Show Hide image Economy 10 May 2017 There's something missing from our election debate It's all about productivity, says Chi Onwurah. By Chi Onwurah Sign UpGet the New Statesman’s Morning Call email. Sign-up This is an election built on Brexit: Theresa May chose to break her repeated promise not to hold a snap election in order to hide her incompetent handling of it and give her the mandate for the hard right exit she craves. And certainly what we hear on the doorsteps and the airwaves is all about Brexit – what it means for jobs, what it means for public services – so much so that at times it feels like a re-run of the referendum. The word “productivity” is barely mentioned. And yet productivity is at the heart of the day to day challenges we are all facing. That’s the view of Britain’s top executives who tell me that the government’s number one priority must be improving skills and productivity levels. But it’s also the anxiety of Uber drivers as they worry about their star rating being lowered and Deliveroo riders calculating whether it is quicker to cross the Tyne or Swing Bridge to get to their pick up. And it’s also the care worker’s dilemma as she wonders if she really has time to wipe her charge’s bum before the end of the fifteen minute shift. On Northumberland Street just now I was surrounded by people frantically tapping messages into a smartphone, trying to eke out some extra productivity from their walk to work. As you’re reading this article – at work, on the bus, at home – is some part of your consciousness wondering whether it’s the most ‘productive’ thing you could be doing with your time? Productivity is something we all care about – employers and workers alike – but we don’t necessarily have a shared understanding of it. All over this country, people are hard at work producing things, from mobile phones to Gregg’s stotties to cat memes. Which begs the question: what do these activities have in common? What does it mean for someone (or something) to be ‘productive’? If you asked an economist that question, they’d probably give you a fairly simple answer. They might talk about marginal productivity – the change in output that results from changing the labour input by one unit. Let’s say I run a bakery, and with one worker, I can make ten stotties in an hour. How many more stotties per hour could I make if I had two, or three workers? That’s marginal productivity. So productivity measures how we create an output – a ‘thing’. But most economists would say that a process isn’t ‘productive’ unless it creates an output that adds to the utility of individuals. Stotties are useful. Mobile phones are useful. Having your bum wiped is definitely useful. Cat memes - well the jury’s out. Measuring productivity is worth doing for a number of reasons. Average productivity levels are linked to pay, skill level, worker satisfaction, and economic prosperity – tangible things that people care about. And if you’re a business owner or manager, you want the productivity of your workers to be high as possible, since that means your company is producing more value. But there are a lot of things that our standard measures of productivity don’t capture. Economists such as Google’s Hal Varian believe our definition of productivity fails to account for the immense improvements brought to us by the internet. Take Wikipedia, it represents hundreds of thousands of hours of volunteer labour, and adds value to our lives, yet it has no worth in GDP, and there’s no way of assessing the productivity benefit it brings to the people who use it. On the other hand, output per worker does reflect the contribution from activities that we might not see as particularly valuable, whether that’s polluting the atmosphere or stoking a housing bubble. As long as money changes hands, an activity is captured in the figures as creating a productive output, with no regard to the social or environmental value that has been added or taken away. Deciding what we value is therefore trickier than it first seems. Take George Stephenson. An illiterate miner’s son who worked down the mines as a child, he educated himself and went on to build the first public inter-city railway line in the world. In doing so he revolutionised transport, achieving wealth and fame. By the time of his death in 1848 he was worth £13 million in today’s money. Or Rachel Parsons, another great Geordie engineer and the first woman to read Mechanical Sciences at Cambridge University. Born into wealth, she joined the board of her father's company during World War I and pioneered the recruitment and training of women to replace male employees going off to war. When forced out of the company by her father after the war, she started an all-female engineering company and advocated for more women to become engineers. When she died in 1956 she left behind a fortune that would be worth over £4 million today. Or coming back to the present there’s Peter Thiel, one of PayPal’s founders. As a venture capitalist and serial entrepreneur, Thiel would probably like to see himself as part of the same lineage