Physician Heal Thyself

The refusal of British business to accept any responsibility for the state of the economy is something I’ve ranted about before over at my place, but it’s an issue that continues to bug me.

The British business community complains, pretty much constantly, that the tax-and-regulation-happy policies instituted during nine years of Labour government are risking our national competitiveness. That jobs, capital and rich people alike are going to start flooding out of the country in a nigh apocalyptic panic because Gordon Brown wants to spend more money on spurious stuff like schools and hospitals. That if the government doesn’t buck its ideas up sharpish, it won’t be long before the population of Bradford will be working in call centres and attending training sessions involving Bollywood movies, while the population of Mumbai and Bangalore panic about outsourcing.

Think I’m exaggerating? Okay. How about this report from Civitas, which says that regulations could be costing us £30bn a year, and that costs rose by a third between 2004 and 2005. Red tape is strangling the UK economy, we are told.

Or this story in which George Osborne, the shadow Chancellor, complains that “the sheer complexity of the tax system is now having a real impact on Britain’s competitiveness.” Not, you note, that the party has made any concrete proposals for tax reform.

Or there’s this report from Sheffield Hallam University’s Management School, which complains that “Britain’s burgeoning public sector bureaucracy coupled with large regional economic disparities have caused it to plunge down the global economic competitiveness league since Labour came to power in 1997″. This isn’t an entirely unreasonable comment, until you remember that if one party is most responsible for “regional economic disparities”, it certainly isn’t Labour. (Remind me, whose economic policies gutted the industrial north in the 1980s without making any serious moves to create alternative jobs?)

…and that’s just what I found in two minutes on google.

But this morning I came across something that cheered me somewhat, courtesy of the excellent New Economist blog. It’s the World Economic Forum’s Global Competitiveness Report 2006-07, which ranks the countries of the industrialized world based on their ability to compete in the global economy. Its commentary on the UK is… enlightening:

The United Kingdom excels in market efficiency indicators, with the most efficient financial markets in the world. The flexibility of the UK labor market and its low levels of unemployment stand in sharp contrast to that of Germany, where the business community is saddled with cumbersome labor regulations. But Germany does somewhat better than the United Kingdom in innovation indicators and the sophistication of its business community, which are among the best in the world.

…or, in other words, get over it, and start thinking about how to improve your own performance instead of just bitch-slapping the government over theirs.

The biggest threat to Britain’s competitiveness, as far as I recall, is our low productivity (e.g. the amount of value that can be generated during an average hour’s work). And one of the biggest drivers of productivity is business investment – in training, equipment, research and development and the like.

And on this, Britain falls down. According to this briefing from the Economic and Social Research Council (ESRC)

Investment by business was lower in the UK than any other G7 nation across the period 1990 – 2002. However forecasts for future investment based on the latest trends are more positive. Expenditure on research and development (R&D) is lower in the UK than many of its competitors.

This would be less worrying, if British management had some magical touch that was generating a flow of fantastically profitable ideas and was keeping us ahead of the curve. Unfortunately, large chunks of British management are, in fact, shit. Take this rather amusing survey which finds that “UK is infested with bad managers”.

Or, if you’d prefer something a little more fact-based, try the ESRC again. It claims that “US firms are on average the best managed, with the Germans second, the French third and the UK worst”, and that “the differences in management practices between the UK and the United States can explain 10-15% of the productivity gap between the two countries.”

I can’t help but be reminded of the publishing company I once worked for which, after one team had worked 12 hour days for three months on £15k a year to get a project finished, called a meeting to congratulate them on their success and present them with gifts. A bonus? I wondered. Some nice wine? Nope. Mugs and mousemats with the slogan “I [heart] the company.” The executive whose brainchild this was is now, rather regrettably, a Tory MP, and no doubt spends plenty of time ranting about the burdens of red tape himself.

Business is right that Britain needs to be more competitive. But that won’t just mean tinkering with the tax regime, or improving the education system: it means accepting that sometimes you have to have lower profits today to invest in the hope of bigger profits tomorrow. And it means rewarding good performance instead of expecting it as a right.

