Britain does not have a productivity puzzle

Welcome to your return. Britain’s weak productivity growth has been examined more than a decade ago. A group of sub -research was born in its causes, and linking the problem according to the size of the company, the sector and the region. However, the main comets of Britain’s start mostly the same.

So this week, I claim that there is no “production puzzle” in the UK.

Economists tend to design the ability of the nation’s directing as a function of capital and employment and how it combines it efficiently between the two (also known as total or multi -factor productivity). The output of the watch is the most common scale for productivity.

The slowdown in productivity growth after the global financial crisis is a global phenomenon. But for its strong path before, the UK’s decline was more clear.

“About a third of the slowdown is the result of the weakest of the capital for each worker,” says Bart van Arc, the UK’s managing director of the productivity institute. “The other two thirds come from the poorest contributions of the productivity of the total factors.”

In fact, in the aftermath of the 2008 shrinkage, companies in the UK sought their production capacity mainly by increasing employment inputs. But during that period, the improvements of the broader competence and investment left.

Currently, Britain occupies the middle of the Group of Seven Productivity, with GDP per hour based on equal purchasing power about 20 percent under the United States.

“Workers in the UK must make a third -hour capital of their counterparts in the countries of the higher productivity peer,” says Terra Alla, chief adviser to Machinezie. “This has accumulated contracts of investment in equipment, research, development, training and infrastructure, by both the public and private sector.”

In the past decade, business investment has also suffered from increased economic uncertainty. This includes years of Britain’s exit negotiations from the European Union after the 2016 referendum, political turmoil (including six advisers between 2019 and 2022), and a very difficult period.

As for the weakness of TFP, there are multiple illustrations. For beginners, poor investment can increase to the exacerbation of efficiency results over time. Using old technology impedes innovation. The infrastructure wears and tears, and can block the expansion of the population.

“Every French city with a population of more than 150,000 has a collective transit system (tram or metro), while there are 30 large British cities and cities to avoid them,” Ben Hopkinson, the head of research in Britain.

Poor management skills are another challenge. A A recent study It finds that local manufacturing companies become, on average, by 4.9 percent more productive and 23.3 percent are more intense in capital after the appointment of foreign managers. “Spreading best practices and technology throughout companies, especially regions, is also slower in Britain,” Van Arc added.

After that, although English adults outperform the average Organization for Economic Cooperation and Development for Literacy, their account and problem solving, the country is the worst among the rich countries in conforming workers in jobs at the level of appropriate qualification. More than a third of all vacancies in 2022 were the result of skills deficiency, according to the survey of the Ministry of Education.

Again, this is a partial investment function, not only in terms of absolute, but also in its distribution throughout the country. “By failing to build homes inside and around our most productive cities, workers are priced from living near good -wage jobs,” says Hopkinson. “The lack of trusted mass transportation reduces the effective size of our cities by reducing those who can easily reach the city center.”

How the capital is also customized. In Britain, retirement pension funds have turned money out of the UK stocks towards bonds for more than two decades. This transformation did not happen in others Main pension markets. This, in addition to the broader challenges in finding investment capital, has long been launched from the ability of local companies to expand.

Then there is a red tape. For evaluation, the UK tax law comes in 22,000 pages, more than any other country in the world. the Small companies union It is estimated that a small company spends 44 hours a year on average tax management, at a total annual cost of about 25 billion pounds in all small institutions.

The same blog contains many shortcomings that distort the incentives of work, growth and investment, including the edges of the slope in the value -added -added tax thresholds, and transaction taxes on property and shares. The UK tax expert clarifies this here.

Building papers also requires, which slow projects. As Britain was found, reopening the 3.3 -mile train to Portishead from Bristol took 79187 pages of planning documents. Printed, this is 14.6 miles of leaves – 4.5 times the actual railway length. The operation took 16 years to date. (The construction must start soon.)

There are two wider macro factors that tend to lose in all tFP analyzes.

The first is the costs of industrial electricity in Britain, which is the highest throughout the rich world. “Since the power capacity has been destroyed or destroyed, it has not been adequately replaced,” Kallum Pickering, chief economist in Peel Hunt notes. “As the provision of electricity reached its peak in 2005, the productivity rate in Britain has slowed.” Simply put, the more cheap energy, more goods and services per hour can be produced at competitive prices.

The second is the request. The growth of weak wages is in itself a function for the growth of weak productivity. In Britain, since 2000, the average profit growth has not been affected by the change in the price level only. But the costs of mandatory expenditures – including home prices, council tax, facilities, education and child care – have grown much higher than both wages and inflation at that time. The shortcomings in the public sector are essential in this.

Living families’ budgets have been pressed for local sales revenues and the effect of investment plans. According to CBI quarterly surveys, an average of approximately 80 percent of the UK service companies were killed as a registration for business. More than 50 percent of manufacturing companies said that uncertainty about sales is limited to capital expenses during the same period.

Recently, the departure of the UK from the European Union has restricted the country’s access to a large external market. The weakened demand for British exports since 2020.

This is just a snapshot that drives Britain’s production problems. Many of the issues that are truly hinting of measurement issues as well. Directing in the sectors of service, inputs and knowledge is not easy to capture. However, enough can be explained by clear obstacles to growth. “There is not really a mystery here,” Alas says.

In fact, these few productivity blockers when my career in the Bank of England started in early 2010: poor investment, scaling problems, regional inequality, skills lack, etc.

Britain is still talking about the same problems. It is recognized that the objective political reluctance range was absorbed by Britain’s exit from the European Union and instability. The investment problem recently came to the attention of politics: The United Kingdom provided instead of the full expenses tax for capital investment in 2023; The current government focuses on the maze planning system and the capital of the pension fund.

However, after more than a decade of growth plans, white papers, government inquiries, and thought research, Britain has little to show it in improving growth on Earth.

The solutions are known, but the fulfillment of the productivity policy is difficult. The old and existing infrastructure can be more expensive and more difficult than starting from scratch. Finding the optimal level of the organization is not easy. The main tax repairs risk turning one set while taking advantage of another group. Nimbys building. Reforms, for example, for health care, education and training, can take years to bear it, which means that they are struggling to obtain strength. Initiatives may not survive the next government, which limits their effectiveness.

There is an abundance of research on the reason why the country’s productivity is low, but much less than work to design practical solutions to convert them. The United Kingdom is not alone here.

Britain has a mystery. But it is a policy, not productivity.

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Food to think

The analogy that freedom of expression does not protect “screaming fire in a crowded theater” has formed American law for more than a century. But this Theoretical analysis game Its economic foundations are believed to be wrong.