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Economists are concerned with productivity because it is a long-term driver of in increases in living standards, and improvements in innovations, new technologies, jobs, and incomes. Productivity – as understood by economists rather than by engineers - drives the innovation that make our lives longer, healthier, and more comfortable. However, economists across the country have noted that productivity has fizzled out recently in the UK economy, a phenomenon known as the ‘productivity puzzle’.
As part of the launch event for CSaP’s 2019-2020 Annual Report, CSaP Executive Director Dr Rob Doubleday spoke with the Bennett Institute’s Professor Diane Coyle about the productivity puzzle. Professor Coyle is deeply involved with the work of a new National Productivity Institute, which explores how can academics, policymakers, businesses, and the voluntary sector work together to re-energize productivity, with the goal of long-term growth and wellbeing.
Conceptualizing and Measuring Productivity
When measuring the economy, economists try to do so in real terms, adjusting for general inflation. However, in trying to measure productivity, Professor Coyle suggests there are a number of measurement questions and conceptual questions which need to be account. She suggests that there is more than one thing contributing to the productivity that we see or do not see. Phenomena including aging societies, demography, trends in technology, technological diffusion, the debt overhang from the financial crisis, and the likely debt overhang from the crisis caused by covid-19 are just some of the elements which might impact productivity or its measurement.
There are different measurement and conceptual problems which underpin our understanding of productivity which vary between or which are unique to certain sectors. Measuring the productivity of the public service, ascribing a value to the productivity of telecommunications services used for heterogenous reasons ranging from stream videos and have phone calls with loved ones, or understanding measurement artifacts in our understanding of the productivity levels of the finance sector are just a few examples of the types of questions economists working in this area face. More broadly, Professor Coyle suggests that we do not yet have a very good conception of how to understand or measure productivity for non-product-based economies which are service-driven, as is presently the case in the United Kingdom.
Productivity and Wellbeing
Professor Coyle suggests that while the government should care about and want to increase productivity, governments’ primary focus should be thinking broadly about the economic and wider welfare of citizens – all of them – the distribution of that, and doing whatever it takes to give people the sense that things are getting better, and that their children will be at least as well off as they are. She further suggests that reflecting on inequalities between places within the UK is a vital component of thinking about productivity in the British context, noting that the majority of the UK’s major cities other than London are low-productivity, low-income places. She suggests we have to take a geographical approach to productivity as the economy is an economy of places, within which context, history, and politics matter.
Finally, Professor noted that the links between the quality of our environment, the state of our natural capital, health, wellbeing, and productivity have been made quite clear by the covid-19 pandemic, suggesting that productivity is one lens through which these wider issues might be constructively brought together. Here she emphasized that “health is part of what we economists call human capital key input into the economy. If you are not delivering that, then you aren’t going to deliver long term productivity.”