National productivity measurement

Question: What is any manager at any level prompted to do when bombarded with the following:

  • From the ONS (Office for National Statistics): “UK productivity has grown by just 0.5% – it has taken a decade to deliver as much productivity growth as was previously achievable in a single year”
  • A media headline: “Britain has maintained its dismal productivity record since the financial crisis in 2008 compared with an average growth rate of 2% before”
  • (N.B. – In both cases, no ifs, no buts, no caveats – the basic data is the proof)


Answer: Absolutely nothing

Even if the above claims were accurate – and they’re not – they wouldn’t prompt where and when any action should be taken, nor by whom

All that happens is:

  • If the news is good and GDP and/ or national productivity rise, then the government of the day claims the success is down to them – conversely, if the news is bad, opposition political parties claim this is solely down to government failures
  • And, given bad news is always good news for the media, they invariably follow suit – the gloomier the headline the more readers, listeners or watchers they attract


Sadly, whilst government ministers and media editors might be excused for trusting official data, the same cannot apply to the expert economists who sing from the same hymn sheet viz:

  • Goldman Sachs announce: “Rich nation productivity has grown at an average pace of just 3/4% since 2008, down from 2% in the three decades before”
  • Dominic Konstam of Deutsche Bank claims: “All we know is that national productivity is really bad – nothing is clear – bad productivity might be due to over-employing versus too little investment taking place – and that might be due to employers expecting demand to improve, but it hasn’t


Most of such experts are aware that GDP and so national productivity measures are seriously flawed – nevertheless, they still cannot resist offering their weighty conclusions based solely on them – it’s as if they trot out their theories knowing full well they cannot be rubbished because there are no facts available to prove them wrong

But this is simply not good enough – every nation and every government needs much better information to navigate their economies safely – indeed, The Times leader was right to say: “Good public policy needs evidence more than dogma – policymakers operate with partial information and imperfect foresight, and it has been so for a sustained period”

What’s needed at national level is a set of performance measures – a balanced scorecard – which shows how well the overall economy is working – how well the private sector is generating wealth for jobs, dividends, R&D, reserves and taxes to fund public services – how well tax-payers’ money is being spent on public services, to what effect – and how well national assets are being used for the benefit of all – then government ministers would know how well their customers, the taxpaying and voting public, rated their efforts and how well they were using the nation’s resources – and be prompted to take appropriate action when needed

Having just one figure for national output and one for national productivity, both assembled once a quarter and both seriously flawed, means they cannot do that – indeed, we have already shown that just one productivity measure for one organisation would be meaningless given the variety of outputs and inputs usually involved – so aggregating all outputs and inputs at national level would be even more meaningless


  • At organisation level, a set of partial productivity ratios is needed – with revenue broken down by type of output and then compared with the cost of each type of input used
  • At national level, GDP should be broken down by sector and compared with the cost of each main input resource used (e.g. employee costs, not employee numbers which ignores the quality of human capital employed)


At present, national labour productivity (i.e. GDP/ labour numbers) is taken to be a proxy for overall national productivity, enabling the ONS to claim: “We, the UK, lag France, Germany and the USA in both GDP and productivity levels”

Even if the base data for this claim was not flawed, some economists argue that the ONS’s method of calculation is also flawed – they say:

  • The government’s own contribution to GDP must be excluded from any productivity calculations as they are a drain on genuine production – the focus should be on wealth creators, not wealth consumers i.e. the private, not public, sectors
  • One must also exclude the unemployed to get the number employed in the private sector
  • Then, a calculation of GDP per private sector employee would show that the UK beats France but not Italy and Germany
  • And if, instead of private sector labour hours, one input total employment cost including all social security, employment costs and other employment benefits, the UK would come out top on an added value return per employee basis


But, again, how useful would knowing this be – and to whom?


  • It’s absurd for the ONS to assume that one bald and flawed statistic for GDP and another for labour productivity, produced using disputed formulae just once every quarter, can accurately represent the productivity of the entire UK nation – yet these are the stars by which our leaders steer the economy, decide tax-take levels and formulate their national industrial strategies
  • Nations would be better off ignoring current GDP and national productivity measures and trends, which could induce false pessimism or optimism, and looking elsewhere to build a comprehensive set of credible national economic measures:
    • A set which establishes the population’s current standard of living and quality of lives
    • A set which shows where significant performance gaps lie and improvement is needed
  • Then, at last, we might be spared all the doom and gloom we have been getting recently and understand how lucky most of us are



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