A broad perspective on the return of industrial and commercial productivity in the U.K. and determine how sustainable the new trend may be. A comparison of the U.K. and US to highlight the effects of different country-specific factors, with a focus on providing information useful to investors and se

A broad perspective on the return of industrial and commercial productivity in the U.K. and determine how sustainable the new trend may be. A comparison of the U.K. and US to highlight the effects of different country-specific factors, with a focus on providing information useful to investors and se Photo courtesy

Introduction: The concept of productivity improvements is often gauged through advancements in factors such as efficiency, innovation, and overall performance (Schwab 2017). In an innovation-driven economy like the United Kingdom (UK), fostering business innovation and sophistication becomes pivotal for growth. Efficiency gains are achievable via investments in education, labor markets, financial markets, and more (BIS 2013; Schwab 2017). This article delves into trends and sustainability of industrial and commercial productivity in the UK, comparing it to the US. It explores factors like macro-environment, healthcare, education, infrastructure, and institutions that impact productivity.

Global Competitiveness Index (GCI) Analysis: The Global Competitiveness Index (GCI) analyzes determinants of long-term economic growth, including institutions, policies, and productivity (Schwab 2017). The UK ranks 8th in competitiveness, while the US secures the 2nd spot with scores of 5.51 and 5.85 respectively (Schwab 2017). The UK's competitiveness score improved slightly from 5.49 last year, but the increase was minor compared to the US's 0.15 (Schwab 2017). The UK's competitiveness diminished, with a lower overall rank and modest score improvement compared to the US (Schwab 2017). While the UK experienced a small GCI increase of 0.1 over 5 years, the US showed a stronger improvement of 0.4 (Schwab 2017). However, Schwab (2017) asserts that recent productivity growth is cyclical, driven by low interest rates rather than fundamental drivers, and may not return to historical levels.

Productivity and Brexit Impact: UK's technological readiness surpasses the US, yet the US has shown recent advancements. The US leads in productivity through innovation, while the UK ranks lower compared to Germany and Japan (Schwab 2017). Schwab (2017) suggests that UK's industrial and commercial productivity may deteriorate post-Brexit due to various factors like tax regulations, policy instability, bureaucracy, education gaps, and inadequate infrastructure (Appendix B). Sustainable growth pillars in the UK encompass research, skills, infrastructure, small businesses, trade, energy, competitive advantage, inclusive growth, and institutions (Samans et al. 2017; Syverson 2011). These avenues can also sustain productivity through investments in education, training, healthcare, and financial markets (Demeter et al. 2011).

US Challenges and Solutions: The US faces macroeconomic uncertainty, emphasizing the need for healthcare, primary education, and institutional development (Demeter et al. 2011). Challenges like restrictive labor regulations, corruption, and infrastructure issues hinder productivity. Even the second-most competitive economy faces concerns over corruption, government inefficiencies, healthcare access, and quality education (UN 2016). Foda (2017) notes weak productivity growth, impacting GDP growth. Advanced economies experienced 0.3% GDP growth from 2008 to 2015, compared to 2% from 1990 to 2007. While labor productivity slowdown linked to low total factor productivity growth, capital deepening had more influence (Foda 2017). Recent productivity gains in the UK and US might not be sustainable and preceded the global financial crisis (GFC) (Foda 2017).

Sustainability Challenges and Automation: Technological disruptions are crucial for sustained productivity growth. While automation holds potential, the pace of technology adoption depends on feasibility, cost, labor dynamics, and more (Bughin et al. 2017). The aging population supports automation's necessity for maintaining living standards. However, UK and US policymakers face challenges in encouraging necessary investments due to concerns over job loss (Bughin et al. 2017).

Manufacturing vs. Services and Skill Development: Diversification into manufacturing can yield growth and stability (UN 2016). However, the services sector dominates the UK, leading to volatility. Matching skill development with technology is crucial for sustained growth (Green et al. 2017). Businesses must adopt technology to counter risk aversion, overcoming structural productivity issues (Frey & Osborne 2013; Bakhshi et al. 2017).

Concluding Insights: Long-term productivity improvement demands synergy between technology and policy. Skill investment and technological integration are vital for sustained growth. Automation, AI, and innovation play pivotal roles. Fostering inclusive growth, sharing gains, and embracing technological advancements are vital for sustained productivity enhancements in the UK and US.
 

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General government debt (% GDP) [2006 vs 2016]

Appendix A
General government debt (Schwab 2017)

Most problematic factors for doing business in UK

Appendix B
Most problematic factors for doing business in UK (Schwab 2017)

Trend of labour productivity growth in advanced economies [1971-2015]

Appendix C
Trend of labour productivity growth in advanced economies (Foda 2017)

Convergence and divergence in labour productivity [1950-1990] [1990-2015]

Appendix D
Convergence and divergence in labour productivity (US =1)