The air of unreality that made the election so weird has only deepened with George Osborne’s 'big budget' last week. It’s a novelty to find The Economist, Guardian and Financial Times in unison on anything much, but all three judged that the budget’s political astuteness was only matched by its economic irrelevance. The Economist was particularly severe on ‘indefensible’ cuts to benefits for the lowest paid, ‘barmy’ inheritance-tax reductions on houses, and the ‘outrageous favouritism’ of the welfare cuts.
The Chancellor inhabits a Humpty Dumpty world in which words mean what he chooses them to mean, not what anyone else understands. So in a budget that will do the opposite of what he claims, it is perhaps no surprise to find a ‘productivity review’ that says it ‘sets the agenda for the whole of government over the parliament to reverse the UK’s long-term productivity problem and secure rising living standards and a better quality of life for all our citizens,’ but in fact is just a mash-up of what was in the budget, which itself apart from a levy to fund apprenticeships offered nothing that was either new or remotely relevant to the real productivity issues.
No hint here that productivity is a problem which the UK has been failing to fix using exactly the same tired and half-hearted supply-side means for more than half a century (I was writing about failure to electrify the railways in the 1980s); no hint that we are moving from the old economy, which was already tough enough, into a qualitatively different new technological era where the challenge may to create any jobs at all; no hint that with companies already bulging with cash and labour’s share of the economy shrinking by the minute, there are no strings left for the government to pull to tickle entrepreneurs’ and managers’ jaded animal spirits.
For anyone with eyes to read, the pages of Harvard Business Review, not a publication of the hard left, have been sounding the alarm for the past two or three years: in the US and UK capitalists have given up on the virtuous circle of reinvestment and and innovation that kept wages rising and economies moving forward since the WWII. So any benefit of lowering corporation tax to 18 per cent will simply disappear in bigger payouts to shareholders in the shape of dividends and share buy-backs, thank you very much, with at best some no-risk investment in cost, and job, cutting. This is the new normal, and it’s to do with with relationships and incentives between the firm and its stakeholders – its corporate governance – not the state of the infrastructure, education or housing, for goodness sake (memo to George: if builders haven’t already built on brownfield sites it’s because they’re too expensive – the land is contaminated or low lying – and people don't want to live there).
In these circumstances, the otherwise welcome announcement that the government has recruited John Lewis chairman Charlie Mayfield to lead a taskforce developing ideas for raising business productivity is unlikely to lead very far. As it happens, Mayfield put his thumb right on the sore point that is the UK productivity record in a recent interview on the BBC’s Today programme. Asked about his role at John Lewis, he replied: ‘I work for the partners in the Partnership. My job is to invest in them, help them to work as well as they can, and if we do that, we’ll succeed as a business.... They hold me to account for that.’ Well, yes. It's not rocket science. Giving people a job with a purpose, the means to improve and a pay packet that takes wages off the agenda are what sustains the engagement that feeds the high-productivity workplace. All the rest is secondary.
The catch is most companies don't have what goes with it at John Lewis – in particular committed long-term governance that aligns bosses with the workforce that actually create values, not shareholders. In his other capacity as chairman of the UK Commission on Employment and Skills, Mayfield recently illustrated the extent of the management switch that the country needs to make to plug the productivity gap by drawing attention to OECD research showing that an astonishing 22 per cent of UK jobs only require the educational level of an 11-year-old, a proportion exceeded solely in Spain among our competitors. By contrast, Germany has just 5 per cent of jobs that are as undemanding as this, and the US 10 per cent.
Underlining the point, Will Hutton notes that lackadaisical governance and financialisation have turned the UK into a sub-contract economy with ‘a string of technology-light, productivity-poor small companies’, a yawning trade balance, a hollowed-out industrial base, and a record of unending decline in its share of world exports. The erstwhile workshop of the world’s current champion industrial sector? Food processing.
Reversing the productivity spiral ideally wouldn’t start from here. While it’s difficult, though, impossible it’s not. What it does require, as Mariana Mazzucato has eloquently laid out, is a new, richer and more optimistic narrative of innovation and wealth creation that emphasizes the importance of patient, committed capital and recognizes that productive capitalism ‘is one in which business, the state, and the working population work together to create wealth’, not appropriate it. This is the opposite of the risible, infantile obsession with ‘business friendliness’, and indeed of almost everything in Osborne’s budget. Don't hold your breath.