Next time the business lobby starts whining on about how Labour has put our economic strength at risk, they might also want to think about how best to clean their own house.

  1. (Remind me, whose economic policies gutted the industrial north in the 1980s without making any serious moves to create alternative jobs?)

    Ummm, would that be the Tory government that stopped using taxpayers’ money to prop up uncompetitive industries? I think that it would.

    It would be slightly foolish to do this and then to use taxpayers’ money to create uncompetitive industries to create jobs, wouldn’t it?

    It would render the whole exercise a little pointless.


  2. Jonn said:

    Quite, but that wasn’t exactly my point. British mining, say, was dead: if the Tories hadn’t have helped throttle it, its passing just would have been more protracted because of, essentially, globalization.

    But the closure of the mines devestated plenty of areas. I’m merely contending that the government should have made more attempts to look like they weren’t somehow on a different side to those communities – by investing in retraining, say, or creating tax-free zones for business start ups. To the best of my knowledge, they did none of that.

    (Of course, if DK hadn’t popped in to argue with something in that post, I would have been mightily disappointed…)

  3. Sorry, I couldn’t quite manage to read all of your masterful essay on economics which began rather unpromisingly with this fatuous remark, “The refusal of British business to accept any responsibility for the state of the economy …” I suspect this will fall on deaf ears but just for the record it is *not* the job of British industry, or anyone else, to be responsible for the British economy – that rests entirely with the British government.

    I reached as far this, “The biggest threat to Britain’s competitiveness, as far as I recall, is our low productivity (e.g. the amount of value that can be generated during an average hour’s work)…” and realising, as any economic beginner would but Gordon Brown hasn’t, that the simple cure is to sack loads of workers so that the same amount of work is done by fewer people, I gave up and began to wonder if there was, after all, a God because at least He hadn’t made you Chancellor of the Exchequer!

  4. Jonn said:


    On what grounds, exactly, do you deny the role of low business investment in low productivity? This is detailed at length in the works of writers including Will Hutton and John Kay, incidentally.

    As to your second par, try as I might I can’t make head nor tail of it. What, precisely, is your point?

  5. Check out the ceonomic argument onthe backpage of Guardian’s G2 section today to make you even more ill

  6. Tom Mac said:

    “I’m merely contending that the government should have made more attempts to look like they weren’t somehow on a different side to those communities”

    Umm, they WERE on a different side to the unions, who had made it very clear over a period of 20 years that what THEY wanted was for the pits to remain open, and damn the economy.
    that’s why a succession of Labour governments, who presumably you would accept were on the side of the miners, also had massive problems, and were unable to get them to accept any concessions (In Place of Strife anyone?)

    We all know what you mean, and your point about the Tories handling of the aftermath is partly true, but to absolve the unions and Scargill of equal blame is just wrong. the ordinary miners got screwed by both sides…

  7. Tom Mac said:

    Oh and by the way, one of the main reasons for low productivity is the fact that Labour has increased the size of the public sector, which will always be less productive, to 1 in 4 workers. At the same time it has turned large swathes of the private sector into de facto civil servants as well (PFI companies, consultants who get most of their business from government, majority-government-funded charities), underwriting their profits and thus destroying their incentives to be efficient.

    As for crap managers, Brown’s decision to destroy top-class private pensions by taxing the hell out of them will only increase the problem, as more and more managers will join the less productive public sector, whose average pay is higher and whose final salary pensions are guaranteed (paid for by taxes on the productive private sector, thus lessening the amount they can spend on R&D…)

  8. Tom Mac said:

    And while I’m here, I’d be interested to know why, having read a survey noting poor management skills in Britain, you think that absolves the Government of blame? Surely the survey is just as much an arguement for poor managers in the public sector too? Perhaps working in the Treasury or the DTI? Maybe?

    Particularly when you read that “The report shows that poor communication, lack of direction and weak decision making are widespread among UK bosses.”
    pretty perfect description of our Big Boss Tony, I’d have thought.

