtain via countable transactions using money – but aggregation makes national GDP data nigh on useless e.g. the statistics have it that Japan has been the least productive of all G7 nations for at least the last 30 years, so our gloomy experts prefer to compare the UK versus France whose productivity seems better, but only because their public sector costs are so much more
    • There are also many other activities ongoing in global economies which add to overall well-being but go uncounted – the white and black economies – so a huge error (15%?) is introduced here alone
    • And, nowadays, there’s enormous extra value from stuff we ‘like to have’ to enhance our lives which is uncountable – much we even obtain for free – e.g. vastly better communications, closer personal contacts, more knowledge, wide variety of entertainment – what % GDP error here?
  • Last, it’s unclear what you plan to do with any new ideas/ measures that emerge – especially given the ONS will hardly be enthusiastic to change and yet their support is vital, and all other G7/ G20 nations will also need to follow suit if useful inter-national comparisons are to be made

 

Overall, it is surely better not to measure whatever one can and use the results as a guide when such measures end up being deeply flawed and cannot be used to compare with others, quantify performance gaps, prompt action or monitor trends

Better to build the true economic performance picture much like a jig-saw, and assemble just enough pieces to be able to see the whole

Hopefully your winners will think much the same way

Whatever, I’d be most grateful if you’d let me have details of the winning ideas n.b. I’ve already signed up for your newsletter

Many thanks in anticipation

Dick Smythe

__________________________________________________________________________________

They kindly and quickly replied – see below

__________________________________________________________________________________

Dear Dick,

Thanks for your email and for your thoughts on the prize and the best way of finding a new economic measure – or measures, as you suggest.

We will be publishing the winning entries of the prize. Please keep an eye on our website and the mailing list for updates.

Thanks again,

The Indigo Prize Team

_________________________________________________________________________________

Hopefully, something useful will emerge

 

 

Business schools are failing the nation

Luke Johnson, a well-known UK businessman and Sunday Times journalist, asks: “What are business schools for?”

He believes they are ‘generally failing when it comes to researching the field of business’

Apparently, there are 120 members of the UK’s Chartered Association of Business Schools but none ‘defend the achievements of business’ i.e. the merits of the private sector, entrepreneurship, trade, innovation, markets, competition, the profit motive and wealth creation

He asks ‘where are the business professors who argue the case for capitalism?’

The Conversation website that sources thousands of scholarly business articles has none supporting capitalism

Business schools are sited on campuses where most students believe capitalism equates with ‘greed, selfishness and corruption’ lean towards socialism, Jeremy Corbyn, nationalisation, price caps, state expenditure and higher taxes

Hence, they ignore all evidence that high government spending might be ‘inefficient and unproductive’

They also avoid emphasising the positive gains only capitalism, for all its faults, makes possible viz:

  • Grows economies
  • Increases wealth of society
  • Promotes innovation
  • Increases jobs
  • Increases sales
  • Increases the tax-take to pay for more/ better public services

And, worst of all, they offer no courses on productivity, how to measure and improve it, and why

This is despite our leaders constantly peppering us with claims that nothing is more important than productivity improvement if the current generation is to enjoy a better standard of living and quality of life than the last one

How can that be?

According to Johnson: “Business is surely the greatest engine for human progress ever devised”

Business schools thus play a valuable role in offering managers, and millennials/ MBA students, practical courses on the full spectrum of subjects for good business management – all, that is, except the one that pulls them all together – Productivity Improvement

Sadly, the same can be said of most leading management consultancies and management organisations such as the CBI (Confederation of British Industry) and IoD (Institute of Directors) who offer little if anything to help UK managers (and government ministers) focus on making the big productivity improvements the nation needs

This lack of support is the productivity gap that the UK should be seeking to close – not the spurious gaps, which forever make the headlines, said to exist between us and France, Germany or the USA

Quote:

“Those that can, do – those that can’t, teach”

Depression costs billions

A study by the LSE – London School of Economics – found that depression costs South Africa a massive R232 billion a year, equivalent to around 6% of its GDP – this is due to lost productivity caused by absence from work or attending work whilst ill

Janet Yellen, when Chair of the US Federal Reserve, warned of an ‘opioid crisis’ impacting the US economy, removing men in their prime from the workforce, sometimes permanently – “Many individuals with less education are finding it difficult to be placed in jobs that are middle income jobs – unfortunately, this is likely tied to the opioid crisis – we’ve even seen an increase in death rates due to despair, suicides, drugs overdoses – apparently, more than 33,000 died this way last year alone”

Dr Sebolelo Seape of the Psychiatry Management Group claims depression is widespread with some 10% of the population suffering from it at any one time – she says problems resulting from depression include:

  • Memory loss
  • Procrastination
  • Extreme fatigue
  • Difficulty concentrating
  • Anxiety
  • Fear and panic

Add such problems to work-related stresses and one can soon see why an individual’s productivity would be reduced

But most employees keep on working when depressed and try to hide the fact – they fear losing their job or being thought weak by colleagues – and they don’t understand what’s happening to them

Some take occasional days off and just sit at home, but that’s no remedy

First, they must learn to realise they’re ill and seek professional medical help – they should also feel confident enough to discuss possible changes to their work or flexitime working if a relationship has broken down at home

They should remember they were useful, wanted and well before becoming ill, and so want and expect to become so again

And, if work is at the root of the problem, bosses, especially their immediate bosses, should recognise they’re often responsible for employees becoming depressed – and be made accountable

At present, this is far from the norm

For example, a survey by SADAG – South African Depression and Anxiety Group – found that, whilst some 60% of employees with depression disclose their problem to their managers, 70% receive negative responses or no response at all

The reason is most people, employees and managers, have little understanding of depression and its impact on work:

  • Sufferers are deemed to be whingers or malingerers – their symptoms are mere excuses for laziness and skiving – they need to ‘get a grip’
  • Worse still, rather than help them ‘get back up to speed’, some managers let many ‘walk out the door’ taking all their knowledge and experience with them – the huge waste costs of developing them to that stage and then replacing them are never calculated

The fact is depression is a seriously disabling affliction – a modern illness that’s growing rapidly which has already reached epidemic proportions – yet there continues to be a stigma attached to it which prevents acceptance of its existence or discussion of remedies

And it can affect employees at all levels in all types of jobs, including those at the very top – for example, António Horta-Osório, chief executive of Lloyds Banking Group, bravely admitted that he had to take months off because of “extreme fatigue”

Hence, some major organisations have taken some steps to counter the problem viz:

  • The BoE (Bank of England) now provides all employees with access to an on-site counsellor
  • GS (Goldman Sachs) offer psychotherapy and ‘crisis management’ to any employee who feels on the verge of a mental breakdown
  • Deloittes has set up a network of ‘mental health champions’ and offers training programmes to help managers identify mental health problems

But the BoE and GS action seems more token than the radical needed – and a rarity rather than the rule across all other organisations

What’s needed at corporate level are:

  • Many more high-profile revelations of people who have suffered and recovered from depression, to bring the illness out of the ‘shadows of shame’ and have most managers sympathise with it instead
  • Better education and training of managers in mental health problems, their causes and effects, and effective ways to deal with them
  • Simple ways to quantify the penalty costs involved if sufferers are left untreated

At national level, mirroring the LSE study above, depression costs the UK economy an estimated £70 – 100bn annually i.e. some 4.5% of GDP – it’s one of the biggest costs incurred by any nation and any organisation, public or private, within it

Government ministers and corporate managers thus have a duty to treat depressed employees very seriously

Productivity Commission (Aus) shows the way

Peter Harris, chairman of Australia’s Productivity Commission (PC), was interviewed on the airwaves

The purpose of the APC is to deal with problems that the Government finds too hard – too difficult to solve – based on a fact-based analysis

And it’s most important that their views are accepted as being independent

The process they follow with any problem they’re asked to address is:

  1. Start with gathering and analysing underlying facts/ data/ numbers
  2. Consider the impact on different groups of individuals
  3. Build a picture of the impact on the economy
  4. Ask experts in the field for their views, recognising they may be biased by self-interest
  5. Try to cover all sides of the arguments
  6. End up with a PC view
  7. Publicise their findings so many others can have their say

