Revolution in the UK Economy Part 1

One of the most interesting things about the Labour Party under Corbyn is how it has reverted to a world view based upon Marxist principles including public ownership of the ‘means of production and distribution’. Whilst this is in part a knee jerk reaction in trying to distance themselves from Blair and New Labour, it is also quite amusing in that it totally misses the point that there may be the case for State intervention but it certainly won’t be as they imagine it.

In fact before deciding on policies, they would be best first discussing the role of the State in a modern society rather than 100 years ago, where it has both a place and a duty to intervene plus where it does not and should never interfere. This is the first part of a two part post where I am musing about possible futures.

A Failure to Think

To be fair, it is not only those on the left of British politics who have got their thinking muddled, many on the right also need to update their thinking because they too are backward looking in their own way. The assumption that you can have unbridled capitalism is as untrue as assuming that ‘old time’ socialism has a place in modern Britain, both camps need to go back to school on this one because the world moved on a long time ago from the place where those positions were tenable.

Oddly both these people have contributed to this change because of their past actions. Labour because of the establishment of the NHS and the Welfare State, the Tories because of encouraging individualism in the 1980’s, in both cases rather like dropping a stone in a still pond, the ripples continue to spread outwards. Whatever their original intentions, neither of these groups of people from both the right and the left could even start to imagine the long term impacts of what they started and what that means in practical terms today.

Both the NHS and the expectation of personal advancement have raised expectations to probably totally unrealistic levels. With hardly any population increase, the NHS Budget has ballooned by a factor of x12 as people expect health miracle outcomes. In the 1980s getting your own house was an achievable objective, today it is less so but also compounded by an expectation that life comes with a “have it all” guarantee that includes cars, smartphones and holidays abroad all at the same time.

Both of these issues are further compounded by people living longer and therefore needing greater amounts of healthcare plus high divorce rates followed by a multiplication of housing occupied by just one person. We have a society with great expectations, expectations that all politicians are finding difficult to manage, in fact they are not and many have resorted to telling downright lies rather than trying to get the public to face the reality.

The Basic Problem

Those on the right who think that lower taxes will expand the economy were right when top rates of income tax were 60% and above but as they have been a lot lower for a considerable number of years, this is no longer true. Additionally, the high volume economy we are living in favours monopolies and the already wealthy for whom the return from small margins but on very high volumes, works for them. Apart from the handful of people (relatively speaking) with in demand skills, for the majority the gig economy and low wage jobs awaits. In simple terms the political right has not produced any new thinking to drive the economy forward in a long time.

However the left is no better and is equally devoid of new thinking and original ideas as witness the calls for a return to a long gone past. Which includes the effective confiscation of privately owned assets like the railways, waterboards etc combined with increasing taxation on “the rich” with little regard to the fact that soaking the rich will not produce enough cash to solve the problems being targeted. All these nostrums have been tried before under more favourable circumstances and failed then too, the crescendo being the Winter of Discontent when it finally came to a head and the collapse of a Labour Government. In fact a Labour government elected today on its current manifesto would be a lot worse for the economic health of these islands by an instant crash in the value of Sterling than Brexit could be however badly those negotiations with the EU went.

The point though is that neither the right nor the left are offering the electorate any new ideas let alone a way of building a better future so we, the public need to find a new way forward without them.

The Productivity Problem

We hear a lot about the lack of productivity in the British economy and as “more produced per unit of labour” equals actual wealth creation, it is an obvious major issue for all of us because in simple terms any government has limited tools with which to influence the economy and increasing productivity is the magic ingredient. Now whilst the following may appear to be obvious and my explanation simplistic, it is worth stating

The government has no money of its own, what it has it harvests from the population and businesses operating within it territory, it then applies that revenue to providing “services” such as policing, health, education, defence and so on. When faced with a credit squeeze the government may reduce the services it provides, increase taxes to provide those services at the same level or not increase taxes and instead borrow money to pay for them thus shoving today’s debt on to future generations. The “get out of jail” card is increases in productivity because if business is doing well and wages are rising as a result of productivity improvements, the government gets additional tax revenues which can be used to fund services, improve those services, pay off debt and all the time without raising taxes, hooray !

Now whilst the following is not universally true because there are many industry variations, in broad terms today, increases in productivity are achieved by shedding labour and replacing people with machines and different processes of one kind or another. This is not just cars being assembled by robots it is also the disappearance of many/most ‘clerical’ jobs over the past 50 years as computer systems have replaced written ledgers and journals.

