Monday, 6 April 2015

ED MILIBAND IS RIGHT ABOUT PRODUCTIVITY. HE JUST DOESN’T KNOW IT

Ed Miliband at the CBI Climate Change Summit 2008 3 One third of probation officers employed by privatised service provider Sodexo could face redundancy in the next 12 months, The Guardian reported last week. They are to be replaced – in part, at least – by electronic kiosks that allow offenders to “report in” electronically.

Ed Miliband must have been delighted. The news came on the day that the Labour leader launched his party's manifesto for business with a speech in which he said that tackling the UK's productivity gap is the key to the nation's economic recovery. Productivity, in broad terms, is the ratio of output to hours worked, which is often increased by investment in technology. Managing offenders in the probation system using machines rather than people does exactly this.

What Mr Miliband actually said, employing the clipped delivery that speech-writers favour, is this:
Productivity is the key to the country we wish to be. Richer. Fairer. With opportunity for all.
Since the sacked probation officers may not see things in these terms, it is worth examining the connection between productivity and these supposed benefits. Society certainly gets richer when it can produce more, but which members of society get their hands on those riches depends upon how it is distributed. The “fairer” bit is quite important: increased output per hour may increase the value of labour, but if labour is plentiful (and therefore cheap) the increase in its value is likely to stay with the employer/investor.

There is nothing to say that rising productivity must make a country fairer, or give “opportunity to all”. The tendency of legislation through the industrial era - from the earliest Factory Acts in the 19th century to the Equal Pay Act of 1970 - was broadly progressive in economic terms, but income equality peaked in the mid-1970s and thereafter the trend has gone into reverse. The UK is a much less equal society that it was 40 years ago as most of the benefits of increasing output accrue to the already wealthy.

For those seeking a return on capital invested, productivity is less important than the cost of production. This explains why the present so-called recovery in the UK economy has seen a big rise in employment while real wages stagnate or decline. A productivity gap has indeed opened up, because employers now find it more profitable to take on low paid workers than to invest in the technology that would make them more efficient. Because of this, economic activity is now less about creating new wealth than about people trying to get a bigger share of the wealth that is already there.

The conditions that permit this are well established. The free movement of workers within the E.U.; the outsourcing of public services; low cost manufacturing in the Far East and elsewhere; benefit cuts and reduced social protections – all of these have increased the size of the U.K. labour force while reducing its value and security. While labour is cheap, flexible and disposable, productivity will remain weak because employers can do better through exploitation than productive investment.

Mr Miliband's will not say so, but there is political expediency at work in this. Any sort of employment is better than nothing, since if low-tech, poorly paid jobs are to be lost to technology it is not clear what will replace them. This is why Labour's plans to increase the minimum wage are so modest: conventional political thinking depends on business to create and distribute wealth, and has no coping strategy when this does not happen. Increased productivity brought about by higher wages could reduce employment and make society even more unequal than it already is.

Because of this, Mr Miliband's fine words about productivity are essentially empty. But they don't have to be, because he is quite right that productivity is the key to the country we wish to be. It will make society both richer and fairer, while increasing opportunities. It will only do so, however, if we correctly understand what productivity means. Such understanding requires profound changes to the economic system, changes in which the Labour Party at present shows no interest.

What is productivity? The traditional approach, of counting gross value added (GVA) per unit of work, is fine for measuring the efficiency in the production of widgets, but widget production is a small fraction of the UK economy these days. Most of the measured activity in the economy consists of services, where the concept of GVA is slippery at best.

Take those probation officers, whose work will now be done by machine. Statisticians may conclude that, since the same number of offenders is being processed, the output has remained the same, which gives a big increase in productivity.

If, however, as seems likely, that machines prove less effective at offender management than skilled and experienced officers, the statisticians will pick up the fall in quality and record it as a decline in output. This will reduce the improvement in productivity, or may eliminate it completely.

If machines can do as good a job as those skilled officers, then the talents of the latter were clearly being wasted on mechanistic box-ticking and form-filling tasks. It begs the question whether this form of offender management is worth doing at all, whether by person or machine. To answer it, consider what would happen if the probation service were to employ more officers, dispense with the box-ticking and allow them the time to engage properly with the offenders in their care. The increase in the quality of the service (in terms of reduced reoffending) might easily be greater than the increase in staff numbers. If so, employing more people could increase productivity as well as output.

Many services are like this. The benefit of a care visit may increase pro rata with its duration. A hurried “get in and out as quickly as possible” visit to give someone a bath is likely to create stress and anxiety for all concerned, but a leisurely “take your time” visit can do lasting good. Statisticians know this, and so one reason for poor productivity in the economy may well be that cuts in social services and outsourcing to the lowest bidder have caused a decline in quality (and therefore output) that is even greater than the decline in hours worked.

Statistical authorities have done a great deal of work on quantifying the qualitative aspects of the service sector. They rightly understand that the cost of a service is not necessarily the same as its value. To make sense of Mr Miliband's words, however, they need to go much further, quantifying the quality of output and productivity of services for which people are not paid. The majority of these services, including child care, food preparation, care of the elderly, social support, etc., take place in the home, where the quality of the output is the only consideration and the question of the “cost” of labour does not arise.

In general, people are at their most productive when looking after themselves and others. A truly productive society is one that allows them the self-directed time to do this effectively. That means shaping an economy in which work is valued for its human and social usefulness rather than its capacity to accumulate the wealth of others. If Mr Miliband is serious about productivity, his manifesto to business leaders needed to tell them that.

1 comment:

  1. In the event that I needed to utilize single word to portray this blog it would be SPL.Joseph Hayon

    ReplyDelete