 

Usually, they’re optimistic that the Government will react well to their findings because all politics are kept out of the process

However, Harris admitted their work is not always implemented as they would like – but, even then, they get satisfaction from knowing they’ve fed nationally important debates

All positive stuff from a most impressive chairman

Note also that the USA also has an equivalent organisation – the APQC, American Productivity & Quality Center, which is independent, well-supported and focuses on helping all sectors of their economy to improve productivity and quality levels

Indeed, most developed nations have some form of NPO – National Productivity Organisation – albeit their importance and impact vary widely

The glaring exception, however, is the UK – a UKPC once existed, supported by the government, but was disbanded many years ago so now the UK has nothing which is well known, supported and used

Yet the current UK government keeps banging on about the importance of productivity to the nation’s standard of living and well-being – they lob a few billion pounds into piecemeal projects which might help somehow but leave most of the improvements said to be needed to managers on the front line

Hence, in the UK, there’s a huge productivity gap – a vacuum of support and information – between the macro-level productivity exhortations and statistics which government ministers, a variety of self-appointed economic experts and the ONS spew out on a regular basis and the micro-level people whom they rely on to do something about it

One had hoped the recent government supported PLG – Productivity Leadership Group – might help fill this gap but, after an initial flurry of publicity and excitement, what noticeable improvements have been made?

FDI boosts productivity of UK firms

According to the ONS – the UK’s Office for National Statistics – UK companies that get foreign investment are twice as productive as other firms

FDI – Foreign Direct Investment – comprises not just foreign cash injections but also foreign best practices and foreign management

One has only to consider the success of foreign car-makers within UK shores – Nissan, Honda, Toyota, BMW for example

Long gone are the days of ‘Red Robbo’, perpetual strikes and poor quality of cars at British Leyland – aka the ‘British Disease’

Since then, British owned car manufacturers have nearly disappeared – happily, to be replaced by foreign owned companies who have established themselves as world-beaters – even better than the Japanese at home

And this has all been achieved using the same labour-force pool as was available to British Leyland et alia

Hence, it was British management and their ignorance of Best Practices – working methods, use of robotics, employee training and employment packages for example – that failed the whole UK car sector, not the workers

The ONS claims that ‘UK output per worker’ has flat-lined since the financial crisis of 2008

And pessimists say Brexit will make matters worse for the UK by discouraging overseas investors that bring productivity-enhancing innovation, skills and technology

We disagree, however

First, ONS productivity statistics must be taken with several pinches of salt if they are to have any credibility at all – and, in this case, one wonders how they define ‘UK companies’ versus ‘other firms’ e.g. what sectors covered, what size and number of firms sampled?

Second, given the UK’s many strengths quite apart from Brexit negotiations still being ongoing, it is not clear whether the UK will be seen as an attractive place for future FDI investments, or not

Last, given the economies of virtually all the 27 member nations of the EU (excluding Germany and France) could best be described as ‘basket cases’ – to quote Nigel Lawson, ex Chancellor of the UK Exchequer – there’s unlikely to be much competition from that quarter

Immortality and galactic living beckon?

Recently, some mathematicians claimed to have proved that it is impossible for we humans to live forever, despite what some optimists from the stem cell, genome or cloning camps might say

According to Professor Joanna Masel, University of Arizona: “Ageing is mathematically inevitable” – we complicated animals are fated to follow one of two opposing paths, both of which lead to certain death viz:

  • Gradual decrepitude – where cells slow down and then stop functioning due to the ravages of time – hence, an organ just conks out – but it’s ‘incredibly difficult to imagine a way of getting rid of sluggish cells that doesn’t involve competition between cells’
  • Cancerous malignancy – where cells divide and multiply to replace older ones – this leads to a hyper-successful rapidly reproducing cell we call cancer – where cells compete with each other, there is the chance for them to keep dividing and become tumours

 

Apparently, she has developed a mathematical model which shows there is no way of negotiating between these two choices – one always gets you

Happily, she adds: “I always knew I was going to die”

But maybe her mathematical model, and the assumptions she has undoubtedly made within it, are flawed – and, even if not, who said we humans would want to live forever in our present physical form?

What if we had the option to live forever, albeit in another form?

Why would we want to live for thousands of years and more, getting older and older, with all the usual attendant and ever-increasing illnesses, aches and pains en route – imagine what we would look like and what we could not do aged a mere 1,000! – currently, even reaching 100 is a grim enough prospect given most if not all are then ‘tired of life’ and ready to ‘move on’

Ah, but what if we could stop, even reverse, ageing and prevent all illnesses, aches and pains – even choose to be aged 25 and at our intellectual, physical, mental and sexual peak of life in perpetuity?:

  • We’d no longer need to ‘stand on the shoulders of giants’ who’d gone before us – we’d be those giants ad infinitum
  • Sadly, sex would become redundant, maybe even illegal – otherwise Planet Earth would soon become overpopulated, Malthusian forecasts would be realised and we couldn’t feed all mouths

 

But these are watershed times – the digital revolution is taking the human race on huge leaps into the dark – maybe the above thinking is too blinkered

What if we no longer want and need to live in our current physical form, and we are able to digitise ourselves?

As with computer memories, what if we understood how we stored all our consciousness and subconsciousness – all our thoughts, experience, memories, emotions, feelings, even instincts evolved over time – and were then able to download and copy ourselves onto tiny memory chips or robot lookalikes, even incorporating our five senses

Immortality would thus be ours at a click – hundreds of indestructible copies of ‘us’ could be made – no more food or drink would be needed to stoke our engines – we’d wave goodbye to our physical lives, tangible goods sought and physical sport – the pleasures of life would all become mental

And, if we want to ensure all copies of us represent exactly the same person over time, they would be updated via a mechanism similar to the way the ‘cloud’ operates nowadays

We could then happily launch a few copies (chips) into space using tiny and so cheap rockets to escape Earth’s gravity – journeys could be made to other galaxies which took thousands of years – harsh conditions out there would be irrelevant, settlements unnecessary – human life would comprise mostly exploration and communication with others – time passing would become irrelevant

Such a possibility is no longer fanciful science fiction – already, technical and financial heavyweights have set up special research units focused on exploring the possibility and ways of doing just this

Why?

Because some want to live forever – others want to explore the vast Universe, not least ‘because it’s there’ – others want to insure the human race against extinction given the Sun will eventually explode

However, they might also dwell on some wise words from Steve Jobs: “Death is very likely the single best invention of life – it clears out the old to make way for the new” 

 

 

NHS wastes £40 billion every year!

Different parts of the NHS forever claim that they’re working to capacity – that they cannot cope without the injection of significantly more resources, funded by the taxpayer, not some ‘magic money tree’

But what is the capacity of each of these parts, and the total NHS?

Nobody knows – so the assumption is made that current capacity equals current volumes of in and out-patients dealt with – and the only way to significantly increase capacity, meet demand and reduce waiting times is to add yet more resources – more beds, doctors, nurses and facilities – taxpayers will surely not mind such an investment to benefit them

But this thinking is typical of the public sector – if results are not as expected or wanted, it must be because of lack of input resources – and nothing else

Few question whether current methods of working, processes and systems, could be improved – few compare their performances with best practices achieved by similar units who somehow manage things differently, cost less and achieve more

In particular, few realise how much they waste of their resources used and so costs incurred – most assume, because they’re working ‘flat-out’, that waste must be no more than say 1-2%

Imagine if they found out that it was some 30% or more, meaning they didn’t need any more funding to cope with current demand

And imagine what the public would say if they also knew waste was this high – equivalent to some £40 billion every year unnecessarily taken out of their pockets!