  9. Tom Mac said:

    That is all.

  10. I’m grateful to the ‘Slicker’ for his reference but at my age life is too short and getting shorter by the minute to waste any of it reading the Guardian, not least because idiots like Will Hutton (recommended by our host – and doesn’t it show?) are in the habit of writing for it.

    As for John, let me explain productivity. If 10 men produce x amount of goods and you sack 2 of them and, surprise, surprise, you find you can still produce x amount of goods, then your productivity has gone up. As Tom indicates, sacking a few million un-civil servants would have exactly that effect on the national economy. Combine it with cuts in unemployment benefits and you would soon see a remarkable change in our economy.

    My last lesson in Economics 101 is that businesses *only* purpose is to make profits for their shareholders. Your average ‘widget-maker’ has no more idea about the national economy than you or I, and you appear to have none. The sole job of the government is defend the country, impose law and order including business law, and maintain a steady value to the currency. The history of our nation would lead an objective observer to believe that they are, on the whole, crap at all those things. But please don’t blame the ‘widget-makers’ – apart from anything else, if you do he will bugger off to China or India!

  11. Reverend Lovejoy said:

    DD – thank you for revealing the almost embarrassing grasp most Tories have of economics.

    Your theory of productivity is indeed the British management model; sack some workers, let those who remain work harder.

    Let’s look at how productivity is viewed in more successful economies; our ten mythical workers are producing x amount of goods using standard machinery. Management can INVEST in better machinery and the same amount of workers can produce x+y amount of goods. Then the management could INNOVATE by finding a quicker better process. The same amount of workers will now be able to produce x+y+z goods in the same length of time. Finally, management could INVEST in its workers by creating safer worker environments and conditions leading to higher motivation and less absenteeism, again driving productivity higher.

    That in a nutshell is why British management has so royally screwed up in the last thirty years. We have ever fewer workers producing the same amount or fewer goods. Our competitors have the same amount, or more, workers producing far more, and better, goods.

    My last lesson to you David is in Logic 101. You say it is *not* the job of British industry, or anyone else, to be responsible for the British economy – that rests entirely with the British government. AND The sole job of the government is defend the country, impose law and order including business law, and maintain a steady value to the currency.

    These statements can’t both be true, although both can be false.

  12. Jonn said:

    Tom: I wasn’t trying to defend Scargill – I very carefully referred to the communities, not the miners. My point was that government policy would have been a lot more effective if efforts had been made to demonstrate that the unions did not have the communities long-term interests at heart. Instead, the line seemed to be “Screw ’em, they’re all the bloody same.”

    As for crap management in the public sector: I can’t disagree with you. I’m not trying to say that the government is perfect, merely that British business share the blame for the weaknesses of the British economy.

    I disagree with must of The State We’re In – it singularly fails to get to grips with globalization – but I think the finger it points at Britain’s obsession with dividends over re-investment is spot on.

    I shan’t address David’s latest mumblings, as Rev Lovejoy has largely done so. Suffice it to say that it might be more enlightening to compare Britain’s economy with those of Europe or North America, instead of just making assertions without evidence.

    I’m not, by the way, an anti-capitalist. Not at all. I’m just saying that British business was crap long before Gordon Brown came along – and, unless they do something about it themselves, still will be after he’s dust.

  13. Well, ‘Reverend’, I can see why you gave up running the whelk stall!

    First of all, if the widget maker *can* make the same amount of widgets with less men then he should lay them off and his productivity *will* increase thereby and he will know the minimum cost of production.

    Now, he might consider investing profits into new machinery *but only* if the cost of this investment can be off-set against the wage overhead by laying off even more men – which again, will improve his productivity (the same or more widgets produced by less men). If his mathematics work out and he can produce widgets slightly more cheaply than his competition then he can either enjoy the bigger profit or sell cheaper and increase market share. Given time (“that old common arbitrator”) he might *in the future* increase his workforce to cope with demand, or he might just buy a new machine!

