Tag Archives: Rolls Royce

Economic magic, the reason why politicians constantly interfere in the running of our schools. Also one economist’s explanation of Britains low productivity economy.

There is one untruth that is always repeated about the baby boomers pensions and the young. Regularly one politician or another states that baby boomer generation has taken such a large share of the nations wealth that little is left for the young. Recently the Resolution Foundation released figures that showed the median income of a pensioner household exceeded that of the of the average working family. This became a media horror story, which the media claimed demonstrated that pensions were to generous. What the media ignored was that the median income for pensioners is not especially high and what it demonstrated was the appalling low level of incomes of the average working family. Rather than as the politicians argued that there was an urgent need to reduce the incomes of pensioners; what it demonstrated was the urgent need to increase the incomes of working families. No politician or media figure stated the obvious which was that even if the median wage of the working family was increased to that of the pensioner household, the former would still have great difficulty in paying their bills.

Britain is a low productivity and low wage economy. Without structural change in the wider economy the majority of families will remain in the category of either the ‘just managing’ or ‘not managing’. Our government and politicians sort of acknowledge the problem by talking about the need for educational reforms, reforms that they claim which will produce a highly educated and skilled labour force. This highly educated labour force will then produce goods or services of a high quality which will be in great demand and will be highly valued. Then these workers will then be able to command high salaries because they will be so highly valued. Sociologists use the term magic to describe behaviour or practices that the practitioners (in this case politicians) believe will magically solve their problems. Of course magic does not exist and neither do the imagined solutions to our economic problems.

One can add the rider that twenty years of educational reforms have produced a workforce that is less productive than ever. Britain is slowly slipping down the world productivity league.

The real cause of the problem of low productivity and low wages is the business model practised by most contemporary businesses. This model can be explained  simply as the minimising the cost inputs and maximising the output of profit. Labour is the most expensive of the inputs and if the costs of that can be minimised profits are maximised. All the reforms of the neoliberal era have made its possible for businesses to minimise wage costs through what can be described as the zero sum or gig economy. What is taken from the workers is given to the business’s owners. Workers are no longer employed by  ‘Deliveroo’ for example but they are independent suppliers, who are contracted to work when there is wok for them. This system achieves a massive cut in wage costs as the independent suppliers are only paid when there is work for them, which means low incomes for the independent suppliers and high profits for the owners. Also the business can pass on many of the other costs of the business to the ‘independent supplier’. They insist that they  buy they own means of transport, whether it be bikes or vans. This has a further benefit in that the independent supplier has to maintain their vehicles meaning the worker and not the employer has to bear the costs of maintenance of the business’s vehicles. Delivery businesses (goods or people) such as Deliveroo and Uber have achieved the nirvana of business perfection. All the firms have to invest in is the computer systems and staff for the handling and dispatching of the customers orders, all other costs are borne by their self employed contractors. When firms invest so little in the business they can only be low productivity businesses.

High productivity requires investment in machinery, and staff training all of which are high cost. As successive governments have reduced workplace protections to a minimum, it has become much easier to make money by squeezing wages and employment costs to a minimum. It is no coincidence that in a high cost industry such as car manufacturing there are no British owned businesses, all are owned by foreigners. Even Britain’s prestige car manufacturers Rolls Royce and Bentley are owned by BMW and Volkswagen. When there is a successful British manufacturer such as ARM, which makes computer chips for most of the world’s smart phones, it is sold by its owners to a foreign company. The owners preferring to live of the proceeds of the sale and live a life less arduous than that managing a business.

Only if the government took on British management and introduced legislative changes that would persuade or compel them to adopt the high input cost business model, would the low productivity problem be solved. However the government and the political class generally see this as a problem to difficult to tackle, so instead they continue with the non solution of constant education reform. In consequence every year there will be introduced by the government a ‘proliferia’ of education reforms. ‘Shouting in the dark’ is a behaviour which is intended to demonstrate that those scared by the horrors of the dark can scare them by talking loudly. Believing the noise they make will show that they are confident of resisting the evil one and force it to turn away to  find an easier prey. Educational reform is a shouting in the dark, politicians hope that if they shout loud enough they will scare away the horrors of the low productivity and low wage economy. Also by shouting loudly they hope to distract the people from the real problems that they are failing to tackle.