This is not scare-mongering by outsiders but considered views from insider experts

Professor Tim Briggs, a surgeon, says: “The NHS does not deserve more tax-payers’ money until it puts its house in order – there’s significant waste out there – we could do a lot more work with the money we have” – in particular:

  • There’s huge variations in the cost and quality of common treatments with low-performing hospitals routinely ignorant about superior methods adopted elsewhere
  • Some 300,000 patients a year are needlessly admitted to emergency surgery when they do not need an operation – if they were tested quickly, many could be sent home immediately
  • Some hospitals are paying 350 times more for basic surgical equipment than others for no apparent reason
  • There’s no consensus about best ways to carry out some common procedures
  • Infection rates after hip replacements are 25 times higher in some hospitals than others, greatly increasing unwanted demand and incurring huge extra costs
  • Hospitals tend to have no idea what others are doing – they’re even surprised when they find out they’re lagging others

 

Other experts have also identified major sources of NHS waste:

  • Stuart Rose, ex boss of Marks & Spencer, after a major review, concluded: “The NHS is drowning in bureaucracy”
  • Patrick Carter claimed hospitals are: “Wasting £5 billion a year paying too much for medical supplies and needless variations in care”
  • Steve Russell, MD of NHS Improvement, claimed: “The average surgery wastes two hours a day – bottlenecks are not identified so operations are not scheduled well – UK hospitals could carry out 750 more routine operations a day (i.e. at least 15% more)

 

On top of this waste cost, existing staff are now also grumbling about their need to be paid more – so that’s even more tax-payers’ money needed just to stand still whilst the above waste persists

Philip Hammond, UK Chancellor of the Exchequer, has thus entered the fray and reportedly told Jeremy Hunt, UK Health Secretary: “If NHS staff want a pay rise, they must improve their productivity to pay for it”

About time too

NHS staff are right to seek a pay rise – they haven’t had one of any significance for years now

But NHS management have some explaining to do – they require their staff to follow current wasteful and disjointed procedures/ methods that they have defined – and staff work hard and long hours doing just that, despite so much waste being involved

The good news is the enormously successful NHS has this potential to do so much more without any more inputs or taxpayers’ cash – if only its top management could realise it

 

 

Avoid ‘ludicrous’ pay levels

Once upon a time, in the UK, in the 18/ 19th centuries, many capital (factory) owners minimised their workers’ pay in order to maximise their capital gains – they overdid it – worker resistance grew and Trade Unions were formed to argue for a fair deal for employees

Years later, in the 20th century, the reverse happened – some Trade Unions overdid it with endless strikes for unreasonable pay rises and overgenerous employment packages – this led to the demise of whole UK-owned industries e.g. cars, motor-bikes, coal mining, shipbuilding – some Union leaders, by outrageously flexing their muscles for more pay for their members, thus destroyed their jobs

Prime Minister Margaret Thatcher helped cure this so-called ‘British disease’ with new employment legislation to curtail the frequency of such strikes – but it was no panacea

In this new millennium, there are still examples of gross unfairness out there in the capitalist markets:

  • FTSE 100 CEOs now pay themselves 150 times the average pay of their employees, apparently ‘because they can’ – and capital owners, the shareholders, currently let them get away with it
  • RMT (The National Union of Rail, Maritime and Transport Workers) tube drivers are now paid £60,000 per annum for a job that most could soon be trained to do – described as ‘ludicrous’ by one government minister
  • RMT train drivers also wreak havoc on their Southern Rail commuter customers (who pay their wages) by holding a series of never-ending strikes which purport to be about safety but are more about politics – much like ‘Red Robbo‘ did with his never-ending strikes at British Leyland, and we all know what happened to them

 

So what is fair?

Dirty or dangerous jobs (e.g. miners or firemen) should attract a premium which recognises the difference between them and ordinary, often dull jobs (e.g. much blue and white collar work) which most people can soon be trained to do

Then there’s the more difficult jobs where, the higher one climbs a promotion ladder, the more difficult the jobs become – hence fewer people are competent to do them – hence more pay is needed to attract qualified people to have a go

But there are limits:

  • CEOs must come to accept they deserve no more than 30 times the average pay of their employees – this would also be an encouragement for them to seek to raise the pay of all – otherwise, they should be forced to retire and let one of their many lieutenants, most equally capable of doing as well as them, take over
  • Members of militant unions such as the RMT should recognise that, if people start to describe their pay levels as ‘ludicrous’ then managers will be strongly encouraged to find technological ways of substituting for them – at the current rate, it’s only a short matter of time before most trains are fully automated

 

Conclusion – Outrageous pay destroys jobs at both ends of the job spectrum – and rightly so

 

 

 

Conglomerates’ days are over – EU beware

In the last quarter of the last century, conglomerates were all the rage – the bigger the organisation, the better – CEO Owen Green built BTR – British Tyre and Rubber – into a huge business covering engineering, packaging, materials, building products and polymers

He merged DunlopSumitomo rubber industries, Hawker Siddeley aircraft production, Nylex industrial products, Siebe control systems and Baan, a Dutch software group

In the process, the company ‘lost control of its myriad operations’ so, in 1999, it renamed itself Invensys and, ever since, has been divesting – the company now focuses on production and energy management alone

This story reflects what has been happening generally across the corporate world

To be BIG is no longer the target – SMALL is often more competitive – specialisation, speed and service now determine winners, not size

Much the same can be said of the current European Union conglomerate

28 different nations, each with different strengths and weaknesses – each having different histories, cultures, languages and laws – each at different stages of economic development – all have been struggling to work together using one currency, parliament and legal system

But loss of control there has been rearing its head for at least a decade already – witness complaints about the Schengen agreement and the inability of many member nations to devalue their currency e.g. Greece, Spain, Portugal and Italy

Now, the UK is the first nation to follow the corporate trend and divest itself from the EU straitjacket – but many others can be expected to follow

Brexit is all about wrestling back control over (n.b. not stopping) UK immigration levels, plus the laws we live by, who we trade with and how

Most Brits are appalled when told what to do by unelected, unaccountable, unknown yet overpaid Brussels eurocrats – and not only do we have to obey them but also pay heavily for the privilege

The EU eurocrats quite openly admit to wanting to become one federal state, even with its own armed forces

That is not what most Brits ever wanted or voted for – the great majority want – indeed, still want – to be members of a European common market, with agreed trading rules, but no more than that

Perhaps that’s the eventual solution for all the EU’s current problems?

 

Future wealth will be different

There’s a world of difference between material and mental worlds

The human race has reached a watershed, a tipping point, between the two where the mature benefits of the former seem to be peaking whilst the early benefits of the latter are rapidly taking hold

So how do we differentiate between them?

Material wealth = A mix of valuable tangible assets e.g. income, investments, capital assets or infrastructure which determine a standard of living:

  • Such assets enable people to produce and afford a variety of goods and services
  • The more people have of them, the better off they’re said to be – they’re material asset rich – and the better-off they are, the more they are respected, even revered
  • However, increasing material wealth can become addictive – some people are insatiable – enough is never enough – they always want more, sometimes through sheer greed, more often through envy of what others have
  • But their joy in attaining more material wealth becomes less and less with each extra pound, eventually being valued close to zero – so many look elsewhere for purpose and pleasure, often in vain, and end up depressed and/ or divorced
  • Not so for the rest of us however
  • Widespread productivity improvement has transformed the lives of at least 95% of the population of developed nations
  • What were once luxuries for a few in one generation soon became necessities for the many in the next
  • Walk down any street or into any club or pub, nowadays, and we all look and act the same – the super-rich can only differentiate themselves by the few outrageous luxuries only they can still afford and which most people are quite happy to do without

Mental wealth = A mix of valuable intangible assets which determine our quality of lives:

  • Whilst material wealth is limited by the finite resources needed to produce goods and services, mental wealth is unlimited and has infinite potential
  • Individually, mental wealth includes having a close family, good friends, several leisure/ hobby activities, and an impressive hinterland e.g. skills achievement, broad experience, specialist knowledge, creative imagination
  • Society-wise, mental wealth embraces personal and corporate social responsibility – for example:
    • Altruistic and empathetic attitudes
    • Charity and voluntary work
    • Concern for workers, animal welfare, not aggressively avoiding taxes, environment protection
  • The more mental wealth individuals have, the more content (if not happy) they tend to be with their lives – they lead richer lives – they’ve climbed their own defined ladders of achievement and done things they’re proud of
  • And the more social responsibility that organisations display, the more customers prefer them to others which also enhances their bottom-lines and helps secure their future

The cost of obtaining material and mental wealth is also very different:

  • If you and I have a good worth £1 or a £1 coin, and then exchange them, we each still have assets to the value of £1 – it’s a zero-sum exchange
  • But if you and I each have a good idea, and then exchange them, we each end up with two good ideas – our wealth of knowledge has doubled, at little if any cost

So, given IT and the internet already make much of the world’s knowledge freely available to all with just a click or two, the scope to increase the mental wealth of all people in all nations is truly vast

But it is only in the last 25 years that this has become a realistic prospect

Back in the 18th century, the English philosopher Jeremy Bentham said: “The best society is the one where citizens are happiest – and the greatest happiness of the greatest number is the measure of right and wrong”

A wise insight but it needed many major productivity improvements, unimagined at the time, if such a society was to be realised:

  • At first, people focused on satisfying the first rungs of their hierarchy of  personal needs i.e. hunger, thirst and sex – followed by defence and shelter
  • Then organisations, large and small, were established which enabled many to satisfy their social and ego needs on top of providing them with an income
  • Now, thanks to IT and the internet, not only can people satisfy more of their social and ego needs but also their fulfilment needs
  • And the potential for a whole new lifestyle of leisure and pleasure is also opening up before them

Hence the watershed – consider how attitudes are changing towards wealth:

  • Until only recently, superstars were leaders – kings and queens, popes and arch-bishops, all looking down on their flocks from resplendent palaces or cathedrals, festooned with crowns and grand clothes – 99% of people were ignorant peasants who needed to be led and told what to think and do – they held their leaders in awe and even bowed to them
  • Nowadays, the myth of such elite has been punctured – deference towards them is mostly dead – education has enabled most people to think for themselves, run their own show and question the role and purpose of these past superstars

But, at this tipping point, people still admire hour-glass female bodies or six-packs, or supercars and beautiful boats

However, modern heroes are no longer those simply born in the right bed or idle inheritors of piles of money – they’re people who have climbed ladders and achieved something worthy in life through their talent, effort or kindness

Modern superstars now include:

  • Microsoft founder and philanthropist Bill Gates, for using his wealth to help millions of poor people
  • Saint Mother Teresa, for tending the sick in Calcutta
  • Professor Stephen Hawking, for his contribution to our knowledge of the Universe despite being seriously ill for decades
  • Olympic podium winners
  • Top pop stars/ footballers/ opera singers

EXTRA – NATIONAL WEALTH:

National prosperity

    • National prosperity = GDP/ capita  but GDP = only one year’s output value
    • What of all previous years
    • Plus inheritance re stolen from empire/ slavery etc
  • National income derived from:
    • Private sector profits/ corporation tax = max sales and effy/effv
    • Employee taxes = max # employed + quality/ wages paid
    • VAT = max sales = max output
    • Council Tax – for local services
    • Investments at home and abroad = max income
    • Borrowings
  • National outgoings pay for services people want/ need:
    • Health, Social Services, Education, Defence, Police, Fire, def, law and order
    • Transport, Housing
    • Debt interest
  • Wealth maybe now needs to be redefined, at least for developed nations:
    • Currently, wealth = tangible/ countable wealth = Sum of:
      • Tangible assets owned – property – beware such assets rising simply because of supply << demand, as with UK house prices
      • Value of goods bought/ sold/ exchanged
      • Net incomes
      • Value of essential services
      • Interest/ gains on investments/ shares/ bonds/ dividends/ savings

Questions:

  • Why should total output in one year somehow equate to total wealth when latter accumulated over many years past, with more in prospect in future?
  • Welfare = the health, happiness and fortunes of a person or group – the basic physical and material well-being of people in need?
  • Why even try to measure national output/ income/ economic activity?
  • Surely, as with any company, it’s gross and net profit that matters most i.e. the spare cash one has after covering basic needs to improve the quality of lives and invest in new/ more/ better things
  • x
  • x
  • GDP is not = Economic output but merely spend during a period, more a proxy for public confidence

Conclusion: For most people, life is already richer than ever before – and the future is brighter still

Implementing plans requires stamina

A good corporate plan is a punchy summary of where an organisation aims to be in five years time, say, and broadly how it is to get there

Essentially, the plan should define the organisation’s business model – how it will conduct its business, be better than its rivals and be harder to copy

Good plans are not long-winded glossies but short statements of broad aims and how they are to be achieved – not prescriptive in every detail – they leave tactics to others

Sadly, most organisations and their managers think corporate plans are a waste of time and effort – an annual ritual conducted by a few senior managers whilst those who have to implement them never know much about them

For successful implementation of any major change, a three-stage process is essential viz:

  • Upfront, good communications to all troops involved about the details of the proposed changes, who and how they will be affected, and the timetable for detailed action – ideally seeking their enthusiastic support
  • A transition phase – stop the old, start the new – people don’t like endings so employees need lots of support in the early days as they meet new problems and sort them out – at the same time, they must let go of old ways of thinking, past relationships or many things once important to them, and see it’s worth their while to do so – and bridges must be burnt to prevent any going back
  • Finally, intensive nursing of the changes is vital – managers must stay close to them in the first few critical weeks whilst they’re bedding in so as to build a momentum of acceptance, if not enthusiasm, as employees see benefits emerging

 

Successful implementation of any new plan/ major change is thus never the equivalent of a quick sprint around pots in the Solent but more a five-day off-shore yacht race around the Fastnet rock, starting at Cowes and finishing at Plymouth

And winners are those boats which don’t put into the nearest port when the weather gets a bit tough outside – when the wind pumps up and conditions become rough

They keep going – and that requires stamina from most in the crews, not just the skippers

Conclusions:

  • If most organisations put little effort into their corporate plans – assuming they even exist – and then, when major change is required, managers simply leave their employees to ‘get on with it’, it’s no wonder that business lives are getting shorter
  • If the benefits of a major change are expected to persist for many years, any short term pain for a few may be justified by the long term gain for the many – but this would not happen if the change was followed by yet another soon after – big changes should only come in big intervals – even the Fastnet race is held only once every two years

 

 

 

 

Measure what you need, not what you can

Performance measures are needed by all managers, in public as well as private sectors, to steer them towards taking the right action in the right places at the right time

They should answer such big questions as:

  • Is my team/ unit on course or not – if not, how far off – are we standing into danger?
  • Are we doing better than before – if not, why not – if so, how much better?
  • Are we ahead of others we’re competing against or seeking to emulate – if not, why not – if so, by how much?
  • Where and what do I need to change, if anything – by how much to get to where I need to be – better still, to where I’d like to be?
  • Did any changes made work – fully, partially or not at all – why so – what else should be tried?

 

Managers who cannot answer such questions are like naval officers on the bridge, happily steaming along at full speed yet actually lost in a fog of ignorance with no idea about possible hazards (and opportunities) that lie ahead

Sadly, many managers find themselves in just this situation – they’re extremely busy, work long hours, but spend most of their time firefighting – hence, they’re surprised when ‘events’ hit them

To avoid this, others measure anything and everything within their purview, regardless of value to them – they end up creating a fog of information instead which is just as useless and dangerous as having no information at all

Still others decide many key performance areas are too difficult to measure, so they don’t try – what matters is what’s measured‘ becomes their mantra – major pieces of their performance big picture are thus missing – looming rocks, reefs or shallows go unseen

Yet all such risk could be avoided if every manager was equipped with some basic navigation tools equivalent to those used at sea

In particular, they need a set of cardinal (i.e. most important) performance measures providing them with regular fixes on their current position, distances apart, progress to date and ETAs viz:

  • A maximum 10 performance measures specific to their unit covering all major inputs, outputs and outcomes – one all inclusive measure is never good enough, over 10 is more than enough – and having financial measures alone constrains managers to navigate solely by looking at their wake which has its limitations
  • Each measure clearly defined and understood by all in the team
  • Linkages between each measure in their set and with those of other managers also understood so measure owners are aware of likely knock-on effects from changing one measure at the expense of another
  • And each measure should be available ‘in good time’ for action to be taken if necessary – there’s no point being weeks, months, even years late as found with many government statistics on offer

 

The overall message, therefore, is managers should measure what they need to do their jobs well, but only that i.e. measure what matters to them, not what they can

