Special Report - Are we better off as laggards?

The Chancellor is obsessed with the productivity gap between Britain and other leading industrial na

As a sales pitch to woo those all-important inward investors to our shores, it was not one of Gordon Brown's best efforts. More Cassandra than Del Boy, he proclaimed: "Productivity levels in the US are 40 per cent higher than in Britain, and 20 per cent higher in Germany than here".

Worse, he didn't exactly keep quiet about this claim. Instead, alongside his Calvinist zeal for the "work ethic", Brown made the need for higher productivity into a mantra late last year. In November he launched a series of "productivity roadshows" and hosted confessional seminars at the Department of Trade and Industry and the Treasury to spread the unhappy message. Rectifying Britain's laggardly performance will be a core theme of the March Budget.

But does Britain really need to pull its socks up as much as Brown says? Is there really still a huge productivity gap between us and our competitors, even after Thatcher's self-proclaimed "productivity miracle"?

Not everyone thinks so. Since Brown made this a big theme in his pre-Budget report last year - devoting 30 pages to it - a number of people have stepped forward to question his gloomy analysis. In a recent research paper, Lies, Damned Lies and Productivity Statistics, Graeme Leach, senior economist at the Institute of Directors, wrote: "Statistical deficiencies do not preclude the possibility that UK productivity levels are second only to the US. This seems unlikely, but is this caution merely the product of decades of doing Britain down in the media?"

Leach is not alone in questioning Brown's figures. The Institute for Fiscal Studies (IFS), the Trades Union Congress (TUC) and the Institute for Public Policy Research (IPPR) have all produced papers doing so. The TUC report, Productivity and Partnership, for example, points out that the most recent studies of the productivity gap with the US offer estimates of between 7 and 40 per cent.

The basic squabble is over what kind of definition should be used. This may sound an arcane topic, suitable only for economic pointy-heads. But it matters because, as Leach says, "if the gap is more of a mirage, then the opportunity for a productivity miracle is undermined".

What exactly do we mean by productivity? Statistical definitions are a bit like balloon animals. You've either got your basic, crude shape - not very sophisticated. Or, with a bit of imagination and sleight of hand, you can turn your material into a far more impressive puppy.

And so it goes with productivity figures. The standard definition of productivity is output per worker. This is the figure the government uses. What this ignores, however, is exactly how many hours the worker was beavering away to produce those widgets. If, for example, it took one worker ten hours to produce a car, and another one five hours, the output would be the same, but it is easy to see that one worker was more productive than the other. Tweak the equation by sprinkling "hours worked" into it and the gap with the US magically shrinks from 40 to 20 per cent, because the average American worker puts in longer hours.

And with a bit more clever tweaking, such as that employed by Rachel Griffith and Helen Simpson of the IFS in their paper Productivity and the Role of Government, the gap shrinks to nearly zero. This is because they also factor in both the age of Britain's physical capital and its dodgy quality. Workers, it seems, can sometimes legitimately blame their tools for their poor productivity levels.

Why then does Brown persist in putting the worst possible spin on British performance? There are good and bad reasons for his doing so. Poor productivity offers a handy scapegoat for the recession now hitting manufacturing. Ministers were particularly keen last year to blame poor productivity rather than the high pound for the problems at Rover's Longbridge factory. Far better, too, to talk, as Peter Mandelson did, about linking potential government subsidy to assist the ailing factory to "productivity improvements", rather than convey the impression that the government was engaged in old-style bailouts to prop up inefficient industries.

Making an issue of poor productivity shows Brown in a macho light for focusing on a tough long-term agenda. "To caricature Brown, you could say, 'In my first Budget I solved the unemployment problem, in my second I dealt with work incentives and now, in my third, I will lick the productivity problem'," observes Peter Robinson, senior economist at the IPPR.

