It appears that Britain’s finance minister, Gordon Brown, has timed his run to be our next Prime Minister just in the nick of time as the economic data starts to look a bit sickly. Even with all the usual health warnings about data that seeks to try to capture the complexities of an economy in numbers, the figures on inflation and productivity do not look good. (In the case of productivity, they are not disastrous, mind).
It is probably not grounds for great worry – yet. When an economy expands and more people join the workforce, this can have the perverse effect of reducing “productivity”, while if an economy stagnates but millions lose their jobs, then output per person can go up. Productivity growth is not the be-all or end-all of economics. But the ability of an economy to grow rapidly without triggering inflation is helped if the productive capacity of an economy grows. There is no doubt that after nearly 10 years of this hyper-active Chancellor, with his taxes, lust for regulation and control, that the arteries of the British economy have hardened.
Brown inherited a British economy in 1997 that was, by the standards of the 70s and early 80s, in remarkably fine fettle. The state took less than 40 percent of GDP; inflation was low, productivity was rising, the ranks of the rich and the decently-well off were rising fast. Yes, problems of crime and the weakening of civil society were serious and yet how optimstic so many people were at that time that some of the remaining social evils could be addressed. How long ago that now seems.
For years, I have heard it said that Labour’s ace card was its handling of the economy at the macro-economic level. I tended to go along with that in the main, and I think the decision to put the Bank of England in day-to-day charge of interest rates was sound. Brown’s move of the inflation measure to the less exacting euro zone measure of consumer prices – which does not capture housing costs like mortgages – and his sometimes dubious picks of BOE personnel to set interest rates, threaten to tarnish even that achievement.
Just out of idle curiosity, which of the MPC would you say were dubious picks? I’m related to one of them, so I’d be interested to know if that one figures on your list.
Novus, one that springs to mind is Danny Blanchflower (no, not the great Tottenham football skipper of the 60s). He is a U.S. academic who does not even live in Britain and although that is not necessarily a bar, hardly suggests he has a direct vested interest in getting monetary policy right. His appointment process took just 10 days and he is not a specialist on monetary policy.
Brown also allowed the Bank’s Monetary Policy Committee to have a vacancy unfilled for months after Richard Lambert left. It even provoked BOE governor Mervyn King to complain.
The way in which folk are appointed to the MPC is slapdash and needs to be taken out of the Chancellor’s hands, or at least made more transparent and subject to the sort of confirmation hearings that you get with Fed governors. The present setup is not up to the job.
Remember it was Ken Clarke who set up the BoE interest rate committee – Brown just cut the umbilical cord. His lasting legacy will be the raid on pension funds which will leave millions in poverty.
Thanks, Johnathan – in fact I am not related to Prof. Blanchflower (incidentally, he’s listed on the BofE site as David) but to a (IIRC) third-termer, whose repeated appointment I myself consider pretty dubious and as a result purely of a limpet-like relationship with Brown – so I agree with your comment about the need for independent appointment, or at least oversight. In the light of this, his “cutting the umbilical cord” practically amounts to very little.
Actually I’m not sure that productivity isn’t a very important economic factor. It’s what Marx was misunderstanding in the theory of surplus value, apart from anything else. The question, as ever with economic factors, is how to measure it.
When an economy expands and more people join the workforce, this can have the perverse effect of reducing “productivity”
Particularly, I’d note, when those people are added to the public sector – as they have been in Britain, roaringly, for 10 years.
I recommend an interesting little book called The Power of Productivity, by William W Lewis, which moved my thinking on the subject.
Actually I’m not sure that productivity isn’t a very important economic factor
It is just about the most important economic factor there is. Economic growth equals productivity growth plus growth (or minus decline) in the size of the workforce, so productivity is the non-demographic driver of economic growth, with “demographic” defined fairly broadly. In the long run, in terms of what makes us rich or poor, productivity is everything.
And how goes productivity in the public sector?
Best regards
Are we talking about productivity per working person, per capita, or net national productivity?
Productivity per capita seems hugely important to me. But per working person productivity seems to be the one that the article and Johnathan are refering to.
Productivity in the Public Sector is the same as always – Nil.
Brian writes:
I think that is incorrect, as a generalisation.
A more refined view is that one can only have any confidence at all, in government productivity at a tolerably useful level, for those things that would still be undertaken (or funded) by government (including local authorities) if its total expenditure were under 25% of GDP. Examples are defence, intelligence, essential law enforcement, road building, garbage collection, etc.
Best regards
It’s amazing to think that one can be so indoctrinated by the state as to believe that garbage collection is one of the state’s functions.
@Freeman, who wrote:
Yes, it’s one of those things local government can do/arrange without making a total cock-up, and them doing it is quite a good idea (owing to other twerps, as demonstrated by fly-tipping, who would not do it themselves, even if it was their responsibility). If you disagree, please expand on why.
Best regards
Productivity in the Public Sector is the same as always – Nil.
If only it were that good. Most state spending is quite perverse, it sucks money out of the productive economy into activities which actively hamper legitimate economic activity.
We desperately need to cut about 80% of all government activity, and set the people free. That would still leave government taking about 8% of GDP, which is just about tolerable, so long as the money is spent on the Royal Navy rather than five a day co-ordinators and real nappy counsellors.
Nigel Sedgwick:
The case for private agencies to collect household garbage is set out in a trade association document, which makes the obvious point that: “As in any situation, competition means a better deal for customers.” A copy is at:
http://www.wastec.org/NSWMA/Service_At_A_Bargain.pdf
Recent reductions in the service provided in the UK by local councils (municipalities) have not been accompanied by any reduction in charges — but what can one expect from a monopoly?
On fly tipping, we have yet to see the full extent of the problem when councils impose their promised charges by the kilo for collection of garbage.
Regards.
@Freeman
Well, firstly, we seem to be moving somewhat away from the original post and the comment on it that I disputed.
However, I have read your reference and can find nothing in it that disputes my point.
The only logic that I can make from your point(s) is that perhaps you are under the misapprehension that I was insisting on directly employeed local government workers collecting household waste, rather than including the possibility of local government contracting the work on a competitive tendering basis. As far as I can understand, the latter is what happens in the UK and (from your reference) in the USA. It all seems very satisfactory.
It would not be so economic for several garbage trucks (from different companies) had to pass down each street each week, or for every householder to travel to a municipal dump, which is what would be required if individual householders had to make their own arrangements.
—
Back to my substantive point, there are things that are best done by government, but not so many as are currently done (at least here in the UK). If government concentrated on those things best done by government (and left the rest to private citizens) then government would give better value for money. Those things that governemnt does, beyond the essential (or better) ones are the ones where government wastes most money.
Best regards
Nigel Sedgwick:
Thanks. I entirely agree with your final paragraph, but you seem to insist on misunderstanding how competition in this market works in the US.
And, yes, competition does involve some duplication and “waste” but this is more than compensated by lower prices, better service and increase in overall market efficiency. Nothing new here then.
Regards.