Over recent years as in the USA, the UK has generated lots of jobs but the trouble is, they have been low skilled and low paid. In France they have far higher productivity but for a rather odd reason, employers suffer from very stringent labour market rules which makes it very difficult to get rid of staff once you have employed them in the first place. The consequence is that for French businesses, using automation rather than people is highly incentivised though the downside is fewer employment opportunities and greater unemployment for the population at large.

UK businesses have by comparison always been laggardly in implementing automation, generally only doing so when they can’t find people to do a particular kind of work which is why some companies are very anti Brexit because the EU has been a source of cheap labour that they don’t have to invest in by training them. Getting UK companies to invest in automation and workforce training has always been a problem and whilst in the past we have had our fair share of militant trade unions, they have been equally matched by pretty crappy management and investors with very short term horizons who want profits from the moment they put money in. So having set the scene, let me move on to some basic thoughts concerning government and the role of big business.

The Scope of “Big”

By Big I mean Government and Big Business which may or may not be locally owned, I will focus mainly on the role of Government within the economy. When it comes to the economy, the Government has absolutely no role in wealth creation which is the exclusive province of private enterprise.

In fact if you divide the economy into two sectors, one which is wealth creating and one which is ‘non productive’ but provides services of one sort or another that the Country needs, the non productive sector is wholly associated with Government spending. Obviously these non productive areas will include Defence, Policing and Criminal Justice, Health, Welfare and Education, all essential and all funded from tax revenue.

There is one other noticeable feature too which is that most if not all are very labour intensive which brings us to the heart of the problem that every government faces, rising expectations of what any ‘service’ will deliver set against trying to contain the costs in delivering that ‘service’. We are seeing today and for some years past the consequence of this, a cap on public sector pay and reductions in manpower for sectors such as the Police and Armed Forces.

The NHS as an Example

So let us look at one particular aspect of this, the NHS, the largest UK employer with 1.2 million in England alone and 1.5 million UK wide. Bearing in mind that the NHS is a devolved issue but as it is funded from central taxation for these current thoughts of mine it can be treated as one service in terms of ideas and funding to improve it. In practical terms, the NHS funding is on per capita terms so that NHS funding for the devolved assemblies is an element that makes up their bloc grants from Central Government.

If you ask most people; “Should we put more money into the NHS ?” they will all probably say yes we should. However, my question when faced with people from the NHS saying that they need an immediate injection of billions of pounds, right now is “What do we the public get in return ?” This is not because I don’t like the NHS or it’s employees but in my simple ways of looking at things and bearing in mind it probably takes 10 years to train a doctor and 5 to train a nurse, what would be the result of pumping in vast amounts of extra money today, what would be achieved ?

The probable result would be an increase in wages for existing staff which would not increase capacity plus the wholesale import of already trained medical staff from other parts of the world which may be morally questionable in many ways. If you talk about recruitment, retention and all the other buzz words in any labour intensive organisation, the likelihood is that starting today it will take you 10 years to reach your goal which means that by then you will have solved today’s problems but not the ones you will have then.

What is the key issue here and it seems to go right across many different industries and services is a failure to come up with new ideas to tackle business/delivery problems which have eluded solution by whatever are deemed to be the current accepted methods. Whilst the Government and Parliament must administer the taxpayers funds that go into these services, it is astounding that people who work in them at the ‘coal face’ are not coming forward with new and radical ways of solving their own day to day problems apart from demanding more money from the taxpayer.

Ultimately the NHS will be solved by a combination of greater technology and a redefinition of specific roles so that lower level care is provided by less qualified and more numerous staff who can be trained quicker plus a new grading system for qualifications and career progression that does away with the “doctor or nurse” approach and starts with a simple description of “medical staff” and sees career levels/job descriptions as stepping stones”. It is pointless having specialist staff emptying potties, giving bed baths and ensuring patients are being properly nourished even though those are crucial tasks.

Although people may baulk at the prospect, the simple solution when faced with labour intensive tasks is to deskill the job at the lower levels and change your delivery protocols to maximise your most expensive manpower at the more skilled levels be they doctors or nurses. We have this very week seen reports of trials of AI (artificial intelligence) software being used to analyse test results from scans to produce diagnoses and prognosis and in the process being consistently more accurate than experienced doctors. This is only the start of things to come and it must be obvious that in order to take advantage of what technology can offer, we need to recruit and train different kinds of people.

I will end this post at this point but it is not the end of this topic, please read part 2…

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