Comments are closed. Joined up thinking is the key to improving UK productivityOn 8 Apr 2003 in Personnel Today Gordon Brown’s prudent image is about to be tested to thelimit with tomorrow’s Budget. But his focus on productivity is right – as longas UK industry starts to think long-term and looks at the bigger pictureThe chancellor of the exchequer Gordon Brown’s Budget options, alwaysnarrow, have closed down completely with the war in Iraq. The £3bn he hasearmarked for the war already looks too low; if the UK is spending at the samerate as the US then the allocation should be close to £10bn. With government borrowing set to rise significantly above £30bn in the nextfinancial year and the year afterwards, Brown has no room for manoeuvre toraise spending further or cut taxes. He therefore risks breaking his own-selfimposed rules for spending and borrowing. Only if he can present the Iraq war and reconstruction as a one-offadditional spending increase with the wider global downturn undermining hisreceipts, will he escape being tagged as fiscally imprudent. He may rob Peterto pay Paul, lifting taxes stealthily to pay for worthy spending increases soleaving the overall economic impact broadly neutral, but even that strategy isunappealing. You can write the headlines about stealth taxes yourself. Rather thispromises to be a sober budget in keeping with the times – with the mainpreoccupation being delivering on productivity. The trouble is that while the chancellor vowed to improve the UK’sproductivity performance six years ago, which he has attempted to do through arange of macro- and micro-economic tinkering, productivity stubbornly refusesto rise. Rather than catching up with productivity levels in other major economies,the UK has fallen further behind. This is partly about mismanaged expectations– having presented himself as having the cure for UK productivity malaise,Brown was always going to fall short of the hype. The UK also has a long-termproblem of under investment in physical and human capital that cannot bereversed overnight. But even if he succeeds in redressing some of that under investment, theopen question is whether there is anything the Government can do to influencesuch a long-standing problem. Brown’s focus on ‘bottom-up productivity’ – which looks set to be a theme ofthe Budget – has been a real step forward in focusing attention on the longtail of under-achieving firms and individuals at the bottom of the labourmarket. According to the Treasury, the UK’s best firms in every sector are upto five and a half times more productive than the weakest. Equipping universities to network in local economies, new targets forworkforce skill levels, measures to address deprivation as well as to stimulateenterprise, and new ideas to eradicate joblessness in particular neighbourhoodshave all been features of a regional, bottom-up approach to productivity thatlooks set to reap longer-term productivity rewards. But there are two vital weaknesses. The first is that the policies need toconnect in a way that makes sense on the ground, so the various initiatives arepart of a coherent bigger picture and not seen as another standaloneinitiative. The problem here is that, historically, the educational,technological, commercial and employment agendas – all productivity focused –have run in parallel, almost oblivious of each other. Instead there needs to bea far better micro-economic strategy that really joins up the drive to improveskills and innovation. But that means addressing the second deficiency: the UK lacks abusiness-building culture, so we have too few businesses that want to groworganically through being great high-performance organisations. Too many aredriven by short-term financial priorities – what matters is not long-termproductivity growth, but the next half-year’s numbers. Brown has tried to dosomething about this with his Myners Review on pension fund management andincentives to hold shares for a longer term with tapered capital gains tax, buthe has abstained from substantial reform of corporate governance and financialstructures. If he’s to leave any worthwhile legacy, Brown needs to address bothdeficiencies and inject some humanity into productivity. He won’t be chancellorforever, and time is running out. Maybe he will surprise us. By Will Hutton, Chief executive, The Work Foundation Previous Article Next Article Related posts:No related photos.