Highlighting a productivity problem helps to get the issue higher up the political agenda. Indeed, the Treasury itself implicitly acknowledges that the figure it cites is inflated. "We know and you know there are a number of ways of looking at this," said John Kingman, head of the Treasury's productivity panel, at an IFS conference last year. He added that the high figure acts as "a way of focusing minds on the need for further supply-side reform which seems to us to be desirable". The seminars and the roadshows all helped to "build a public perception that this was an important priority".

And so it should be. Although it is possible to explain away why Britain has worse levels of productivity (shorter average hours, or ageing equipment and so on) this does not mean that we should ignore Britain's relative decline. Higher productivity does matter because, as Brown puts it, it is the "key to the stronger economy - to higher growth, more jobs and opportunities, and better living standards for us all".

How do we get to this economic utopia? There are lots of different routes. Margaret Thatcher thought she had found one and talked boldly of a "productivity miracle" in the 1980s. And although Peter Mandelson has claimed that "productivity relative to our main competitors did not improve during the Tory years", there is a body of evidence that contradicts him. Britain did see a marked reduction in the productivity gap, particularly in manufacturing, after a time of slow productivity growth, and even some decline, during the 1970s.

"It is hard to say Britain didn't improve," says Nicholas Crafts, professor of economics at the London School of Economics. However, some of that improvement came at a price. "The revival in manufacturing productivity growth stemmed mostly from reductions in employment; output rose at only 1.2 per cent per year during 1979-89," wrote Crafts in Britain's Relative Economic Decline 1850-1995,published by the Social Market Foundation.

Despite these improvements, Britain's relative economic decline was stalled, not reversed. Worse, official estimates of manufacturing productivity growth suggest that since 1994 even this progress has stopped, with spartan growth since then. Adair Turner, the director general of the Confederation of British Industry, argues: "The process of liberalising the economy in key ways, the productivity improvements in the privatised industries, labour market reforms and the relegitimisation of enterprise and business as key social values were all beneficial. So this government has to preserve them." But, he adds, "Thatcher's changes were probably a necessary but not sufficient condition for us to close the gap".

So what is still missing? For Turner there are two important elements. "Between 1979 and 1993 there were dramatic booms and busts. These are relevant to the productivity debate because in a more volatile macroeconomic environment it is more rational for businesses to focus on the short term."

The first way for Brown to help improve productivity, then, is to ensure that there is fiscal and monetary stability. "The more you strip out financial noise," argues Turner, "the more you can concentrate on the fundamentals." He suggests, however, that this stability may not be enough. "Does the pursuit of macroeconomic stability also require going into the euro? On balance I would say yes."

The second factor that Turner thinks significant is "the failure to grip the education system. We have a less skilled workforce compared with our major competitors. Therefore we need to focus on an education and skills agenda."

This kind of view, however, is dismissed by the McKinsey Global Institute, whose paper on British productivity helped jump-start the debate last year. It sees "low capital investment, poor skills and sub-scale operations" as merely secondary effects. Instead, McKinsey touts a neo-liberal agenda of ever more deregulation, arguing that the productivity gap is "the effect of regulations governing product markets and land use on competitive behaviour, investment and pricing".

Although this conclusion has been embraced by the Institute of Directors, there are not many others who subscribe to it. The Treasury's John Kingman says: "It [the McKinsey paper] was not something the government had commissioned and they have their own views. They are better on individual sectors than on the economy as a whole. They are more convincing at explaining the gap with the US instead of continental Europe."

The TUC has also duffed up McKinsey's findings. It points out that it is bizarre to say we are less productive than France and Germany because we are over-regulated. Those two economies, after all, are far more snarled up in red tape. The TUC argues that the real causes of poor performance are "under-investment, skill shortages and poor workplace relationships". While Britain was better at cost-cutting in the 1980s, Germany's higher labour productivity comes from a history of higher investments in human and physical capital.

The TUC is right to emphasise the need for higher levels of investment. However, its focus is still very much on improving manufacturing industry. Increasingly, experts recognise the crucial role of productivity in the service sector, which matters more than manufacturing, since the latter makes up only around a fifth of the overall economy.

Nicholas Crafts agrees that "we focus far too much on manufacturing. The lever for improving it is not necessarily the same as for services. It requires a different sort of human capital."