    You propose that he should invest in new machinery in order to *increase* the number of widgets he can produce but that would depend entirely on the widget market. If American car makers today could find machines that would build even more cars, they still couldn’t sell them! It’s because it is a mature market and *most* markets are mature.

    Next you blithely speak of innovation. That is more usually called research and development and in any industry it is always highly expensive and, more importantly, highly risky in that many apparently good ideas fail.

    Still, ‘Reverend’, as you seem to feel the need to ‘preach’ the *duty* of business men to take such risks, let me tell you that there are also plenty of opportunities for you and John to take up your fair share of the burden. There are all sorts of tiny innovative companies on the AIM market looking for investment. I trust you will forgive the technical economic language but it’s known in the trade as ‘putting your money where your mouth is’!

    Finally, I should stick to economics not logic if I were you. The value of a nation’s economy is measured by the value of its currency. That valuation on any given day tells you what the international market thinks of your economic prospects *in the near future*. It is the duty of a *govenment*, no-one else, to maintain that value.

    Me! A Tory? Do me a favour!

  14. Reverend Lovejoy said:

    Mr Duff;

    There are all sorts of tiny innovative companies on the AIM market looking for investment. I trust you will forgive the technical economic language but it’s known in the trade as ‘putting your money where your mouth is’

    As a director and investor of two small companies I’m already ‘putting my money where my mouth is’. You, on the other hand, spout nonsense on far too many blogs blogs. I can see why arguing with you is popularly seen as futile. You fling words around with no particular care as to their actual meaning.

    If it is the duty of *no-one* but the government to maintain the value of a currency what are the Bank of England doing setting interest rates? Buffoon.

  15. h2o said:

    Mr Duff,

    The reason American car producers can’t sell more cars is because their cars aren’t very good. Japanese car producers don’t seem to be suffering from the same problem, you might care to note.

    Japanese car producers have proven rather better at the whole ‘innovation’ thing, you might also note. They have a tendency to plough profits into R&D and training, with the end result that they keep producing better cars that people want to buy.

    American producers have tried to produce the same tired concepts with fewer workers at lower costs. It worked for a while, but the underlying problem was enver resolved: the concepts just weren’t that good. Now they’re desperately trying to hitch a ride on biofuels in a bid to rescue their SUVs, which are now so far behind the curve it’s embarrassing.

    So, Mr Duff – yes, you can make your product cheaper and with fewer people and improve your productivity metrics, but when people get tired of your product, they’ll stop buying it – and it doesn’t matter how efficiently you make it if nobody wants it.

  16. Well done, ‘Reverend’, and may all your dividends be big ones!

    And the Bank of England *is* part of the government. I’m surprised a shrewd operator like you has been taken in by the hokum that the ‘independent’ monetary committee, made up entirely of people *appointed by the government* and which has the duty to set interest rates, is not part of the government.

    But of course, the economy will also depend on other government actions such as our old friends ‘tax and spend’. That and its effects for good or ill, to revert to the original complaint of our host, cannot be laid at the feet of our plucky little widget maker. So I say again, the national economy is the responsibility of the government and no-one else.

    Given your opinion that “I can see why arguing with you is popularly seen as futile”, I’m surprised you have come out of your corner not once but twice! I may well be a “buffoon” but what does that make you?

    ‘H2O’ repeats ‘the bleedin’ obvious’ at some length despite my having already made it clear. Nothing of what he says adds or subtracts from the basic fact that productivity by man/hours increases if you have fewer men producing the same or more goods.

  17. Jonn said:

    ‘H2O’ repeats ‘the bleedin’ obvious’ at some length despite my having already made it clear. Nothing of what he says adds or subtracts from the basic fact that productivity by man/hours increases if you have fewer men producing the same or more goods.

    I’m going to go out on a limb and guess that H2O, like me, doesn’t have the foggiest idea of what your point is.

    All you’ve done is defined productivity, which I rather assume most of us already understood. You haven’t explained how it is always possible for the same amount of goods to be produced by fewer people: sometimes it will be, because systems are efficient; other times, cutting staff will just cut your production. Pretending there’s a one size fits all solution to any economic problem strikes me as reasonably foolish.