as Stephenson. He’s certainly enriched himself to an even greater extent – with a net worth of $2.7 billion he’s one of the richest people on the planet. PayPal itself is valued at $46.6 billion, but this is all money skimmed off from transactions – the amount of value it adds to the economy is debatable. Which of these people lived the most ‘productive’ life? Who added the most ‘value’ to society? Their lives raise questions about how we understand productivity and value – and also about who we think of as ‘productive’. History is filled with examples of people who produced great things, or enabled others to produce, but whose contributions we don’t value because their stories remained untold, from the labourers who laid Stephenson’s tracks to the women doing unpaid labour for their husbands, from typing up manuscripts to loading the dishwasher. There’s broad consensus – among organisations ranging from the Confederation of British Industry to the Trades Union Congress – that low productivity is holding the UK back. Our productivity is three per cent lower than Germany, the US and France – the widest gap since 1992, when there was also a Conservative government with a small majority. Our low productivity is a contributing factor to social inequality: Thomas Piketty believes inequality rises in the absence of economic growth and that ‘long-term structural growth is possible only because of productivity growth’ . He argues that it’s the staggering productivity growth we have witnessed over the last two centuries that has prevented the collapse of capitalism that Marx predicted – and I know a few people who will be disappointed to hear that. While reports of the death of capitalism may be exaggerated, it is true that our economic system is undergoing massive change. Work is changing. Production is changing. The means of production are changing. Capital is changing. Climate is changing. Communication is changing. And these changes all bring choices with them – choices about how wealth is produced, and how that wealth is distributed. In their Future Proof report, the Institute for Public Policy Research lays out one of the dilemma ahead of us: ‘Technological change, including the advance of algorithmic management and mobile technologies, will mean digital Taylorism for some, and increased autonomy for others. Work will be polarised between those with greater control and flexibility, and those whose time is ever more controlled.’ For some this is inevitable. They say that technologies will give an elite more wealth and freedom, while the autonomy of everyone else will be increasingly curtailed by algorithmic management and digital surveillance. Peter Thiel is one of the more extreme proponents of this position. He supports the idea of “the most talented individuals” moving to floating, seaborne cities off the coast of California so they don’t have to pay any taxes or muck around with the rest of us mortals. It’s unclear what would happen to the majority in Thiel’s ideal world – the workers who clothe, feed, and provide for all of his entrepreneur mates. Luckily, Thiel’s views aren’t mainstream – but they are part of a wider debate about what value is and who produces it. There’s an abiding right-wing ideology that sees labour as a commodity, and value as something to be extracted from that commodity. It’s a worldview that devalues human potential, seeing workers as objects to be squeezed, ever-greater profits extracted from them. What do we value as a society? And how can we – individually or collectively – produce and share that value? As we enter a new technological era – what some are calling the ‘Fourth Industrial Revolution’ – it’s important that political parties have answers to these questions. This election isn’t only about Brexit, or Theresa May versus Jeremy Corbyn: it’s about two different visions of how to live a ‘productive’ life. For the Greek philosopher Aristotle, to live a ‘good life’ was to flourish – to fulfil one’s rational, social, physical, spiritual – and yes, productive – capabilities. But for thousands of years after Aristotle, human productivity remained roughly the same. It was with the technological developments of the eighteenth and nineteenth centuries that human productive capacities started to grow rapidly – and so we started to measure it. Adam Smith, writing during this period, believed productive labour was any work that created something tangible, an object that could either be retained or sold on the market. But Smith – who, incidentally, lived with his mother for most of his life – also thought work such as care or domestic work was ‘unproductive’. Changing a dressing, preparing food, helping someone go to the loo: these were ‘unproductive’ sorts of labour because they were consumed immediately. We now know that unpaid work – including care – is worth about a third of GDP in most developed countries, but Smith’s notion of ‘unproductive’ labour has had a profound and long-term effect on how we value different sorts of work. While Smith was writing – and having dinners cooked for him by his mother – Britain’s productive capacities were expanding at a rate never seen before. In the Forth Bank Works in Newcastle, Robert Stephenson built the Rocket – an innovation that would literally drive the industrial revolution. Catalysed by inventions such as the Rocket, Britain’s GDP soared tenfold from 1771 to 1900. We shouldn’t glamorise the industrial era ushered in by these developments. Technological change was hard for many, and productivity increases came at a human cost. In the nineteenth century Karl Marx would visit the European centres of production and conclude that the capitalist system was inherently unjust. By cutting off workers from the ‘means of production’, he argued, it prevented workers from enjoying the fruits of their own labour. In Marx’s ideal society, workers would be able to ‘go fishing in the morning, work in a factory in the afternoon and read Plato in the evening’ – in short, they would be able to direct their productive abilities as they pleased. The late nineteenth-century saw the rise of the original Taylorism, the so-called ‘scientific management’ pioneered by Frederick Taylor. Taylorism was an attempt to improve labour productivity by standardizing the production process and employing observable measures of efficiency. Taylor and his managers would walk around the shop floor with a stopwatch, timing how long his workers took to do tasks – you could call him the original nightmare boss. Aldous Huxley’s dystopian novel Brave New World depicts a religion based on Taylorism – ‘Fordism’ – in which corporate tyranny and behavioural conditioning limit the scope for individuality. Taylorism improved raw productivity, but reduced workers to ‘cogs in a machine’. It was partly as a response to this that a resurgent labour movement won key reforms in the early-to-mid twentieth century. Welfare states and economic policies geared towards full employment provided workers with greater security, offering a counterweight to the oppressive environment of the firm. The 1970s and 80s saw the abandonment of this consensus and a transformation in the material basis of our economy. Reinvestment, growth and full employment were de-prioritised in favour of low inflation and shareholder profits. Here in the UK, it was Margaret Thatcher’s Conservative Government that pushed for the destruction of manufacturing in the relentless pursuit of a service-led economy. This saw the level of employment in the North of England fall by 1.3 million between 1979 and 1987, devastating entire communities. Since Margaret Thatcher, successive Conservative governments have been obsessed with cutting, deregulating, and reducing the size of the state. With the state out of the way, the private sector would flourish – or so we were told. But what has actually flourished is what academics and commentators call a ‘financialised’ economy – one dominated by market-based trading that creates profits without producing anything. Since Thatcher’s ‘big bang’ in 1986, the growth of finance has outstripped all other UK sectors, and as a percentage of GDP our financial sector is now larger than that of any other G7 economy. Financialisation has been a big success for shareholders and executives. But it has severely hampered our ability to collectively produce wealth, and prevented the rewards of growth from being shared equally. Investment in real stuff is risky. It involves putting money into costly productive capabilities that won’t necessarily be fully utilised. Individuals and households do this every day, making upfront investments that allow more efficient production in the long-run, from slow cookers to gym membership. Businesses do this too – and so do governments. As innovation economist Mariana Mazzucato has shown, states have often been prepared to invest in potentially productive technologies long before they were proven to provide an economic return. But the rules of our ultra-financialised economy dictate that the only economic actors who take risks and who should be rewarded are shareholders. Companies should therefore ‘maximise shareholder value’ at all costs. This incentivises behaviours – from share buybacks to ludicrously expensive property investments – that will line the pockets of shareholders but won’t necessarily add to the productive capacity of the economy. This is partially reflected in our country’s low spending on research and development. Since the 80s we have consistently been at or near the bottom of the ‘league table’ of public and private R&D spend across developed countries. And in moving away from a manufacturing-led economy, we’ve sacrificed a reliable source of long-run productivity growth. Uberisation The last few years we’ve seen the rise of new business models which I call the ‘new intermediaries economy’ but most refer to as ‘Uberisation’. Uber is an example of a ‘lean platform’ that seeks to provide greater returns for investors by squeezing increasingly desperate workers. Lean platforms own very few assets, and they claim to have very few employees. If you’re an Uber driver, you don’t get sick pay or training