Debunking productivity's sacred cows

2005

Why is productivity in Britain lower than that of its European competitors, notably France and Germany? In a robust tirade against 'conventional wisdom', Dr Eamonn Butler, Director of the Adam Smith Institute, argues that the problem isn't the fault of British management at all.

"You would be better to look to the public sector, which is now comprises more than 40% of Britain's economy and is growing fast. Big, yes, but it's notoriously unproductive.

"…. Britain's rotten education system has a wider effect on productivity. If you are turning out illiterates - and after 11 years of state schooling, about 7m British adults cannot read well enough to find a plumber in the telephone book - it hardly makes for a productive workforce."

Planning and regulation are more ways in which an excess of government thwarts productivity, he says, as is the EU – the Institute's favourite hate figure – which "has been passing about 100 directives and 2,400 regulations each year."

Then there's Britain's notoriously complex and bburdensome tax regime – something that the World Economic Forum's recent report on global competitiveness also singled out for criticism – which curbs investment and productivity.

And as for Britain's flexible labour market?

Of course, one explanation of the productivity gap between Britain and France or Germany is that the latter have more capital invested per worker. I am sure that is true. But does it mean that Britain's managers are perversely resisting mechanisation? No. What it means is that Britain's labour market is much more flexible. Try firing someone in France or Germany and you will be in for a nasty shock. So you don't employ people, you employ machines. Which is why Britain has lower productivity. And why Germany has unbearable unemployment.

Blame politicians, not managers, for productivity gap