Mary O'Mahony, an economist at the National Institute of Economic and Social Research, is one of the few people who has attempted to quantify rigorously how Britain compares in this area. It's not all doom and gloom. Based on her data she found that, in sectors such as mining, utilities and construction, British labour is more productive than its French, German, American and Japanese counterparts. Overall, however, she concludes that "Britain does not generally enjoy a comparative labour productivity advantage in service sectors".

Figuring out ways to measure, or even boost, productivity in services is tough because what you mean by "output" is tricky. School class sizes are a good example of this. You could argue that the government's commitment to smaller classes, made in its five pre-election pledges, is a commitment to lower productivity in education because there will be more teachers ("input") to each child ("output"). But shouldn't "output" in education be measured by results? And, if so, which results: more exam passes, higher literacy levels, lower delinquency rates?

Or take retailing, in which France is far more productive than Britain. This is partly because there is more land available to build whopping big hypermarkets on the edges of towns. And they offer poorer service levels than British stores. There are no bag packers or people in unfashionable garb offering to show you where to find muesli. The French may be more productive in retailing, but are they really "better"?

A similar dilemma faces the hotel industry. Is a hotel "better" because guests have to make their own coffee and carry their own luggage? And again it is easier for a hotel to be more productive on a greenfield site than on an older one simply because you can design it so that, say, the kitchen is near to the dining room. Both France (which has the same population as Britain but twice the land) and America have a highly productive hotel sector, partly because they have the room for new edge-of-town development. One survey found that, for new hotels in Britain, the break-even occupancy rate was 80 per cent, compared with just 50 per cent in America.

Should we then rip up our planning laws as part of an effort to squeeze more productivity out of hotels? Most people would say not. But different issues are raised by efforts to forge industrial clusters, such as a mini-Silicon Valley in Cambridge. In this case, people like Adair Turner would argue that it may be worth compromising social welfare and allowing development to proceed in order to boost hi-tech productivity. What matters, Turner explains, is whether the industry is one which could have "a cumulative dynamic effect" on the rest of the economy.

The existence of these potential trade-offs suggests that the government needs to be careful about over-hyping the importance of higher productivity. A big part of the political problem is that long-run productivity performance can have nasty side-effects in the short term. There are often good reasons to prefer lower productivity. As Nicholas Crafts sees it, "productivity is a benchmark for performance, instead of an objective in itself ".

The additional danger is that, as Britain faces an economic downturn, efforts to get short-term productivity improvements are more likely to involve job losses or tougher conditions for workers - as they did at Rover's Longbridge plant - than expansionary investment to sustain economic development.

Speaking at the launch of the CBI's Fit for the Future campaign, Turner acknowledged this prognosis when he said "we need to improve more than productivity. If we simply improve productivity we will create a high unemployment economy."

This article first appeared in the 15 January 1999 issue of the New Statesman, A slight and delicate minister?

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Fitter, dumber, more productive

How the craze for Apple Watches, Fitbits and other wearable tech devices revives the old and discredited science of behaviourism.

When Tim Cook unveiled the latest operating system for the Apple Watch in June, he described the product in a remarkable way. This is no longer just a wrist-mounted gadget for checking your email and social media notifications; it is now “the ultimate device for a healthy life”.

With the watch’s fitness-tracking and heart rate-sensor features to the fore, Cook explained how its Activity and Workout apps have been retooled to provide greater “motivation”. A new Breathe app encourages the user to take time out during the day for deep breathing sessions. Oh yes, this watch has an app that notifies you when it’s time to breathe. The paradox is that if you have zero motivation and don’t know when to breathe in the first place, you probably won’t survive long enough to buy an Apple Watch.

The watch and its marketing are emblematic of how the tech trend is moving beyond mere fitness tracking into what might one call quality-of-life tracking and algorithmic hacking of the quality of consciousness. A couple of years ago I road-tested a brainwave-sensing headband, called the Muse, which promises to help you quiet your mind and achieve “focus” by concentrating on your breathing as it provides aural feedback over earphones, in the form of the sound of wind at a beach. I found it turned me, for a while, into a kind of placid zombie with no useful “focus” at all.

