The deep sea is a frequently used example of common access resources that is over-exploited – a case of ‘The Tragedy of the Commons’ originally coined by ecologist, Garrett Hardin. It stems from a simple idea that the benefits of over-fishing (increased revenues) are private while the costs are shared. Unfortunately, such an approach is unsustainable as a result of over-consumption and subsequent market failure. Technology is both a cause of the problem and a solution too. Larger trawlers increase catch size reducing the number left to breed. However, new technology can help to monitor, collect information and enforce regulation. One extreme proposal is to ban fishing in set zones, this has been effective in some trials allowing fish to ‘restock’ and improve sustainability. Clearly, an international agreement is required, but this is hard, especially given the current rise in nationalism and self-interest. The WTO are working on something, but have been doing so for several years.
Many of my recent posts have focused on productivity and the UK’s poor record when compared to other countries. As mentioned before, in general terms, UK workers produce in five days what workers in the USA, France, Germany and Italy produce in four. Although GDP growth has been good until recently (only 03% in the last quarter) and employment data in the UK is extremely positive with the employment rate standing at 74.6%, the highest since data was first collected in 1971, it has been accompanied by poor productivity growth with the increase in UK productivity since 2008 (the period immediately before the recession) being only 1.1%. This means that pay, and therefore living standards, will be lower in the UK than in more productive countries. The Bank of England’s latest Inflation Report suggests that incomes will rise 2% this year and inflation will rise to 2.8%, therefore implying a fall in real incomes.
There are many explanations for this. One explanation, which neatly sidesteps the problem, is that the main issue is not that the UK has low productivity, but is that we are simply poor at measuring it in the service sector, a key area in the UK economy. In manufacturing, it is relatively simple. One can count the number of goods produced; however, in services it is trickier particularly as the digital economy grows. 10 years ago, if I wanted directions, I would buy a map and eight years ago I bought a satnav and put it in the car (both are easy to measure). Today I use my smartphone and these additional services are not easy to measure.
Nevertheless, most economists accept that there is a productivity issue in the UK. Andy Haldane, chief economist at the Bank of England, suggests that poor management is a key factor, particularly in sectors where competition is low, allowing x-inefficiency to flourish. Lord Browne, former Chief Executive of BP, suggests three key factors. Firstly our service economy is not sufficiently professional compared with the USA; secondly there is a shortage of finance available in the UK for entrepreneurs wishing to start new businesses and, finally, he cites the anti-science culture in the UK where it is acceptable to profess an ignorance of mathematics and science. However almost all economists would agree that the UK’s low level of investment is a contributory factor and the uncertainty around Brexit and the election itself could cause businesses to delay their investment plans until the future is more certain. There is already anecdotal evidence of many financial institutions looking to open offices overseas.
There has been little focus specifically on the issue in the election. Labour plans to increase Corporation Tax to 26%. (It is currently 19% but due to fall to 17% over the next two years) which might impact on investment in the future but some of their spending plans might, in the long term, improve productivity. They also intend to renationalise the railways, water, the national grid and Royal Mail and borrow £250 billion to create a fund for infrastructure projects. The Conservative’s statement that “no (Brexit) deal is better than a bad deal” and a reluctance to remain in the Single Market has also caused anxiety among businesses, while a focus on grammar schools is not the best way to tackle Lord Brown’s concern over the UK educational system. However they do present themselves as a more pro-business, low tax government and hope that such sentiments will encourage investment. They are also committed to spend 2.4% of GDP on R & D by 2027 and to create a national productivity investment fund of £23 billion.
The IFS, an independent think tank focus on Labour’s additional infrastructure spending which would boost GDP in the near-term and would increase the productive capacity of the UK economy in the long term, although their increased labour market regulations such as a higher minimum wage would have the opposite effect as would four additional bank holidays and their higher rate of corporation tax. The Conservatives’ commitment to reduce net immigration would also weaken growth, although no specific timescale has been announced. Most disappointingly, the IFS suggest that there will be NO overall impact on productivity from either party. It is difficult to take into account the impact of Labour’s plans to take significant parts of the economy back into public ownership, not least because of the time which such measures would need to come into effect.
Roll on Thursday!
Theresa May’s migration target will intensify the UK constructions skills crisis and scupper her plans for affordable homes
Nearly 12% of construction workers are migrants, increasing to 45% in London. The Conservatives, at the time of writing, have pledged to reduce migration to the tens of thousands in order to appeal to the popular vote. However, with the number of workers leaving the construction industry outstripping the number of apprentices (future workers), construction firms will face severe shortages. Expect wages to rise (due to supply constraints) and some pretty intense lobbying by construction firms to loosen visa restrictions for certain trades.
The significant differences between the proportion of migrant workers in London relative to the rest of the UK is a good example of geographical immobilities. Migrant workers are more ‘footloose’ and willing to move to where the work is.
I suspect other industries, such as health care and hospitality, will follow, making the setting of migration targets rather pointless.