Sadly, that is not the case at present in many organisations – hence, it’s little wonder that the average lifespan of a company in the S&P index is said to be little more than 10 years

UK management skills lacking

Alexandra Frean, a business columnist of The Times, claims: “The most accessible solution to Britain’s low-productivity problem is the presence in virtually every workplace of accidental managers” i.e. people who are promoted to positions quite different to past jobs where they did well

She says they cannot be thrown in at the deep end – and they’re not born to manage – so they need good training

Ann Francke, head of the CMI (Chartered Management Institute) reckons up to four out of five bosses in Britain are ‘accidental managers’ and so are not performing to their full ability

Worse still, over 70% of employers say they don’t train first-time managers

Hence, organisations with good management development programmes perform 23% better than others and their employees are roughly a third more productive (as measured by engagement and retention)

A recent IIP (Investors in People) report suggests £84 billion is wasted in the UK each year through poor people management

The OECD (Organisation for Economic Development) lists improved management and leadership as the outstanding factor in tackling the (UK’s) productivity gap

And Andy Haldane, chief economist at the BoE (Bank of England) says: “There are potentially high returns to policies which improve the quality of management within companies”

Hence there’s great excitement over the new chartered management degree apprenticeship just launched which is linked to the government’s apprenticeship levy – they usually take three years to complete with students in full-time employment while learning plus their companies can apply to the apprenticeship levy fund to cover the £9,000 a year in tuition fees for the courses

It’s a new breed of degree-level apprenticeship being created by employers to meet their needs

It also meets national needs for GDP growth and students’ needs for good qualifications at fair prices

At first sight, it seems to be a winner for all

 

 

Trade Unions vote for Brexit

Some Trade Unions are beginning to realise the benefit of being free of the constraints placed upon the UK by the EU

For example, the recent takeover of Opel/ Vauxhall by the French company PSA once would have been judged ‘a disaster’ because of expected closures and job losses:

  • Now, the local Labour MP, Kelvin Hopkins, calls it ‘a positive development’ as long as the UK ends its dependence on importing motor vehicle products and makes them at home instead
  • And John Cooper, a UNITE leader, says: “If PSA want to sell cars in the UK, they’ll have to build cars in the UK” – something that could not be said under the current EU freedom of movement of goods agreement
  • The two expect that car manufacturing will continue in the UK, a home component supply chain will need to be built and more skilled jobs will be created – and none of this would be possible if the UK were to remain in the single market

 

And the current reliance of some UK sectors on cheap labour from the EU will be disrupted, to the advantage of both those sectors and UK workers

For example, UK agriculture and its relative slow progress to mechanisation:

  • Minette Batters, Deputy President of the National Farmers Union, accepts that such labour reduces the incentive for UK farmers to invest in new equipment/ robots/ automation
  • However, once out of the EU, this labour supply will dry up, UK wage levels rise, UK farmers invest in more machinery, productivity increase, output volumes rise whilst unit costs and so prices fall, sales thus rise and so job numbers rise
  • It’s win win for home farmers and workers

 

Brexit will thus enable the UK to enjoy a major hike towards its long term aim of being a high-productivity, high-wage, high-skill economy

 

 

Economic impacts of automation

Doomsayers forecast that robots will fully automate and so steal all our jobs – others say ‘bring them on, and the sooner the better’

A gloomy report for the World Economic Forum estimates that technology will create about two million jobs worldwide by 2020 – but displace seven million

This would be worrying enough for the educated and financially secure according to Tim Worstall, a journalist, but alarming if you were without a job or in low-paid, patchy work

Paul Krugman, famous Nobel economics laureate, says: “The average wage in an economy is determined by the average productivity of labour in that economy – if productivity rises, wages rise, and automation increases labour productivity

Hence the barber in Chester earns more than a barber in Calcutta – both are doing the same task using the same gear with the same efficiency but the higher productivity of the alternative uses for UK labour pull up that barber’s wage

Krugman also says that, as automation makes the labour running machines more valuable, so real wage rates rise – and such rises are needed to increase demand for the myriad of things being made by those machines which must be consumed – by people

As ever, others disagree

If two skilled machinists are replaced by an automated machine that only requires one unskilled person to keep it loaded, the alternative jobs for them might be a shelf-stacker in a supermarket or an Uber driver – so the rise in productivity has not led to a rise in average wages

But others point out that automation is more likely to produce ten times the output of the previous two skilled machinists and so require ten unskilled persons to load up – a cheaper product will then result, so many more units will be sold to a lot more poorer people

That way, skilled weavers were replaced by machines and high quality cloth that once only the super-rich could afford became affordable for everyone – likewise, expensive hand-built motor cars were replaced by much cheaper ones made on mechanised production/ assembly lines, starting with Henry Ford’s ‘Model T’

In each case, demand soared, output followed, unit costs dived, selling prices became a lot cheaper and affordable to the masses – almost everyone, whether a customer or supplier, was happy

Conclusions:

  • As stuff on the market becomes cheaper, existing sectors can grow and whole new sectors develop
  • If unit prices drop relative to wages, the effect is the same as if wages had risen – hence, society can become wealthier not by people getting higher wages but through goods and services getting cheaper
  • If automation truly takes over, the price of everything may well drop to zero
  • Everyone will then be able to afford anything with minimal, even zero, amount of work input needed

 

 

Core human needs at work

Much has already been said about hierarchies of human needs which need to be met if workers are to be motivated

However, a recent study of 12,000 white collar workers by Tony Schwartz, CEO of ‘The Energy Project’ and Professor Christine Porath of Georgetown University is well worth noting

They claim that employees have four core needs:

  1. Physical needs – People are most productive and satisfied at work when they feel supported, rewarded and aligned with the work they’re doing and are encouraged to take frequent breaks to recharge
  2. Emotional needs – People need to be valued and appreciated by their bosses and team-mates for their contributions – to feel cared for and supported, especially by their immediate boss – to feel they’re contributing not just to the bottom line but to their customers’ lives and the world at large
  3. Mental needs – Managers should stay close to all in their team, especially in times of stress, offering a shoulder to lean on, not back-stabbing – then, team members can cope with just about anything – they can prioritise, focus on one task at a time and not be constantly side-tracked – they can define when and where they get their work done
  4. Spiritual/ social needs – Support from above is also vital – empowered managers need the ability to get the support to do what needs doing – it makes work so much more enjoyable and long hours become no problem

The more the above needs are met, the more loyalty, job satisfaction and energy from a team, and the lower their stress levels

Meet one of the above and performance will improve – meet more and the more the impact (although how much more is not clear)

Nevertheless, if you ask a manager: “If your employees work so much better when these needs are met, how much do you invest in meeting them?” be prepared for the uncomfortable silence that usually follows

The fact is most managers have no formal measures of their employees’ motivation levels – they rely on noticing lateness, absenteeism and sickness rates – they rarely ask or find out how that actually feel – instead they just tell them how they’re performing maybe once a year – and do little if valued staff hand in their notice despite often having spent a fortune developing them – they just let them go

In my experience, all workers at all levels, once inducted, settle down to a steady state effort level of working, mostly determined by their level of interest in what they do and the way they’re treated by their immediate boss – make their jobs more interesting and most will stop watching the clock – treat them as valued friends/ equals and performance levels will soar – extra pay, bonuses, job perks might have an impact but it’s never a ‘quantum leap’ and never lasts long – get these two fundamentals right and the rest should be ‘plain sailing’

AI will transform the future

In the early 19th century, most of the world’s population was employed on manual, back-breaking agricultural work – then automation increased the productivity of farmers more than tenfold whilst reducing their numbers from being the majority of the workforce to less than 2% – and the many outplaced moved on to new, better-paid jobs in the manufacturing sector

In the 20th century, automation increased the productivity of those manufacturing workers whilst reducing their number to less than 15% so that knowledge-based and service industries employ over 80% of G7 workforces

Now, in the 21st century, automation in the form of Artificial Intelligence (AI) is beginning to transform the way we work and live, especially in the way we produce both goods and services and have to meet increasing expectations for response times and product and service quality

