The impact of lethargy on our economy
On Friday I was fortunate to attend the Vistage Executive Day conference in London. One of my favourite people Roger Martin-Fagg presented his update on the economy. Given the Autumn Budget was announced only the evening before, he had a tough gig to ensure his information was up to date and relevant – and he didn’t disappoint.
His session included a couple of useful reminders and some helpful forecasts.
The first useful reminder is that the UK’s productivity is still shockingly low. Prior to 2008 the UK was in the top 2 G7 countries for productivity. It is now in the bottom 2. The graph below (grey line) shows how since 2008 our productivity growth has struggled to get back on track.
As you can see the trend (dotted line) shows where our productivity growth should be, when in fact it has barely increased since 2008. Productivity is the driver of economic growth and increased standards of living, so we should be worried that our productivity isn’t growing at the rate it once was. The chart above also shows the impact on real wages (orange line) over the same period, as a result of low wage rises (green) and increasing inflation (purple). We are all, in real terms worse off than we were at the turn of the century.
The money pumped into the global economy during the Covid pandemic is the cause of the current inflationary pressures, and over the next 12 – 18 months we will see a reduction in demand of $9 trillion, making global recessions inevitable. We have to hope that we have a mild winter because the harsher the winter the deeper the recession is likely to be. Roger predicts however it will be short-lived and by 2024 we will return to economic growth.
My big question here, is how? If, as he asserts, we need to quadruple our productivity to achieve the kind of growth we need (which means +400%), and yet it has only increased by a few percentage points since 2008 – what is going to make the difference?
One topic on which Roger and I disagree is the cause of our poor productivity. Roger puts it down to a lack of investment. He asserts that underinvestment has trashed our productive capacity and that it is 40% below what it would have been if Brexit hadn’t occurred. Nobody wants to invest when uncertainty is rife.
And whilst he might be partially right, I believe there’s a stronger behavioural issue at play. Lack of investment is partly a symptom of an underlying lethargy. Lethargy is our biggest issue. The attitude that if it isn’t broken don’t fix it, and even if it is, it’s not worth the effort. At the same event, I attended a session led by Someyah Aghina, CEO at Geeks who said:
“If you aren’t a software business, in 5 – 10 years you’ll be extinct.”
Now whether that’s the case or not, the message is clear. Every company needs to be looking at how it can radically change aspects of how it operates to become more productive.