LONDON — One of the most senior figures at the Bank of England says that Britain must urgently address its stagnant productivity growth and argues that the current crisis is in part due to too many mediocre companies operating in the country, which think they are better than they really are.
Speaking at the London School of Economics on Monday evening, Bank of England Chief Economist Andy Haldane said that a so-called “long tail” of companies is dragging down Britain’s general level of productivity, offsetting the impact of those innovative companies witnessing strong growth in their productivity levels.
“For a large cohort of non-frontier companies, secular stagnation is evident, with low and flat-lining levels of productivity. For example, around one-third of UK companies have seen no rise in productivity throughout this century. This is a long tail,” Haldane told the audience in a speech titled “Productivity Puzzles.”
By contrast, Haldane argued, a small but significant number of companies has managed to grow productivity rapidly in recent years.
“For a relatively small cohort of frontier companies, secular innovation is clearly evident, with both high and rapidly-rising levels of productivity. For example, around 1% of UK firms have seen average productivity growth of around 6% per year.”
“This poses a serious challenge to the notion that stalling innovation has been the key driver of the productivity slowdown.”
Since the financial crisis took hold, UK productivity growth has slipped dramatically. Where it was once roughly 2% annually, it now sits at virtually zero.
Rather than focusing on so-called “zombie” firms — those companies that have only managed to survive the post-financial crisis years thanks to loose monetary policy — efforts should be made to make unproductive companies aware of this fact, enabling action to be taken to boost productivity.
“Not only is there a long tail of companies, but that many are unaware of that fact,” Haldane said.
“For the same reason most car-owners believe they are above-average drivers, most companies might well believe they have above-average levels of productivity.”
Citing the Mayfield Commission — a government taskforce led by John Lewis Chairman Sir Charlie Mayfield — Haldane said that the UK should try to enlighten companies about their stuttering productivity growth, thus helping them to increase productivity.
“By shining a light on companies’ relative performance, the aim is that this would serve as a catalyst for remedial action by company management. Indeed, the aim is to provide firms not only with a means of benchmarking themselves,” he said.
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