or any of the rights you might expect if you work at a company – but you do have to own and maintain your own car, and pay for your own petrol. Uber, the world’s largest taxi firm, claims not to own any cars, or employ any drivers. An Uber driver, we are told, is not an employee but an ‘entrepreneur’. We should welcome people taking control of their working lives, taking the risk to start their own business. But while employment in the ‘gig economy’ is aggressively branded as providing ‘flexibility’ and ‘control’, it increasingly means the opposite for workers. These firms use ratings systems and opaque algorithms to discipline workers and achieve higher labour productivity – the modern equivalent of Taylor’s ‘scientific management’. Uber and the other companies that make up the so-called ‘sharing economy’ are attempting a productivity land-grab. They want the productivity gains of Taylorism but without the hard-won rights that workers have been struggling for centuries. The imbalance of power they represent mirrors Peter Thiel’s floating islands: freedom and lucrative rewards for the people at the top, while ordinary workers are left to fend for themselves. The growth of lean platforms in the UK is one reason 2.4 million people – half of the UK’s self-employed population – are estimated by trade unions to be in ‘bogus self-employment’. Self-employment used to mean freedom from a boss: now it just means your boss is an algorithm. Uber and its peers like to insist that their business models are led by technology. That an increasingly digital economy naturally leads to more flexibility for employers and less security and control for workers. But the University of York’s Dr Louise Haagh argues these changes are led by ‘political forces’ that are ‘deliberately and in quite a structured way de-regularising and flexibilising work’. Fortunately, whether recognised or not, workers are fighting back against these ‘political forces’ – from the GMB’s victory in the courts last October to the Deliveroo strike, gig economy workers are asserting their rights. And the economic conditions underpinning lean platforms won’t exist forever. The economist Nick Srnicek suggests that the relative success of lean platforms has been supported by high corporate savings and mass joblessness in the years following the financial crisis. In his view, far from representing the future, companies like Uber are ‘an outlet for surplus capital in an era of ultra-low interest rates and dire investment opportunities’. Uber still loses billions of dollars each year, and its long-term business model is predicated upon achieving monopoly status so it can raise prices. If investment dries up before then, it’s in trouble. Recent trends To reiterate: Uber and similar companies do create value – for the people who use them. The productivity of their users is improved by the services they provide. Simply pushing a button is more time-efficient than calling a traditional cab, for instance. But they also hold back our national productivity by failing to invest in the skills of their employees. It’s partly the prevalence of low-security and low-skill jobs in the UK economy that makes our productivity figures so poor: UK productivity has grown on average by just 0.4% per year since 2010. The low-productivity nature of our economy impacts on what really matters to most people – wages. Between 2007 and 2015, the UK was the only big advanced economy in which wages contracted while the economy expanded – in France and Germany, both the economy and wages have grown. The Government defends its record on productivity on the grounds that it has created jobs. Employment is high, they say – low productivity is the trade-off. But this suggests a false choice – that we can either have many low-paid, low-security, low-productivity jobs, or fewer high-wage, secure, high-productivity jobs. That’s not what we have right now when 3.8 million workers in the UK are in poverty, one in every eight. That is abhorrent on moral grounds, but it is also an unnecessary drain on our economy – and the Government is deeply misguided if it believes in-work poverty is a natural consequence of job growth. Brexit These economic failings have their political consequences. One of the many things which make me angry are the commentators who blame the negative effects of Brexit – the rise in hate crimes, the paralysing economic uncertainty – on the Northern working class, those ‘left behind’ by globalisation. It’s especially ironic given that the ‘Brexit revolution’ was led by a Surrey stockbroker and an old Etonian. That said, we should recognise that the vote for Brexit, and for Trump across the Atlantic, was driven in part by an economic model that does not allow people to live fulfilled and productive lives. People need good jobs that can provide their lives with meaning and satisfaction – this is the psychological dimension of productivity. And they need to have security, dignity and proper remuneration in the workplace, rather than feeling like they’re victims of fat cat bosses skimming off profits. The