A newer product even aims to hack sleep – that productivity wasteland, which, according to the art historian and essayist Jonathan Crary’s book 24/7: Late Capitalism and the Ends of Sleep, is an affront to the foundations of capitalism. So buy an “intelligent sleep mask” called the Neuroon to analyse the quality of your sleep at night and help you perform more productively come morning. “Knowledge is power!” it promises. “Sleep analytics gathers your body’s sleep data and uses it to help you sleep smarter!” (But isn’t one of the great things about sleep that, while you’re asleep, you are perfectly stupid?)

The Neuroon will also help you enjoy technologically assisted “power naps” during the day to combat “lack of energy”, “fatigue”, “mental exhaustion” and “insomnia”. When it comes to quality of sleep, of course, numerous studies suggest that late-night smartphone use is very bad, but if you can’t stop yourself using your phone, at least you can now connect it to a sleep-enhancing gadget.

So comes a brand new wave of devices that encourage users to outsource not only their basic bodily functions but – as with the Apple Watch’s emphasis on providing “motivation” – their very willpower.  These are thrillingly innovative technologies and yet, in the way they encourage us to think about ourselves, they implicitly revive an old and discarded school of ­thinking in psychology. Are we all neo-­behaviourists now?

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The school of behaviourism arose in the early 20th century out of a virtuous scientific caution. Experimenters wished to avoid anthropomorphising animals such as rats and pigeons by attributing to them mental capacities for belief, reasoning, and so forth. This kind of description seemed woolly and impossible to verify.

The behaviourists discovered that the actions of laboratory animals could, in effect, be predicted and guided by careful “conditioning”, involving stimulus and reinforcement. They then applied Ockham’s razor: there was no reason, they argued, to believe in elaborate mental equipment in a small mammal or bird; at bottom, all behaviour was just a response to external stimulus. The idea that a rat had a complex mentality was an unnecessary hypothesis and so could be discarded. The psychologist John B Watson declared in 1913 that behaviour, and behaviour alone, should be the whole subject matter of psychology: to project “psychical” attributes on to animals, he and his followers thought, was not permissible.

The problem with Ockham’s razor, though, is that sometimes it is difficult to know when to stop cutting. And so more radical behaviourists sought to apply the same lesson to human beings. What you and I think of as thinking was, for radical behaviourists such as the Yale psychologist Clark L Hull, just another pattern of conditioned reflexes. A human being was merely a more complex knot of stimulus responses than a pigeon. Once perfected, some scientists believed, behaviourist science would supply a reliable method to “predict and control” the behaviour of human beings, and thus all social problems would be overcome.

It was a kind of optimistic, progressive version of Nineteen Eighty-Four. But it fell sharply from favour after the 1960s, and the subsequent “cognitive revolution” in psychology emphasised the causal role of conscious thinking. What became cognitive behavioural therapy, for instance, owed its impressive clinical success to focusing on a person’s cognition – the thoughts and the beliefs that radical behaviourism treated as mythical. As CBT’s name suggests, however, it mixes cognitive strategies (analyse one’s thoughts in order to break destructive patterns) with behavioural techniques (act a certain way so as to affect one’s feelings). And the deliberate conditioning of behaviour is still a valuable technique outside the therapy room.

The effective “behavioural modification programme” first publicised by Weight Watchers in the 1970s is based on reinforcement and support techniques suggested by the behaviourist school. Recent research suggests that clever conditioning – associating the taking of a medicine with a certain smell – can boost the body’s immune response later when a patient detects the smell, even without a dose of medicine.

Radical behaviourism that denies a subject’s consciousness and agency, however, is now completely dead as a science. Yet it is being smuggled back into the mainstream by the latest life-enhancing gadgets from Silicon Valley. The difference is that, now, we are encouraged to outsource the “prediction and control” of our own behaviour not to a benign team of psychological experts, but to algorithms.

