How do we improve productivity?

Output per worker, ie productivity, in the UK has been stagnant for some years since the 2008 economic crisis.

It shows no signs of recovery, in fact in the last three months of 2014 output per hour actually fell in manufacturing by 1.3%.

The causes have been: a lack of innovation, a shortage of skilled people and a failure to invest in plant and machinery.

It would seem that businesses are focused on maximising their profits in the short-term to either repay banks and other creditors or pay dividends. Despite the low interest rates and poor returns for lenders and investors, there seems to be very little interest in improving productivity through investment.

It is assumed that this is either cultural or a rational fear of losing money due to market uncertainty.

In the last couple of years there has been some attention paid to the skills shortage, with a focus on increasing the numbers of apprenticeships, but investment in businesses is still declining, despite various initiatives by Government and banks to encourage more lending.

Regretfully bank loans and in particular Government backed loan schemes all require directors and shareholders to provide personal guarantees. The effect of this has been to deter SME businesses from seeking funds to grow.

Productivity matters because over time we become less competitive making it harder for UK companies to compete in a global market.

The political rhetoric doesn’t help as the focus on soliciting votes results in a focus on minimum wages rather than one on the productivity which is necessary to justify any increase.

Growth will continue to be sluggish while there continues to be a lack of investment in productivity.

What can we do to justify investment in productivity rather than simply talk about improving it?

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