AI is simply better software – surveillance, security and transcription are several areas where machine learning will make things faster and cheaper, whether in an operating room, jail, factory or courthouse – you will be able to transcribe everything that is being said, and see things if they are safety violations, even on a construction site

With AI, you can even speak to a machine as if it were a person and tell it exactly what you’re looking for – it knows what you mean, allows plenty of room for error, then produces the document – it thus saves a lot of time and effort, and increases productivity as employees are left with more time to get on with their work proper

Overall, AI will free up some labour which can be re-trained/ re-directed to help care for the elderly, reduce class sizes or help kids with special needs – of course, such labour must also be offered an adequate income for them and their families to ensure they’re not attracted to joining the dole queue

According to James Walker, a researcher at the CPS – Centre for Policy Studies in Western Australia – “AI uses algorithms that learn from raw data in a process loosely comparable to that of a human infant” – except they have vastly more storage capacity

In particular, robots are increasingly performing more of the functions and tasks we workers did up until only a few years ago, many of which were a drag on morale, some leading to burnout, viz:

  • Replace human jobs:
    • In peacetime, manual repetitive jobs, low-level routine administration work, legal precedent searches, top-class university lecturing, accountancy auditing, transport driving (trams, tractors and trains) and process controlling using sensors
    • In wars, compare WW1 when millions of men and women were used as cannon-fodder with a possible WW3 when it will be fought by a few hundred elite special forces and remotely sited technicians controlling drones, missiles and cyberbombs
  • Replace human tasks – especially those causing much waste and inefficiency found in most businesses e.g. issuing and personalising sales and marketing emails, booking meetings, listing actions after meetings, assigning work, copying information between systems, preparing reports for executives, file management and legal contract analyses
  • Augment human jobs – aka human-computer symbiosis – advisory support, search and selection of information, voice and text translation, fraud detection
  • Create new human jobs requiring higher reasoning, critical thinking, complex problem-solving, knowledge learning, creative design, new health and lifestyles services e.g. algorithm data scientists, robotics engineers
  • Conduct new tasks humans cannot do – analysing data for advanced insights e.g. cures for diseases – working at incredible speeds and levels of precision with vast volumes of data that are well beyond human capabilities

 

Clearly, as Viktor Shvets, Global Equity Strategist at Macquarie Group, Australia, points out: “There’s a declining return on humans because of the inferior capacity of humans to achieve productivity growth compared to machines”

McKinsey believe 5% of current occupations could be automated entirely and some 60% have at least 30% of their activities automated – and these %’s will only rise over time

The Economist goes further: “As machines become better at doing things, the human role in generating faster productivity growth will converge towards zero – at that point, so long as society expects everyone to work, all spending in the economy will go towards services for which it is crucial that productivity does NOT grow, in order to provide jobs for everyone – society could seemingly be both characterised by technological abundance and paralysed by (Baumol’s) cost disease”

Overall, the productivity gains when most human work is done by AI will be enormous – its potential is unlimited, and unstoppable

Tasks we humans would not do, except for money, will be mostly automated – tasks we already like to do, for no money, will come to dominate our lives

The future is bright indeed

Welcome to the new unworking class

 

 

 

 

 

The coming productivity boom

Why is the American economy not as productive as it used to be?

Why is US GDP growth below 2% per annum, well short of the 3.5% it averaged before the Great Recession of 2008?

Bret Swanson, President of Entropy Economics, and Michael Mandel, an economist, believe ‘the long productivity drought is almost over, as the information revolution will transform traditional physical industries’

Current pessimism has it that innovation is over and IT is not being applied well in the whole economy the way electrification was 100 years ago – so we should lower our growth expectations for the next decade or so

Instead, Swanson believes we are on the verge of a new productivity boom because there are many industries (sectors) that have not, so far, shown fast productivity growth comparable to digital industries – and when they do start applying new technology in innovative ways, overall economic growth could easily rise to some 3% per year

So what’s stopping them?

When computers and then the internet came along, their most obvious applications were in information based industries – new, media, finance – all industries which have been transformed over the last 20-30 years

Such industries also provided ‘a platform to unleash unpredictable explosions of further entrepreneurial activity e.g. the web for entrepreneurship and the iPhone for apps’

That leaves huge potential in other industries such as manufacturing, transportation, healthcare, education and energy – they have yet to figure out how best to apply much of what IT offers in innovative ways – but they are also much more highly regulated than the tech world which operates with a relatively free hand

Hence we see lower rates of investment and less disruptive innovation from upstarts in those sectors simply because they’re either not able to or the cost is higher

But such hurdles will inevitably be overcome, and sooner rather than later

 

Robots to transform Education

An article in The Times reported that Anthony Seldon, former headmaster of Wellington College, UK, believes: “The imminent arrival of robot teachers will herald the greatest revolution in education”

“Personalised learning, facilitated by artificial intelligence, will mean that every student from Eton to the most deprived school in Blackpool, will receive education of a standard higher than available today”

Robots will be able to learn students’ individual learning styles, preferences, motivations, quirks and difficulties – and then tailor courses to their precise needs and speed of learning

Each pupil will be able to work at their own pace, not at the rate of the slowest member of the class

At present “we have a factory model of education whereby everyone arrives at the same time of day and moves up by ages, when it is transparently clear that a 13-year-old might be at the level of a 10-year -old in French and a 17-year-old in maths – but they sit in classes, with the teacher at best giving a 30th (?) of their attention”

By contrast, and in the near future, the electronic virtual teacher will follow a pupil all the way through school and higher education

However, Seldon thinks there will still be an important role for teachers

“They will no longer need to stand up at the front, nor mark work or prepare lessons”

“They will be organisers, structurers and discipliners instead”

Continuous Improvement is a must for all

In an article written by Dr John Neill for The New European he considered ways to end austerity initiatives without bankrupting the country and ‘put the UK back on the right road’

He kicked off quoting the Deputy Governor of the Bank of England arguing that if the British economy could achieve the same performance as the automotive industry since the financial crash of 2008, the prize would be half a trillion pounds

Given the UK economy is demanding more and more government (i.e. taxpayer) funding for the health service, defence, police, education and infrastructure he suggests the only way is to grow our economy faster, and for decades to come

And the only way to do that is to keep all great businesses that generate jobs and taxes here at home, not outsourced abroad, plus attract even more to our shores

And to do that requires incentives for both capital and talent:

  • Capital now moves fast to where it is treated best
  • The range of talent needed gets wider and deeper by the day – indeed, there’s a global war raging for the best

Never before have so many game-changing technologies become available to so many organisations – leaders are advancing fast whilst continuously reducing their unit costs

The global automotive industry is a good example – and, in the process, they focus on meeting their customers’ needs and the Order Cycle Time between selling and delivering their goods

In particular, Japanese car companies make THOUSANDS of small improvements EVERY DAY to remove waste and friction from their processes

The same is true of other leading companies in other important sectors worldwide

Hence, many countries are trying to attract beacon companies away to them

The fact is that winning greater global market share depends on producing better, more innovative, higher quality products than the competition – and the competition never stands still

Continuous improvement (CI) is therefore essential for any organisation’s long life and any nation’s long term prosperity

Its huge impact is much the same as another CI – Compound Interest – about which no less a person than Einstein said: “The most powerful force in the universe is CI”

Hence one is baffled by the fact that most in the West ignore it

 

 

Why chase productivity improvement?