It begins with measurement and analysis of bodily data using wearable instruments such as Fitbit wristbands, the first wave of which came under the rubric of the “quantified self”. (The Victorian polymath and founder of eugenics, Francis Galton, asked: “When shall we have anthropometric laboratories, where a man may, when he pleases, get himself and his children weighed, measured, and rightly photographed, and have their bodily faculties tested by the best methods known to modern science?” He has his answer: one may now wear such laboratories about one’s person.) But simply recording and hoarding data is of limited use. To adapt what Marx said about philosophers: the sensors only interpret the body, in various ways; the point is to change it.

And the new technology offers to help with precisely that, offering such externally applied “motivation” as the Apple Watch. So the reasoning, striving mind is vacated (perhaps with the help of a mindfulness app) and usurped by a cybernetic system to optimise the organism’s functioning. Electronic stimulus produces a physiological response, as in the behaviourist laboratory. The human being herself just needs to get out of the way. The customer of such devices is merely an opaquely functioning machine to be tinkered with. The desired outputs can be invoked by the correct inputs from a technological prosthesis. Our physical behaviour and even our moods are manipulated by algorithmic number-crunching in corporate data farms, and, as a result, we may dream of becoming fitter, happier and more productive.

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The broad current of behaviourism was not homogeneous in its theories, and nor are its modern technological avatars. The physiologist Ivan Pavlov induced dogs to salivate at the sound of a bell, which they had learned to associate with food. Here, stimulus (the bell) produces an involuntary response (salivation). This is called “classical conditioning”, and it is advertised as the scientific mechanism behind a new device called the Pavlok, a wristband that delivers mild electric shocks to the user in order, so it promises, to help break bad habits such as overeating or smoking.

The explicit behaviourist-revival sell here is interesting, though it is arguably predicated on the wrong kind of conditioning. In classical conditioning, the stimulus evokes the response; but the Pavlok’s painful electric shock is a stimulus that comes after a (voluntary) action. This is what the psychologist who became the best-known behaviourist theoretician, B F Skinner, called “operant conditioning”.

By associating certain actions with positive or negative reinforcement, an animal is led to change its behaviour. The user of a Pavlok treats herself, too, just like an animal, helplessly suffering the gadget’s painful negative reinforcement. “Pavlok associates a mild zap with your bad habit,” its marketing material promises, “training your brain to stop liking the habit.” The use of the word “brain” instead of “mind” here is revealing. The Pavlok user is encouraged to bypass her reflective faculties and perform pain-led conditioning directly on her grey matter, in order to get from it the behaviour that she prefers. And so modern behaviourist technologies act as though the cognitive revolution in psychology never happened, encouraging us to believe that thinking just gets in the way.

Technologically assisted attempts to defeat weakness of will or concentration are not new. In 1925 the inventor Hugo Gernsback announced, in the pages of his magazine Science and Invention, an invention called the Isolator. It was a metal, full-face hood, somewhat like a diving helmet, connected by a rubber hose to an oxygen tank. The Isolator, too, was designed to defeat distractions and assist mental focus.

The problem with modern life, Gernsback wrote, was that the ringing of a telephone or a doorbell “is sufficient, in nearly all cases, to stop the flow of thoughts”. Inside the Isolator, however, sounds are muffled, and the small eyeholes prevent you from seeing anything except what is directly in front of you. Gernsback provided a salutary photograph of himself wearing the Isolator while sitting at his desk, looking like one of the Cybermen from Doctor Who. “The author at work in his private study aided by the Isolator,” the caption reads. “Outside noises being eliminated, the worker can concentrate with ease upon the subject at hand.”

Modern anti-distraction tools such as computer software that disables your internet connection, or word processors that imitate an old-fashioned DOS screen, with nothing but green text on a black background, as well as the brain-measuring Muse headband – these are just the latest versions of what seems an age-old desire for technologically imposed calm. But what do we lose if we come to rely on such gadgets, unable to impose calm on ourselves? What do we become when we need machines to motivate us?