    As to investing in AIM, I’d love to… But I belong to a generation that is burdened with student debt and priced out of the housing market. Unfortunately that’s currently rather low on the list of my financial priorities.

    You might have more luck addressing such comments to the babyboomers who keep pouring their savings into buy-to-let properties that they might do the economy more favours if they instead looked to early staged companies.

  18. h2o said:

    Three points:

    1. Increasing productivity does not necessarily translate into sustainable economic growth (given that I’ve stated ‘the bleedin’ obvious’, I take it that we can both agree on that)

    2. The economy is nothing but the aggregate of all the actions taken by individuals and companies to allocate resources. The goverment may influence the resource allocation decisions that individuals/companies may make, but ultimately the economy is a dynamically unstable system under the control of nobody in particular.

    3. In such a dynamically unstable system, companies may also be able to influence outcomes through their resource allocation choices, particularly when those choices are amplified through psychological dynamics amongst the people who make up those companies.

    To give an anecdotal illustration: a person I know who used to be a director in a FTSE 100 company. He expressed dismay that, in the period running up to his retirement, many managers became gripped by a fad based on the book ‘Who Moved My Cheese?’ They even paid consultants to come in and do seminars on the book. It was, in his opinion, ‘the beginning of the end’.

    That company lost about a third of its share price when, during the whole accounting standards scandal, some poor financial reporting came to light. It has not entirely recovered. The accounting scandal emerged as a result of middle managers cooking books to hide the failures of their departments, not because of embezzlement.

    I think it’d be hard to argue that the company’s troubles could all be blamed on the Board. The decision of many middle managers to devote scarce resources to pointless exercises, like the cheese moving seminars, contributed to the inability of the company to compete effectively with other companies in the space. Rather than innovate effectively, they got caught up following the prevailing inane management fashion, and accordingly were shown to be fools.

    I don’t think you need to think too hard to see how such dynamics might play out across the wider economy.

  19. No, John, just cast your mind back to your university (if such it was!) and ask yourself this: if they sacked one in ten of the lecturers but insisted the remainder cover the curriculum, would it have made much difference to the output, that is, the level of knowedge/ignorance of the students? I doubt it but the productivity would increase.

    Alas, I do not know into what subject you ‘invested’ your borrowings. If it is something that provides a qualification that is very sale-able in the market place then, being a clever fellow, you will have worked out ahead of the ‘investment’ that you will recover that amount in future salaries plus interest. If not, then I suggest you do not attempt to run a whelk-stall!

    Actually, you raise a point that will become increasingly important to youngsters trying to decide whether they risk the cost of studying or just go out and earn a crust instead. The good thing is that more and more of them will decide on the latter and thus the number of ‘Mickey Mouse’ courses will drop and more of those useless lecturers will have to go back to earning a living!

  20. Jonn said:

    My undergrad degree, since you ask so politely (and aware of what a tosser this comment will make me sound), is from Cambridge, which unless I’m very much mistaken tends to do pretty well in league tables and the like.

    The limits to my earning capacity are because I’m a journalist, rather than because of my educational background – frankly, if at the age of 21 I’d wanted to work in the city I probably would have had very little trouble. (This is not a reflection of what I think of my abilities, I stress, but simply because financial and legal employers tend to fall over themselves for Oxbridge grads.)

    Incidentally, ad hominem attacks are a pretty low debating tactic, you know.

  21. h2o said:

    Duff –

    You are right that people would do well to weigh carefully the benefits and disbenefits of their choices – but, as your university scenario fails to capture, not all of those perceived benefits will be financial. Sometimes people will choose a less financially rewarding course because they believe that it will bring them greater happiness…

  22. Dunc said:

    If 10 men produce x amount of goods and you sack 2 of them and, surprise, surprise, you find you can still produce x amount of goods, then your productivity has gone up.

