Table of Contents
If you’ve paid any attention to the news in recent years, you know that Britain has a productivity problem.
August publications such as the Financial timesAnd The Economist will tell you that Britain’s ‘poor productivity’ is ‘holding us back’ as a country on the world stage.
Settings from the London School of Economics, Economic Observatory and the National Institute for Economic and Social Research attributes this to a ‘lack of investment’.
And if you look at the latest Office for National Statistics figures you can see it in black and white.
For every hour we work in the UK we earn £46.92, while in the US they earn £58.88, Germany £55.83 and France £55.50. If only we could work harder and more efficiently, they complain.
But what if we as a customer look at those same statistics? Suddenly Britain seems to have the best value. All things being equal, customers in Britain can buy an hour’s worth of work for less than some of our G7 neighbors.
When customers operate globally, ‘poor productivity’ suddenly becomes an advantage rather than a disadvantage. Britain looks cheap.
Some might argue that I am oversimplifying; economists also use a second measure of productivity and that is gross value added (GVA). Simply put, it is the difference between a raw product and the output after a worker turns it into something.
This measure works very well in production. You simply take the final price of a car, minus the cost of the raw materials to make that car, and divide the remainder by the hours worked. As the factory becomes more productive and cars are produced in less time, productivity increases.
But here’s the problem with using that measure in Britain. Our economy consists of 81 percent services! Our service sector makes up an unusually large part of our economy. In France this is 70% and in Germany 62%.
The thing about services is that the human hours are generally the product. And the price people can ask for those hours depends on the market.
If a car’s raw materials increase, the total price of all cars will increase, allowing companies to make a profit.
But in the service sector, companies can cut back even further when the economy is bad, because the hours are the only thing they actually sell.
Let’s look at an example so you can see what I’m talking about.
I run a professional services company. One of the things my company offers its clients is PR services. In very simple terms we can say to a customer that we can generate four high-quality covers for £X per month. And for simplicity’s sake, I calculate that it will take my team 50 hours of work per month to achieve that.
Now this customer is a global customer and needs to achieve the same in the US as well. Their agency takes the same time and achieves the same results, but charges twice as much.
Which company does the economist think is more productive? That’s right, if you’ve been following you know that the US agency charged twice as much for its time even though the output to the end user was the same.
I’m not an economist, but I do understand value and I know that all things being equal, something half as much is a better value.
But it’s not just me who notices it, our customers notice it too. Even though my company is an agency with only 15 employees, about a third of our clients are headquartered abroad. We don’t sell ourselves outside the UK; they just know they’re getting more bang for their buck.
That is also why we want to expand to North America after seven years in Great Britain. We are already interested in setting up an office in Toronto.
Next month I’m going on a reconnaissance trip. And guess what, I’m taking two of my ‘unproductive’ British workers with me.