the times | Wednesday April 13 2022 41

CommentBusiness

Productivity survived Covid – can

there now be a sustained recovery?

The economist Robert

Solow saw a flaw in the

benefits of computers

I

f football is a game where, as

the saying goes, 22 men chase a

ball for 90 minutes and, at the

end, the Germans win, you

could probably make the same

argument for British politics: the

1922 Committee of Tory

backbenchers chase Boris Johnson

down for 90 days and, at the end, he

is still prime minister.

Shaming though police fines are,

he appears determined to survive

partygate; Rishi Sunak has blown

himself out and Liz Truss’s duties as

foreign secretary are limiting her

from pressing the flesh back at

home. Yet if Johnson remains in

power until the next general

election, the question remains: what

is he going to do with it?

We should get an answer of sorts

in a few weeks’ time. The Queen’s

Speech is scheduled for May 10 and

a slate of bills is planned for the next

parliamentary session. Its timing

means it should provide a sharp

break for any Conservative MPs

wallowing in bad results from the

previous Thursday’s local elections.

While details are closely held this

far out, the contours can already be

detected. Expected bills to reform

the data regulatory regime inherited

from the European Union, allow

gene editing, streamline

procurement processes and

modernise aspects of financial

services regulation will be bracketed

as legislation to take advantage of

Brexit opportunities. Bills to make

some limited reforms to the

planning system, introduce an

infrastructure bank and create

Great British Railways will be

labelled as contributing to levelling

up. The government’s focus on

crime prevention will be

represented by the online safety bill

— already introduced to parliament

but yet to pass due to its complexity

— and an economic crime bill.

A bill to implement chunks of last

week’s energy security strategy is

unconfirmed but likely, and will be

used to argue that the government is

tackling the drivers of inflation and

at the same time deliver net zero

(even if Conservative MPs find that

phrase increasingly rebarbative).

The quantity of bills means

Johnson will be able to present this

as a thoroughgoing plan for the

government in his last major

opportunity to legislate before the

likely 2024 election. This may

achieve the political expectations for

a Queen’s Speech but there is a

bigger question mark over the

practical impact of all these bills.

This is down to two factors.

First is the fact that while the

government can tweak certain

regulatory structures post-Brexit, it

needs businesses to be ready and

willing to take advantage of those

changes. So it can permit a more

liberal regime for data, or to allow

gene editing for higher-yield

agricultural products, but it cannot

make companies take advantage of

them if, for instance, it would lock

them out of other, more lucrative

markets. It needs to go hand-in-

hand with commercial diplomacy to

open new markets for innovation

carried out in Britain.

Second is that, politically, the

prime minister is much weaker than

he was this time last year, when the

vaccine bounce carried him to

victory in the Hartlepool by-

election. His agenda, at times, can

only stretch as far as the lowest

common denominator Conservative

MP will allow. So really

thoroughgoing reform has either

been blocked before it was allowed

near the parliamentary

draughtsmen, such as last year’s

mooted planning bill, or will face a

real battle to make it through the

Commons and Lords unscathed by

amendments. This is the fate that

potentially awaits the bill to privatise

Channel 4.

The reality is that if Boris Johnson

wants to make the best of his

premiership and round out a

“Johnsonism” that is more than just

rhetoric, he must apply the

wily political tactics he used to

secure his position as prime minister

to the drier business of

policymaking. If he does, he will

have used his power for a purpose. If

he does not, and he lets his

administration drift, he will be back

in trouble again before too long.

David Smith

Alex Dawson

Avert your eyes for

a moment, if you

can, from the horror

story of ever-higher

inflation and the

cost of living crisis, and the even more

horrific story of the war in Ukraine

that has contributed to bringing this

about. For I bring you today

something a little more cheerful.

Productivity, the ultimate driver of

prosperity, held up well during the

pandemic and, with luck, may have

established a platform from which it

can improve further.

The word “may” is doing quite a lot

of work there, so let me start with

what we know A few days ago, the

Office for National Statistics

produced the first productivity figures

covering the period since the end of

furlough scheme on September 30

last year. There was a time, you will

recall, when this was what Rishi

Sunak was most famous for. I am sad

for him that it is no longer the case,

though the recent blows he has

suffered were largely self-inflicted.