    Sure, because there are absolutely no physical limits on the amount of work a single person can do…

    Ever actually work in a factory David? I have. There comes a time when you’ve laid off so many people that the place can’t actually function properly – essential maintenance gets postponed until equipment breaks down (shutting down the entire line), a single person not turning up one day can halt your operations (because they have a crucial role and you’ve sacked their backup), etc, etc…

    I can also definitely support h2o’s ideas about the amounts (both time and money) wasted on stupid managment fads and the like… I put 12 hours yesterday, most of it travelling, in order to attend a meeting at the other end of the country, which it turned out that I had no need to attend whatsoever. So my boss wasted an entire day of my potential work, plus a small fortune on travel, for absolutely nothing.

    As for the assertion that “the public sector […] will always be less productive”, I’m not convinced. I’ve done contracting for both, and I can assure you that some large private sector organisations (who shall remain nameless) are at least as, if not more, hidebound, bureaucratic and inefficient than the public sector. At least in the public sector I never had to endure a 2 day meeting (with the entire project team) to discuss why the project was behind schedule.

  23. Reverend Lovejoy said:

    Mr Duff –

    Apologies for the earlier ad hominem. I’m quite irritable until the drugs kick in.

    You still seem so wonderfully excited by your interpretation of productivity but you still don’t grasp its implications.

    To take your example. If our university is to improve its productivity every year, the first year they’ll probably get away with it; after all 9 can probably do the work of 10. So, arguably , can 7 or 8. But four years in, can 5 or 6 do the work of ten? And, most pertinently, after ten years, can no-one do the work of 10 people?

    Do you get the point yet, or do I need my hammer and nails?

  24. GG. Tingey said:

    This is the sam British business and government that complains about the shortage of scientists, whilst eviscerating science teaching, closing research labs (just like the bitch from Grantham) paying those that remain peanuts, and if your’e over 45, forget it.

    I speak as an Engineering M.Sc. (1st degree in Physics) who works no longer….

  25. Tom Mac said:

    Dunc – fair enough, my form of words was def too dogmatic; the private sector can also be unproductive, but when that happens either the management will in some way change and the situation will improve, or a more productive competitor will move in and the overall balance will be restored (tho globalisation will of course be a lot less forgiving for economies with too many unproductive companies).


    After all the talk, I don’t think the original point of the article has really been taken any further.
    The original contention was that “business” needs to put its own house in order instead of instinctively blaming hte government for any ills in the economy.
    John posited that the two major problems with British business were poor management, and low productivity.

    For the former, I pointed out that a bad manager in the Treasury or the DTI (purely hypothetical, you understand) would do a lot more damage to the economy as a whole than one in a single company, and is just as likely. So the more a government interferes, the worse.

    The latter he basically blamed on greed and short-termism, suggesting companies were giving too many profits to shareholders and not putting enough into r&d etc.

    That’s a common criticism, but it’s a bit glib. You don’t need to be a genius to understand there’s a need to reinvest in your business. So unless the quality of managers is even worse than the survey quoted suggests, and 98% of them are thick as shit, it might jsut be that many of them are, to an extent, making a rational decision not to invest.

    To move the discussion away from definitions of productivity (if that’s ok by you Duff – the REv’s last post kind of nailed it), WHY do many British firms feel it isn’t worth investing in R&D in this country? I’m not saying I have the answer, or that it’s neccessarily the fault of the government, but I think it’s a valid thing to ask.

  26. Jonn said:

    Tom – yes, just to say “British management are mostly shit” is a bit glib. I mainly did it for comic effect, and I’m sure you could find parallels for my coffee-mugs-and-mousemates anecdote in every country in the world.

    But I did quote a couple of surveys from reputable sources to back up my argument. Surveys have found that

    a) British management doesn’t compare well to that of many other nations; and

    b) our business investment rates have often been lower

    The interesting question, to me, is why this should be. I think if we could answer that we’d be a long way towards closing the productivity gap.

