By Jacob Kishere
On July 19th the Henry Jackson Society was privileged to host Andrew Haldane Chief Economist and Executive Director of Monetary Analysis and Statistics at the Bank of England. Mr Haldane was named in the TIME 100 most influential people of 2014 and gave a presentation outlining his analysis of the British and global productivity stagnation that he has describes as ‘The productivity puzzle’. Hosting the event was Chris Philp MP, PPS to HM Treasury Ministers, alongside Dr Alan Mendoza Director of the Henry Jackson Society.
Broadly speaking, Mr Haldane stressed that there was a concrete relationship between productivity and GDP and one that could be traced all the way back to the industrial revolution. The recent flat-lining of productivity is in many ways a global puzzle but the stagnation of the UK falls far behind many other developed nations with what he described as a ‘lost decade’ of productivity since 2007. Furthermore, he contended, where productivity leads pay follows and the widening dispersion in productivity would therefore translate into wider inequalities in pay.
Mr Haldane explored a number of different explanations for the UK’s stunted productivity ranging from a systematic mismeasurement of the economy by economists to a lack of infrastructure and R&D development or even an exhaustion of innovation. However, the data presented seemed to suggest that the principle culprit in lagging productivity was a lack of diffusion of innovation from the small ‘upper tail’ of ground breaking enterprises in each sector to the ‘long tail’ where a high density of low productivity companies reside. A long and lengthening chasm exists between the majority of businesses operating at a low productivity and the small group of high productivity enterprises. Addressing this failure to diffuse innovation, Mr Haldane contended, was critical to going some way to improving national productivity.
However, many businesses operating within the ‘long tail’ end of companies may not recognise that they are low productivity and therefore, designing and providing mechanisms for companies to self-assess and improve their productivity would be a very useful step forward. Many of the most effective, highest grossing enterprises in Britain today are already using and experimenting with these kinds of digital assessment methods said Mr Haldane. In an audience Q&A Mr Haldane re-affirmed his assessment of policy decision making on interest rates and provided further examples of cases where innovation has failed to disseminate across sectors.