government’s plans What is the Theresa May’s response to all of this? Not to recognise the concerns of voters but to ‘change our economic model’ and turn us into a low-tax, low-welfare nation – a Singapore off the coast of Europe. It’s hardly sunny California, but it’s reminiscent of Peter Thiel’s seaborne tax havens all the same. This Government is desperate to ensure multinational corporations continue to invest in the UK after Brexit, and is willing to sell our socio-economic birthright – the NHS, the welfare state, the promise of a good job – to win their favour. That isn’t the future I want to see for Britain, and it’s not the way to unlock the productive potential of our nation. Labour’s alternative Fixing our productivity woes in the long run requires us to change how we think about productivity. The question is whether we see it in financialised terms – as a measure of how effective workers are at producing returns for investors – or in terms of people, who need to be empowered to unlock their productive capabilities. Faced with these options, Labour’s choice is clear. Our party is about the value of labour, and the people whose labour it is. We value people, rather than simply the economic surplus they produce. And people do not thrive when they are seen as units of production. The only sustainable way of improving productivity – and therefore overall economic conditions – in the long run is to improve the skills, living conditions and economic agency of the people who work, allowing them to reach their full productive and creative potential. From spending twenty years in industry as an engineer, I know that these Labour values are reflected in the best businesses. The management bestseller when I started work in the 1980s was Tom Peters’ and Robert Waterman’s In Search of Excellence. This book looked for the characteristics that set truly great companies apart, and the most fundamental quality they identified was valuing people as partners and as “the primary source of productivity gains”. A second prerequisite was “shared values”: of respect, quality, responsible behaviour and community. Not only because it is the right thing to do but because it motivates employees and customers to return the compliment. Responsible capitalism anyone? This emphasis on people is echoed today by Mazzucato, who says productivity comes from allowing people “to work more efficiently, with state of the art training, technologically advanced machinery, an innovative division of labour, and harmonious capital-labour relations.” Diversity We’re clear, as well, that diversity is an essential part of our strategy, rather than an optional add-on. Diversity is not only a matter of social justice. It’s an economic imperative. We need to use everyone’s talents, and we need to use everyone’s perspective. Industry is now recognising the value of diversity, how it promotes innovation and resilience, challenges groupthink. Only by nourishing the skills and talents of people from all backgrounds can we truly unlock this nation’s productive potential. There are other material drivers of productivity needed to create a prosperous and people-centred economy. Investment in innovation is essential: this includes technological innovation, but also innovation in intangible assets such as management practices and Intellectual Property. Technology, implemented in an accessible and user-friendly way, can vastly enhance the productive capabilities of workers. A good example is infrastructure, from transport to high-speed broadband. If I could catch a half-decent train from Newcastle to Middlesbrough, or access my work emails reliably while walking along the Northumbria coast, my productivity would certainly benefit. As we’ve seen, our financialised economy has too often rejected these necessary, longer-term investments in favour of making a quick buck for shareholders. I’m proud that Labour has pledged to invest 3% of GDP in R&D – an investment the Conservatives have refused to match – since it’s investing in R&D now that will help create a productive, prosperous economy for the future. Skills are an important part of this picture, too. Several studies show a strong correlation between skill levels in a given firm and that firm’s productivity levels, and the Confederation of British Industry has referred to skills as ‘the number one business priority, crucial for raising our productivity and staying globally competitive.’ And in a society undergoing rapid technological shifts and moving towards an older population, we also need to ensure people of all ages can re-skill. The Conservatives have neglected technical and adult education for too long, and there are 1.3 million fewer adult learners today than there were in 2010. In Government, Labour will reverse this trend, and work to ensure that all citizens are equipped with the skills they need to live fully productive lives. It is not only skill levels and technology that determine productivity. We work harder and achieve more when we feel like we have control over what we do, and find it rewarding. Most of us would say that we do better in jobs that we like, and this is borne out in experimental studies. But many industries have seen job satisfaction decline over the past decade – and this is particularly true of lower paid jobs. Providing good jobs that allow workers greater autonomy will be a priority of the next Labour Government: we’ve pledged, for instance, to double the size of the co-operative economy, letting more people work in organisations where they’re really in control. We also need to take more seriously the role of care in making productive enterprise possible. Adam Smith would not have been able to write ‘The Wealth of Nations’ without the unpaid caring labour his mother did for him; and the wealth of our nation today is similarly underpinned by care. Care work, both paid and unpaid, acts as an enabler and an empowerer: it is not just about doing things for people, but about maximising their capabilities and helping them to produce. Carolyn Fairbairn, the CBI’s director general, has argued for a £2bn per year boost to the childcare budget to get more women into work. And as the demographics of our society shift, care for the elderly is rapidly becoming a priority. We need to stop denigrating care, and instead see it as an important part of our social infrastructure, a fundamental prerequisite of being ‘productive’. Labour’s manifesto will recognise this by making our growing care sector a core part of our industrial strategy – and we’ve already announced a plan to introduce four new national holidays, bringing our country in line with the average among developing countries and giving Britain’s workers more time to see and care for their families. Labour is the party of the future. We have a proud history of embracing change and making it work for ordinary people. But as Harold Wilson remarked in his famous 1963 ‘white heat of technology’ speech, harnessing the productive potential of modern technology also requires ‘new social and economic attitudes’. This is echoed today by Mazzucato and Carlota Perez, who say: “It is important to emphasise the distinction between the potential of a technological revolution and the direction of investment and innovation in which that potential is deployed… the direction chosen for using the new potential across the economy becomes a socio-political choice.” If government doesn’t make this choice – democratically and consensually – then there are private interests who happily will. Peter Thiel has recently turned his attentions to big data. His analytics company, Palantir, is named after the ‘seeing stone’ from the Lord of the Rings, through which its owner could see the future. It’s a perfect metaphor for how Thiel and other tech billionaires see themselves – self-made visionaries capable of and willing to invent the future. But we can’t let people like Thiel dictate what our future is going to be like. A few years ago, Thiel wrote an essay in which he criticised ‘the vast increase in welfare beneficiaries and the extension of the franchise to women’, and argued that democracy is incompatible with capitalism. In his world, any sort of public oversight or debate is a hindrance to the accumulation of profit – even though it was the government-funded technology of the internet that made his immense wealth possible. If Thiel has read the Lord of the Rings – or even if he’s seen the Hollywood films – he’ll know that it was the ‘palantir’ that drove the good wizard Saruman to evil by presenting him skewed visions of the future. Now, I’m not saying that Peter Thiel is using his powers for evil, but I certainly don’t trust the tech industry to be the sole guardians of our future – especially given it’s about as diverse as the cast of Lord of the Rings. Industrial strategy is about deciding what we want our economy to look like – collectively – rather than letting those with power do it for us. The Tories don’t seem to get this, which is why their industrial strategy is simply a bundle of preannounced measures and sweetheart deals with industry. Labour’s industrial strategy, by contrast, will put forward a long-term vision for the economy. Our industrial strategy challenge-led: it will identify the key challenges ahead of us, from climate change to an ageing population, and mobilise both public and private actors to solve them. We’ve selected three key missions to ensure that the rapid technological change we’re seeing will take us in the right direction. Unlike the Tories and the establishment they represent, we believe that wealth is created by the productive majority, not the privileged few, and that when workers succeed, Britain succeeds. Our vision is of a country where every person is provided with the skills, the care, and the technology they need to develop and fulfil their productive capabilities. With your help, we can make that vision a reality on 8 June. Chi Onwurah is the Labour MP for Newcastle upon Tyne Central, and the shadow minister for industrial strategy. Subscribe For daily analysis & more political coverage from Westminster and beyond subscribe for just £1 per month!