Economists may have ignored the biggest reason for our productivity decline
Productivity in the West has slowed dramatically since the late 2000s, but there is no consensus as to why. Could corporate culture be the missing piece, asks Paul Ormerod
Since the financial crisis of the late 2000s, productivity growth not just in the UK but across the West as a whole has slowed dramatically. The United States is a partial exception, but the performance of the other major economies has been poor.
Productivity growth is perhaps the most important economic factor of all. Producing more output with fewer inputs creates an additional surplus which can be used for higher pay, more leisure and more public services.
The problem from a policy perspective is that there is no broadly agreed reason, or set of reasons, as to why the slowdown has taken place.
Economists usually look for explanations which can be readily quantified. It is a perfectly sensible approach to adopt. But it is not easy to pick up the effect of what we might think of as cultural factors, more specifically corporate culture.
The erosion of corporate culture
The recent widespread chaos in airline flights across the UK is a useful example. The National Air Traffic Control System (NATS) has been forced to apologise for its third major technical fault in three years.
The airlines themselves have been scathing in their criticism of NATS. Their representative body, Airlines UK, has been rather measured, expressing “serious concerns”.
Senior executives of airlines have been less retrained, with for example both Ryanair and Wizz Air calling for the chief executive of NATS, Martin Rolfe, to step down and describing him as “an overpaid failure”.
Despite the dismal performance of his organisation, he has been paid more than £2m in bonuses in recent years. His annual emoluments – salary is too basic a word for someone so grand – are some 40 times higher than average earnings in the UK.
It would not be unreasonable for a much lower paid worker at NATS to wonder what would happen to him or her if they presided over a shambles in their specific area of work. Would, for example, their boss express confidence in them, as the transport secretary, Heidi Alexander, has done with Mr Rolfe?
Have workers lost respect for the executive class?
Sticking with air transport, we witnessed something very similar at Heathrow last year. The airport was closed and 1,300 flights cancelled because of a fire at a nearby electricity sub-station during the night.
The chief executive, Thomas Woldbye, slept through two emergency notification calls and several phone calls from Heathrow’s chief operating officer. He stated that his phone had “gone into a silent mode, without him being aware it had done so, and he was asleep at the time”. This was accepted with equanimity.
Mr Woldbye had received £3.2m in the previous year. Again, we can ponder on what might have happened to an ordinary worker at the airport who was on night call but who had slept through it. Would a statement that their phone had switched itself into silent mode get them off the hook? There has to be a suspicion that it would not.
It is simply not possible in an employment contract to specify everything which the job involves in every detail. In many jobs, the worker has a degree of autonomy over the effort and commitment which he or she makes. It is possible to do the bare minimum required to meet the contract, and it is possible to put a bit more into it.
The actions of the executive class, beginning in the late 2000s with the bankers who kept their mega millions despite almost destroying the economy, have hardly created a climate in which employees feel inclined to put themselves out.
It is exactly over this period that growth in productivity – which requires cooperation and goodwill – has dropped sharply. Cultural factors are increasingly important in the modern world, but many top executives pay too little attention to them.
Paul Ormerod is an honorary professor at the Alliance Business School at the University of Manchester. You can follow him on Instagram @profpaulormerod