  27. Quite a lot to respond to so if I miss you out it’s my incompetence not my cowardice!

    John – I really don’t think I made any ad hominen attacks on you, I merely wondered if your debt investment was worth it. Given that you went to Cambridge that has to be (provisionally) a plus where-as a degree in psychiatry from Bogchester Uni probably would not. You have made your economic and life-style choice of being a poorly paid hack and I neither praise nor condemn, if it suits you, then that’s all that matters. However, it does no good to complain about the outcome – it was your choice. (I have some sympathy, I chucked in, an admittedly not very promising career as a trainee architect, to become a squaddie! Crap decision, economically, but I loved every minute of it.)

    I missed ‘H20’s’ comment #19 to which I will give brief replies:
    1: Yes
    2: Yes-ish
    3: Yes-ish but I do not accept that decisions taken at the level of one company will affect the *national* economy.

    However, I will grant you this; if the education system is poor then generations of managers will grow up and rise up whose average intellectual ability is poor. This would (and does!) affect the national economy but just ask yourself who is in charge of the education service?

    ‘Reverend’ – the good Lord rejoiceth at every sinner who repenteth (you can see how long it’s been since I went to church! And don’t worry about the odd biff and bash, it’s all part of the fun.) Of course there is a limit to how much ‘flesh can be cut from the bone’ so please put away teh hammer and nails. However, it really was surprising how much was cut from previously nationalised businesses in the time the Blessed Margaret, and very many huge international businesses, as well – one thinks of IBM. But productivity went *up* in all those concerns as a result.

  28. chris said:

    Everybody seems to have missed the obvious reason why productivity hasn’t risen as fast as it might. People have no incentive to work harder. If you work harder you expect to be rewarded for it, getting out in proportion to what you put in. However the current tax and benefit system means that for £1 rise in wages you get (from working harder) you only see 30p. Put in £1 of extra work for only 30p of extra reward is obviously a bad deal, so many people simply will not bother putting in the extra £1 of effort at all.

  29. Richard J said:

    Um, what? I’m a higher rate tax payer, and I’m certainly going to be seeing 59p in the pound of my last pay rise (In fact, because of my pension, a bit more over the long-run, but I can’t touch that extra amount for the next thirty years or so.)

  30. Wolfie said:

    This post raises a valid point or two but I’m afraid that its main thrust is fatally flawed.

    This flaw is revealed in the eschewing comments…

    The ideal scenario is, as has been pointed out above, to increase productivity through re-investment. However this reinvestment must come from existing profits after expenses and taxation. This government has :

    1) Increased taxation on both the business and the employee.

    2) Increased expenses through legislation and “red-tape”.

    This reduces the business’ ability to realise its productivity improvement goals even if the innovative inspiration is present. Adjunct to this, high personal taxation discourages personal motivation within the workforce.

    Save us the Tory bashing will you please. This government is utterly incompetent at running the economy and this country is only doing so well because the fine people of this nation are gifted and hard-working, but governed by asses.

  31. Jonn said:

    Wolfie: look again at passage I quote from the ESRC. Low investment was a problem long before Labour got to power, and by 2002 there were actually signs it was climbing (something I kind of glossed over because it rather dented my rhetoric).

    I’m not saying that tax rates and regulation don’t have an impact: of course they do. I’m just saying that the state of British business cannot be entirely blamed on the machinations of a high-tax Labour Chancellor. Domestic business also has to shoulder its share of the blame.

  32. Wolfie said:

    Yes Jonn, you did indeed. Which is why I said you raised some valid points however the example from 2002 figures is a bad one as this statistical anomaly was the result of a sharp mini-recession in the aftermath of 9/11. There was no real drive towards investment, plunging interest-rates and sudden layoffs in principal sectors distorted the results.

    This country has been a bad investor since 1929, its been a long-haul malaise its true but that’s got a lot to do with economic theory developed at that time and adopted by governments on both sides of the house.

    In my view the conservatives do a bad job, labour just do worse.

  33. chris said:

    Richard J, you will be seeing more of any increase in pay because you already get a lot of money. The less money you have to begin with the less money you get from any pay rise, and so the less incentive to raise productivity to get a pay rise. See Stumbling and Mumbling for details.