Pump up the productivity

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Mr Selka argued that one of the major issues affecting the UK economy at present is our low productivity compared to our economic rivals. Indeed, according to the Office of National Statistics, UK productivity (ie. output per hour worked) has seen a three times greater decrease in the UK since the recession compared to other countries in the G7 group of top industrial nations.

There are various theories why this may be the case, although there seems to be no clear agreement amongst economists. One leading contender is that inefficient companies that normally would have gone to the wall during a recession, to be replaced by leaner and keener start-ups, have been kept alive by cutting back on investment, freezing wages and benefiting from the very low interest rates set by the Bank of England.

However, as Mr Selka positively pointed out, one sector of the economy that could lead the charge of improving UK output is manufacturing. Productivity can be boosted relatively quickly by investing in the latest technology. Better performing machines, more automation, along with improved software, both for manufacturing processes and company administration can all help to make companies more efficient and enhance throughput.

There is some evidence that manufacturing, at least at the high end of engineering, farmed out to cheap labour economies around the world is returning to these shores but if that trend is set to continue we need to encourage a philosophy of continuous investment in our companies. We also need commercial options that give businesses easier access to the funds they need to purchase new equipment.

However, this can only help productivity in the short term. Further down the track we also need to attract more people with the right skills. What’s the point of investing in new equipment if there’s no one to programme and operate it?

Some may argue there is a conflict between introducing new technology and creating more jobs but you can have both. Technology also allows for smaller enterprises to get off the ground so in future we could have more small companies doing leading edge work with a workforce trained to do more interesting jobs than just pressing a button.

Ed Hill
Associate Editor