Articles

Growth through productivity

In UK productivity, Uncategorized on March 7, 2011 by Tim Aikens

Just before Christmas I shared some statistics about how far productivity in the UK  is behind the USA and other countries .  The current rhetoric from both the Government and CBI is about growth.  Mr Cameron says the only way out of the recession is to boost growth and the budget in March is aimed at doing that.  The CBI says that economic policy has to focus relentlessly on growth.  Its hard to fault both of these comments and good to see that they are in accord.  However there are two issues that are raised by these comments.  The first is that a government can only create an environment to encourage growth, the second is that business cannot expect government to wave a magic wand and growth will ‘happen’.

Taking the first issue.  There are some things that the government can (and hopefully plan to ) do.  Removing yards of red tape would be a start.  Ask any senior manager of any size firm and they will complain about the non value adding activity they have to do to ‘satisfy’ regulation of one form or another.  Then there is waiting.  Mostly this has to do with planning, licensing or approval of some form.  Whilst a business is waiting, staff, capital, and resources are all tied up, but not adding value.  Cameron has offered to streamline planning in key enterprise areas.  How about everywhere?  There is a concept in business called Zero Based Budgetting.  This is aimed at developing realistic budgets to fit only what is going to happen, instead of taking last year’s budget adding 5% for inflation and there you go!  The latter approach is quick and easy but often ends up with inflated budgets and little incentive to cut them.  A zero based approach forces the budget owner to build and justify a budget from scratch.  It’s about time we introduced Zero Based Regulation.  Every piece of legislation and regulation has to demonstrate its value added from the ground up!

The second issue is one I have mentioned before, but it is worth raising again.  If UK plc wants to grow (given that there is a market), then one of the best ways to do this is to offer better products and services – at lower prices.  This will only happen through improved productivity.  Cutting regulation  will help, but businesses themselves have to take the lead in working out how they are going to do more for less.  Relying on tax breaks, soft loans, preferential treatment and other devices will provide some respite, but they will never solve the problem.

There are plenty of business in the UK who are showing that it can be done.  As well as his budget for growth Mr Cameron also needs to incentivise productivity.  Perhaps in future, government should not spend money on failing businesses (like Northern Rock) but spend the money on those businesses that succeed by improving productivity and performance!

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