1. Productivity improvement (PI) at national level has the following aims:

  • To improve the standard of living (SoL) of all in the land, mostly by producing more and better material goods and services at more affordable prices whilst using fewer limited and so costly resources
  • To increase the number, quality and rewards of jobs for all, at least until average hours of work are reduced to zero and ‘unemployed’  becomes the acceptable norm
  • To increase the wealth and tax-take of the nation, enabling it to provide more and better public services for all
  • At the same time, to improve the quality of life (QoL) of all, mostly by increasing contact between individuals, the availability, exchange and use of information and the options open to them for more leisure and pleasure

2. How does PI achieve these aims?

  • A private sector business adds value to raw material and semi-finished-goods (SFGs) using labour and/ or capital inputs to offer goods or services to its customers:
    • For example, a car manufacturer buys in pressed sheet metal, plastic fascias, leather seats, engines and electronics plus many other SFGs
    • It then assembles them all to produce a car that sells for more than the cost of those input parts
    • The more efficiently it does this, the more money it has to pay its employees, plus other variable direct costs, enabling them to buy more and other goods and services
    • The company is then left with a gross profit to:
      • Pay for indirect costs such as fixed overheads – offices, warehouses, factories etc.
      • Invest in new capacity e.g. factories or equipment e.g. robotics and AI
      • Invest in R&D to refresh current offerings and innovate new products or services
      • Build reserves to insure against rainy days
      • Pay local and national taxes to pay for public services
      • Pay dividends to shareholders, including millions of pension fund holders
  • A public sector organisation relies on tax-payers (i.e. companies and individuals) to fund vital services that the public wants and the private sector cannot or will not provide:
  • Managers of all these service units should seek to maximise the volume and quality of their outputs for the money received, and meet overall demand as best they can
  • So the more money the private sector makes, the more taxes are possible to fund better public services for all
  • That way, productivity improvement raises the standard of living of all across the board

3. PI growth pattern to date:

  • Since 1850, according to the ONS, UK productivity (GDP/ head) has risen 20-fold, transforming the standard of living of the population:
    •  First, by better meeting people’s basic needs for food, drink, defence and shelter i.e. the first rungs on Abraham Maslow’s hierarchy of personal needs
    • Then, by achieving quantum leaps in output from both agriculture and manufacturing sectors whilst decimating labour numbers needed – this dramatically reduced unit costs and so prices, making one-time luxuries only the very rich could enjoy (e.g. air travel, car ownership, colour TVs) become affordable for all
    • At the same time, taxes on a burgeoning private sector enabled the state to offer basic health and education services for all, not just a few, free at the point of delivery
    • Now, thanks to technology forever advancing on all fronts, most people in developed nations enjoy considerable leisure and pleasure activities
    • And, with global communications being so good, it will not be long before the rest of the world demand and obtain the same
  • Throughout, inventors, innovators and entrepreneurs have kept coming up with new ideas and ventures, some of which created whole new sectors, to meet man’s insatiable appetite either for more and better versions of what they know exists or for new stuff that has also kept on appearing
  • And, as productivity improved in each sector, so unit costs and prices fell whilst pay levels kept rising enabling more and more people to afford more and more stuff which they liked-to-have on top of basic stuff which they had-to-have
  • The problem now, according to some economists, is that:
    • Unit prices of existing stuff keep on falling, even as quality keeps rising
    • Much new stuff on the market is being offered for free e.g. Google searches, Skype
    • No major new sectors, and associated better jobs, are appearing
    • So outplaced labour from existing sectors has no alternative but to move to low-productivity, low-pay sectors (e.g. retail, hospitality, care-work) where jobs are still plentiful and labour-replacing automation difficult
  • Hence, the media now feed us on a diet of gloomy news about stunted economic and productivity growth – and the historic link between productivity and average wages being broken
  • Sadly, not one economist seems to know where we’re heading
  • As President Harry Truman once said in frustration: “Find me a damned economist with just one hand”

4. What if input resources are running out?

  • Pessimists say: “Surely, if economies keep on growing, we are bound to run out of the input resources needed”
  • Thomas Malthus once thought this way about the global population running out of food – but we kept on inventing new and better ways to produce more food per acre, and with far less labour input
  • Nowadays, few have such fears – we assume we’ll always find ways to meet all our needs and wants by adapting all input resources we have
  • And, whilst costly input raw materials and physical labour may be limited, other vital resource inputs are not:
    • Energy sources are infinite – think nuclear energy, and the billions of years left for the sun to keep shining (after which we humans will no doubt be populating other galaxies and enjoying their sun rays)
    • Money is an artificial construct of man, enabling transactions to take place – governments can print as much of it as they like (e.g. Zimbabwe) or employ QE (Quantitative Easing) to create it out of thin air (e.g. USA and UK)
    • Knowledge is increasingly the most important input resource of all – once known, never forgotten – new knowledge does not replace old knowledge, it stands on its shoulders – hence, global knowledge is growing exponentially and can be shared by all at little if any cost
  • So, given we’re moving from a materialism to mentalism era, where what matters most to us concerns our brains, not bodies, then the infinite supply of the above intangibles surely means our future is bright

5. Worker benefits from PI – Greed is on the loose:

  • Capitalism might be the best economic system around, but it sure has its faults
  • Capitalists invest their pennies to make money – to do this, they often need labour for the work involved
  • At first, most of this work was brawn rather than brainwork demanding, dirty, dull or dangerous – all negatives of work
  • Pay was thus needed to persuade most people to do such work
  • However, capital owners paid them the minimum to maximise profits
  • Labour eventually reacted against such treatment, and gained the whip hand by establishing Trade Unions to counter the unfairness of the capitalists
  • However, over time, this power balance swung too far to the Unions’ side – they abused it and, in the UK, the ‘British disease’ of incessant strikes for more pay brought much of UK industry to its knees, some never to recover
  • Hence, in the 1980’s, UK Prime Minister Maggie Thatcher decided to redress the balance by fighting the powerful unions and introducing new legislation which made strikes much more difficult to hold
  • Bargaining power swung back to the capital owners and their representatives, the senior managers of their businesses – and their greed has now taken over again
  • CEOs, and their board colleagues, all want to be paid at least as much as others in other comparable companies – they also sit on other boards so see what others are paid – a pay spiral upwards has been the result
  • Senior management, in major companies at least, now pay themselves over 150 times the average pay of their workers
  • How can this be?
  • As President Barack Obama said: “Because they can”
  • The fact that such rewards are unjustified, unfair and demotivating to their workers, and unacceptable to society at large is ignored
  • Fairer sharing of the spoils is needed – a company’s results depend on the efforts of all in the team, not just the boss – and never forget the efforts of many who went before them
  • Yet, despite some huffing and puffing by the media, the obscene pay gap between many CEOs and their employees continues to widen, not contract, every year
  • It’s “another unacceptable face of capitalism”
  • It’s also a ticking time bomb at the very heart of developed economies
  • In pathetic justification, these pigs at the trough snort that such rewards are “needed to recruit and retain the best”
  • But most fail on that score too
  • It reminds one of a local flea-pit cafe charging much the same for your steak and chips as a top west-end Michelin-starred restaurant

 6. Conclusions:

  • Homo sapiens has been living on Planet Earth for some 200,000 years, apparently
  • And the current global population clocks around seven billion people
  • However, it’s only in the last 300 years that productivity improvement has been making a big difference to many people’s lives – first by reducing the negatives of their lives – then by increasing the positives
  • As a result, some two billion in developed nations can be said to enjoy a good SoL (Standard of Living) – they already have enough of the basic goods and services they need – for them, productivity improvement should be moving on to address improving their QoL (Quality of Lives) – the important mental more than physical components of their lives so they have more and more disposable time and money to enjoy many of life’s pleasures too
  • G7 leaders thus should continue to focus on productivity gaps with their other competitor nations, albeit where the gaps between them are relatively tiny
  • However, leaders of the well-off two billion also have a moral duty to help the other five billion rapidly catch up, first by passing on their knowledge and experience in how best to climb the SoL ladder
  • PI thus continues to be vital to all nations, whatever stage of development they’re at

Future lives of leisure, not work?