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It was B F Skinner who supplied what became the paradigmatic image of ­behaviourist science with his “Skinner Box”, formally known as an “operant conditioning chamber”. Skinner Boxes come in different flavours but a classic example is a box with an electrified floor and two levers. A rat is trapped in the box and must press the correct lever when a certain light comes on. If the rat gets it right, food is delivered. If the rat presses the wrong lever, it receives a painful electric shock through the booby-trapped floor. The rat soon learns to press the right lever all the time. But if the levers’ functions are changed unpredictably by the experimenters, the rat becomes confused, withdrawn and depressed.

Skinner Boxes have been used with success not only on rats but on birds and primates, too. So what, after all, are we doing if we sign up to technologically enhanced self-improvement through gadgets and apps? As we manipulate our screens for ­reassurance and encouragement, or wince at a painful failure to be better today than we were yesterday, we are treating ourselves similarly as objects to be improved through operant conditioning. We are climbing willingly into a virtual Skinner Box.

As Carl Cederström and André Spicer point out in their book The Wellness Syndrome, published last year: “Surrendering to an authoritarian agency, which is not just telling you what to do, but also handing out rewards and punishments to shape your behaviour more effectively, seems like undermining your own agency and autonomy.” What’s worse is that, increasingly, we will have no choice in the matter anyway. Gernsback’s Isolator was explicitly designed to improve the concentration of the “worker”, and so are its digital-age descendants. Corporate employee “wellness” programmes increasingly encourage or even mandate the use of fitness trackers and other behavioural gadgets in order to ensure an ideally efficient and compliant workforce.

There are many political reasons to resist the pitiless transfer of responsibility for well-being on to the individual in this way. And, in such cases, it is important to point out that the new idea is a repackaging of a controversial old idea, because that challenges its proponents to defend it explicitly. The Apple Watch and its cousins promise an utterly novel form of technologically enhanced self-mastery. But it is also merely the latest way in which modernity invites us to perform operant conditioning on ourselves, to cleanse away anxiety and dissatisfaction and become more streamlined citizen-consumers. Perhaps we will decide, after all, that tech-powered behaviourism is good. But we should know what we are arguing about. The rethinking should take place out in the open.

In 1987, three years before he died, B F Skinner published a scholarly paper entitled Whatever Happened to Psychology as the Science of Behaviour?, reiterating his now-unfashionable arguments against psychological talk about states of mind. For him, the “prediction and control” of behaviour was not merely a theoretical preference; it was a necessity for global social justice. “To feed the hungry and clothe the naked are ­remedial acts,” he wrote. “We can easily see what is wrong and what needs to be done. It is much harder to see and do something about the fact that world agriculture must feed and clothe billions of people, most of them yet unborn. It is not enough to advise people how to behave in ways that will make a future possible; they must be given effective reasons for behaving in those ways, and that means effective contingencies of reinforcement now.” In other words, mere arguments won’t equip the world to support an increasing population; strategies of behavioural control must be designed for the good of all.

Arguably, this authoritarian strand of behaviourist thinking is what morphed into the subtly reinforcing “choice architecture” of nudge politics, which seeks gently to compel citizens to do the right thing (eat healthy foods, sign up for pension plans) by altering the ways in which such alternatives are presented.

By contrast, the Apple Watch, the Pavlok and their ilk revive a behaviourism evacuated of all social concern and designed solely to optimise the individual customer. By ­using such devices, we voluntarily offer ourselves up to a denial of our voluntary selves, becoming atomised lab rats, to be manipulated electronically through the corporate cloud. It is perhaps no surprise that when the founder of American behaviourism, John B Watson, left academia in 1920, he went into a field that would come to profit very handsomely indeed from his skills of manipulation – advertising. Today’s neo-behaviourist technologies promise to usher in a world that is one giant Skinner Box in its own right: a world where thinking just gets in the way, and we all mechanically press levers for food pellets.

This article first appeared in the 18 August 2016 issue of the New Statesman, Corbyn’s revenge