Classical economic theory talks about three “factors of production”, land, labour and capital – the ingredients required to produce things.
In a speech last month Ben Broadbent, deputy governor for monetary policy at the Bank of England, correctly identified changes to the labour market as one of the causes of weakness in productivity growth in the UK, in particular a skills shortage.
The speech referenced the challenge faced by one firm forced to rely on junior accountants for lack of suitably qualified candidates. This challenge is recognised by our members; according to a CIMA study, 90 per cent of management accountants in the UK reported their workload increasing due to skills shortages.
Thursday’s statistics showing productivity in the UK has risen above pre-crisis levels will have made heartening reading, but closing the productivity gap will require more sustained, broader, efforts. Broadbent and others identified rightly the UK’s labour problems, but we must not ignore the other factors of production.
For instance, a significant amount of UK land is currently not put to good use. The problem’s most extreme symptom is property bought as investment and left unoccupied, becoming an asset with no function, like a gold bar.
This creates useless space which could have been used by businesses to generate profits, or by people as housing, allowing them to contribute to the local economy.
Even more stark is the issue of capital. Money needs to be spent better, and allocated in ways which are better for business, and better for society. Although funding for small businesses rose slightly at the start of 2015, as the British Chambers of Commerce says, more needs to be done to divert investment to SMEs, who can put it to productive use, provide employment, and pay taxes.
Similarly, there is a strong argument for more infrastructure investments, creating business for contractors and suppliers, jobs for their employees, and allowing the wider public to benefit. The City of London rightly calls for a new framework for infrastructure investment, spanning electoral cycles and giving investors the confidence needed to harness potential funding.
In short, the productivity problem has many causes, and many potential solutions. It is right to look at the UK’s skills gap – but we should not ignore everything else.
One of the key tenets of management accountancy is to think as widely, analysing all available and relevant information and weighing up the potential effects. Applied to the productivity problem, it means fostering both our tangible and our intangible assets, working to improve our skills base, but also our allocation of land and capital. In doing so we unlock UK plc’s capacity for innovation, creating value and prosperity in the short, medium and long-term.
Productivity is a multi-faceted issue, and we must deal with it in a multi-faceted way.