Following the recession of 2008, and a long period of stagnation, the United Kingdom economy has finally returned to growth and is outpacing most of our European neighbours. However, despite this modest growth and a strong jobs recovery, there is growing concern over our flatlining productivity.
Productivity grew at an average of 2.9 per cent over the 30 years from 1988-2008 before slumping with the recession. However, unlike the trend following previous downturns, productivity has stagnated for the last seven years. It has remained below the peak reached in 2008 and is now 15 per cent below the pre-crisis trend. After making up ground on fellow developed countries, the productivity gap is starting to open up again.
Productivity is a crucial measure of the health of our economy. It is a vital determinant of wages – strong and growing productivity means employers can afford wage increases. Increasing productivity in low-wage occupations such as retail, cleaning and care will be particularly important ahead of the introduction of the national living wage next year. It is also vital if we are to compete internationally in the ‘global race’. And in the context of sharply reduced public spending, increasing productivity in the public sector will be absolutely vital.
But why has productivity stalled? Of course, investment in new and effective plant, machinery and processes is vital. Companies trying to run their business with a mainframe computer will not match the productivity of those using the cloud. Steam-driven cotton-weaving looms are unlikely to match the output of the serried ranks of weaving robots on show in China.
But there is compelling evidence that what happens on a day-to-day basis in the workplace – where the rubber hits the road – is an absolutely crucial determinant of effective productivity. Put simply, too many employees find their abilities and skills under-utilised at work; they may be working extremely hard, but ineffective business organisation and processes means much of this effort is wasted. Too many employers do not listen to their staff; just one in two employees says their manager is good at seeking their views and only one in three say they allow employees to influence decision-making. Too often managers are not up to scratch and organisations fail to explain their purpose to staff, meaning they find it unsurprisingly hard to motivate them. All this means that the UK performs particularly badly on employee engagement. In a recent survey conducted across 20 developed countries, the UK came third lowest on engagement. What a waste of people’s potential, what a loss of productivity and what a cost to the nation.
So better employee engagement may offer part of the answer, and part of the solution. But what can be done about it? There is a role here for employers, for employees and unions, and for government.
Employers need to think about how they engage with and involve their workforce. They need to ensure that they have a strong strategic narrative, giving employees a clear line of sight between their role and the organisation’s purpose. There needs to be engaging managers who are skilled and equipped to motivate their teams. There must be a strong and robust employee voice, with people able to speak up and contribute their ideas. And there needs to be a sense of integrity, with actions and behaviours reflecting organisational values.
Trade unions can be vital actors here. Some of our most productive industries tend to buck the UK trend of low voice and low involvement. Take the automotive industry or the aerospace sector, for example, where high levels of union membership and high levels of employee involvement go alongside incredibly high levels of productivity. There are numerous examples of where trade unions have worked with employers to increase productivity for the benefit of both sides. Take the CWU, which has reached a pioneering deal with Royal Mail to drive up productivity, or Unite, which has helped make our car factories some of the most productive in the world.
Government needs to play its part, by ensuring that the small- and medium-sized business sector in particular has access to good management and leadership training. Organisations like the CIPD and CMI have been vocal in the need for a national network of small business support. And government is also directly and indirectly a major employer – and placing great leadership and management, and employee voice, at the heart of public service delivery will be vital with services under pressure to provide more for less
Labour desperately needs a narrative which has something to say about the economic challenge to the UK of living and succeeding in the 21st century global economy – remember, the world does not owe us a living. Successful organisations, working at their full capacity, with engaged employees fulfilling their capabilities, must be at the heart of our response. We need to work with all the stakeholders in the world of work to develop the solutions that will deliver a more productive economy with stronger and shared growth feeding through to better living standards and prosperity. If Labour is to regain credibility on the economy, it must identify solutions to the productivity puzzle.
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Nita Clarke is director of IPA. She tweets @nita_clarke
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JOIN US FOR …
Britain left behind: How can we boost productivity to benefit working people? in partnership with IPA
7.30pm, Tuesday 29 September 2015
Wagner Hall, Regency Road, Brighton, BN1 2RT
Alison McGovern MP Wirral South
John Longworth Director general, British Chambers of Commerce
Nicola Smith Head of economic and social affairs, Trades Union Congress
Chair: Nita Clarke Director, the IPA
Refreshments provided. Wheelchair access available.