Monthly figures show that the size

of the economy, measured by gross

domestic product, was 1.5 per cent

bigger in February than on the eve of

the pandemic two years earlier. But

the quarterly figures, which are the

most relevant in this case, showed

that GDP in the final quarter of last

year was still 0.1 per cent below what

it was in the corresponding period of

2019, before most of us had given a

thought to the coronavirus.

Every measure of productivity,

however, showed a rise over that

period. GDP per hour worked, the

main measure of productivity, was up

by 2.2 per cent, while GDP per worker

showed a rise of 1.2 per cent. There

was thus more output relative to the

input of labour.

These are not rip-roaring rates

of productivity growth. In

the distant days before

the 2008-09 financial

crisis, we used to

regard 2 per cent

annual growth as

the norm, not a

little over 2 per cent

over two years. Yet

the recovery is

encouraging in two

respects. It shows

that, contrary to some of the fears

once expressed, productivity held up

well during the major economic

shock of the pandemic. More on that

in a moment. It also shows that,

compared with the shock to

productivity caused by the financial

crisis, when it took until 2015 for

GDP per hour worked to show a 2 per

cent rise compared with pre-crisis

levels at the start of 2008, a seven-

year wait, productivity growth is now

on a much firmer footing.

These recent trends appear to be

continuing. GDP, as noted, was 1.5 per

cent above pre-pandemic levels in

February. The number of hours

worked in the December-February

period was, on just-published figures,

down by 1.4 per cent on two years

earlier. The number of people in work

was down by even more: 1.8 per cent.

GDP is up, even though the labour

input is down. This, indeed, is one of

the big stories of the labour market. It

is right to celebrate the fact that the

unemployment rate, at 3.8 per cent, is

below pre-pandemic levels. But the

context of this was provided by the

Organisation for Economic Co-

operation and Development, the

advanced countries’ grouping, in

noting that unemployment across its

members was also below pre-

pandemic rates.

“The unemployment rate conceals

the extent of the unmet labour

demand as some non-employed

people may be ‘out of the labour

force’, and hence not captured by the

unemployment rate, either because

they are not actively looking for a job

or are not available to work,” it said.

That is clearly the case in the UK.

Part of the explanation, which is

particularly affecting sectors such as

hospitality, is the decline in the

number of EU citizens working in

Britain, down 160,000 over

two years, the upward

trend in these

numbers having

been broken five

years ago. Most

of the

explanation,

however, is

rising inactivity

among older

workers. There

has been a rise

in inactivity of

about 600,000

among the over-50s

in the past two years

and a rise of nearly 70,000 in inactive

18 to 24-year-olds, thought to be due

to fewer students working while

studying.

A tight labour market could and

should be a driver of productivity

growth, though in some cases scarcity

of workers will simply mean less

economic growth. There are reports

of firms closing, mainly in hospitality,

because recruitment has become

impossible.

The other potential productivity

driver is that changes brought about

by the pandemic will have a lasting

positive impact. After a shaky start,

the greater use of technology has

been both labour-saving and time

saving, and thus productivity-

boosting. More than three decades

after the eminent US economist

Robert Solow quipped that “you can

see the computer age everywhere

except in the productivity statistics”,

perhaps laptops are finally showing

their worth. And maybe even those

business trips that were considered

essential were not so necessary after

all, particularly if much of the time is

spent hanging around airports.

Many organisations are finding that

hybrid working, achieved by accident

as a result of the pandemic, is

boosting both productivity and

employee satisfaction, to which it is

closely related.

I would not want to bet the ranch

on a more optimistic outlook for

productivity. This is what the Office

for Budget Responsibility, the official

forecaster, and the Bank of England

have been doing for more than a

decade. Trace back their assumptions

and you see a succession of hopeful

upward lines set against the

subsequent reality of the near flatline

which speaks of the productivity

stagnation of recent years. The UK

productivity story is one of repeatedly

dashed hopes.

Productivity surely has to break

higher at some point, however. And if

it took one crisis — the financial

crisis of 2008-09 — to kill off the

steadily rising trend we had become

accustomed to, perhaps another, the

pandemic followed

by Russia-Ukraine,

could shock us out

of the malaise. It

needs to do so.

‘‘

’’

David Smith is Economics Editor of

The Sunday Times

[email protected]

Alex Dawson is the practice lead, UK

politics and policy, at Global Counsel

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‘Bills face a real battle

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