Technological advances mean that many workers will lose their jobs to automation – but billionaires Warren Buffett and Bill Gates say increasing the potential output of every human being is always a good thing

Buffett says: “The idea that more output per capita should be harmful to society is crazy:

  • If one person could push a button and turn out everything we turn out now, is that good or bad for the world?
  • You would free up all kinds of possibilities for everything else

 

In the coming years, an increasing number of jobs are likely to be on the chopping block:

  • Nearly half of US jobs will be replaced by robots and automated technology in the next 10 to 20 years according to Carl Frey and Michael Osborne of Oxford University, with transportation, logistics, office management and production workers likely to lose out first
  • In less developed countries, the World Bank estimates roughly two thirds of all jobs are susceptible to replacement by automation

 

But Buffett notes that the trend towards automation replacing lower-skilled labour is not new:

  • If we were here in 1800 and conducting this, somebody would point out that eventually tractors and better fertilisers would come along and 80% of the people now employed on the farm would fall to 2 or 3% in two hundred years, so what are we going to do with all these people
  • Well, the answer is we release them
  • With fewer people needed to work on farms, more are able to pursue other skills and vocations

 

Automation ‘enables an opportunity‘ says Gates

Buffett says:

  • “Everything should be devoted initially to getting greater productivity
  • But people who fall by the wayside, through no fault of their own, as the goose lays more golden eggs, should still get a chance to participate in that prosperity
  • And that is where the government comes in
  • A problem of excess really forces us to look at the individuals affected and take those extra resources and make sure they are directed to them in terms of re-education and income policies”

 

Another billionaire, Ray Dalio, co-chief investment officer of Bridgewater Associates hedge fund, says AI and automation are improving productivity but also causing such a dramatic wealth gap that a national emergency should be declared

He was addressing concerns that machine intelligence might put enough people out of work that the government would have to pay people to live with a cash handout, a concept known as UBI – Universal Basic Income

“My view is that algorithmic/ automated decision making is a two edged sword that is improving total productivity but is also eliminating jobs, leading to big wealth and opportunity gaps and populism, and creating a national emergency – yet no one is seriously examining what to do about it”

Indeed, an Oxfam report found that 82% of the growth in global wealth in the previous year went to the top 1% of individuals ranked by riches – and the bottom 50% had no increase in their wealth

But Dalio believes a cash handout should be a last resort

“I don’t believe that transferring money to people who are unproductive is good for the people or the economy, unless there are no other good alternatives – I believe that it’s both far better, and it’s possible, to find ways for making most of those people productive – so retraining workers to thrive in the new economy should be a top priority for the country” – albeit he’s not optimistic that the skills gap will be suitably addressed

He concludes with:

  • Productivity is good for everyone
  • Unfortunately, it’s not available to everyone
  • That has to change
  • We need leadership that can bring that about
  • Unfortunately, it is more likely that nothing along these lines will be done

 

Elon Musk, the billionaire founder and owner of Space X and electric car manufacturer Tesla, is more pessimistic:

  • He warns that: “AI poses a vastly bigger threat than North Korea”
  • He believes in the redistribution of all wealth created via a UBI – it’s now ‘inevitable’ – the state will tax technology and handout the spoils to all citizens irrespective of their employment status so all have enough money to be comfortable

 

But what of the social impact – what about personal fulfilment – will we be happy as a society of benefit claimants, doing nothing for ever and ever – will it be enough just to fill the vacuum with leisure?

John Maynard Keynes, prompted by the mass ‘nervous breakdown’ he saw afflicting the idle rich back in the 30s, resolved that: “a life of leisure would instead offer the chance of great flourishing to those who can keep alive, and cultivate into a fuller perfection, the art of life itself”

In other words, ‘the idler of tomorrow will nourish personal relationships with shared experiences and passions’ – for example, learn to play the piano, discover the wealth of literature, appreciate art, acquire knowledge

Ergo, a Keynesian utopia, a life he called a ‘passionate state of contemplation and communion’

But will such a life suit everyone?

In a society where people work, we all have a source of worth – the market values our labour – strip that away and only the cruellest meritocracy is left

Studies show that, overall, the unemployed are far less happy than those with a job – and note that most lottery winners keep working after their success

Much of any happiness we enjoy is derived from ‘our level of earned career success’

So the life of leisure we seem destined for may not be what we want after all

As the Chinese say: “Be careful what you wish for”

Unconventional meetings

Paul Sullivan of the New York Times, writing in The (Central Oregon) Bulletin, reveals surprising examples of new activities to increase productivity and retain employees

Eric Tetuan runs an event and production company called ProductionGlue based in Midtown Manhattan, New York

A few years ago, he saw staff morale was sinking and mistakes rising so he forced them to take walks, ride bikes or just sit by the Hudson River – not for solitary moments to recharge but to accompany colleagues to discuss work outside the office and so increase creativity

“There are a lot of distractions when in the office or a conference room – workers focus half on others and half on their devices – on a walk, we spur more ideas”

Think of Google rewarding employees with massages or Spotify’s lunchtime concerts – unconventional approaches to improve employees’ focus

According to Fractl, a Florida advertising agency, employees seek certain traditional benefits when job-hunting like health care, flexible hours and vacation time

However, Technology Advice, a Nashville marketing agency, say more elaborate perks like games rooms and gym membership are needed to retain workers

Professor Jennifer Chatman from the Haas School of Business at Berkeley says: “Above some level of financial security, people care about being part of a community and belonging at work – these kind of perks bring people together and make work more fun – in this way, they effectively increase motivation and performance”

And meetings outside can not only spur creativity, they can also help end impasses

Larry Newman, COO of Health Media Network, a health education company, credits surfing (sea waves) with helping him close several deals including the sale of his first company

“We had spent countless hours in meetings and with lawyers – I suggested we do this face-to-face – in between rides, we sat there in the water on our boards and talked about the final points – you’re negotiating to a human level, not a business level – it excites people”

So, find fresh places to hash out ideas – ‘they may sound fun and relaxing but they can also be productive’

Remote working

A Northern Ireland finance firm, AKFP Group, closed its HQ for a full month in July for a ‘remote working initiative’

They found it boosted both staff morale and productivity

Staff were allowed to work from locations of their choice – the result was ‘they reaped the benefits of being able to change venues, eradicate long commutes into the office and, above all, increase the happiness of employees’

Potential setbacks to the workflow were minimised due to a cloud-based project management system that aided the effectiveness of remote working as staffers were able to access everything required from the cloud to service clients as normal

Calls into the office were shared or diverted to an allocated mobile and clients were made aware so that face-to-face appointments were scheduled the month prior as part of a planning phase

Group director Roger Kennedy said: “All our clients and the whole team were really supportive of the initiative – all client queries were dealt with efficiently and in line with our service levels – working remotely enabled my team to spend more time with their loved ones and get out on a summer’s day, providing they had completed their task list”

A staff member said: “There is a high level of trust in the office and it’s a great feeling to be given the flexibility to do this – we did have to visit the office occasionally to review post, but that wasn’t a problem”

Hence, the firm is planning to roll out the one-month initiative again next year

 

Tesco’s ‘Steering Wheel’

The blunt truth, according to Terry Leahy in an article he penned for The Times, is that if public services were exposed to more competition, their performance would improve

He strongly believes in competition after spending 33 years at Tesco during which time it rose from being a bit of a joke to the third largest retailer in the world

Leahy says competition makes organisations accountable to those they serve – if a company takes its finger off the customer’s pulse, it will eventually fail

Competition has already been introduced to some extent to the public sector – provision of back-office services, choice between schools

People can also see that more competition there does not mean privatisation of the services – they still remain ‘free at the point of delivery’ which is all most customers are bothered about

However, much more is needed – in particular, the public sector should:

  • Develop a simple means to communicate goals to everyone in the organisation
  • Ensure those goals are met

To do this, Tesco developed a tool they called their “Steering Wheel” – it was divided into four segments:

  • Customers
  • Operations
  • People
  • Finance
  • a fifth segment, ‘Community’, was added later

Each one measured some four or five activities so, in total, the wheel comprised some 20 measures

As you drilled down, each of these measures went into still more detail and eventually link to individual store targets and performances – and then further down to individual teams within each store

Hence, corporate targets were linked to the day-to-day work of thousands – all could see at a glance how well their store or operation was performing – the information was clear and transparent – every team had targets and accountability – initiatives were encouraged, not stifled – and all was driven by what customers wanted

In addition to the wheel, managers were required to experience the problems their customers and troops had to deal with each day

Managers can become bogged down by their workload, whether imagined or real – they learn little from making fleeting visits to the shop floor, say, so they cannot truly understand what challenges teams on the ground face, or how any new initiative might be panning out in practice

Hence senior management, including Leahy himself when CEO, would spend one week every year as a general assistant doing every job in a store – check-outs, shelf-filling, back room work, pricing, customer queries, working on counters etc.

He concludes that, if those who run our public services did the same, they would soon see what needs to be done which would be better for the public, and for them and their staff too