The UK economy continues to experience lower rates of productivity than its major competitors. In December 1998, the Government published a white paper outlining a variety of measures aimed at shifting the economy into a new era of success, based upon the idea of a "knowledge-driven economy". This feature outlines the background to the white paper, its main features and the implications for industrial relations.
Productivity is firmly back on the agenda for UK policy-makers. After the attempts of Conservative governments in the 1980s to improve productivity through deregulation and reducing the power of trade unions, the 1990s brought a recognition that these changes had still failed to improve Britain's poor position in the productivity league table. The last Conservative government shifted the debate away from productivity and towards competitiveness, based on flexible labour markets, free trade and greater competition. The new Labour government which came to power in 1997 is attempting to redress the balance, as closing the productivity gap becomes a key priority (UK9805121F).
The McKinsey report
In the autumn of 1998, the Department of Trade and Industry (DTI) and the Treasury organised a Productivity Challenge roadshow, which sought views and opinions on how to bridge the productivity gap between Britain and its main competitors. A major feature was the presentation of a report entitled Driving productivity growth in the UK economy by the McKinsey Global Institute, which provided evidence that:
- Britain has a productivity gap of 40% with the USA and 20% with France and Germany;
- the problem affects both manufacturing and services; and
- the UK has very low levels of capital investment.
The report argued that the major reason for the UK's low levels of productivity is too much regulation of product markets and land use. It claimed that the USA is more successful, in terms of higher productivity and lower unemployment, than other countries because it is less regulated. The report provoked considerable criticism, particularly from the Trades Union Congress (TUC), both of its central focus on regulation - the UK has one of the more deregulated economies in Europe - and of its failure to address under-investment, low skill levels and poor managerial practice.
Although the government has not endorsed the McKinsey report, there has been an acceptance that there is too much regulation and that there is a need to encourage a US-style "enterprise culture". This can be clearly seen in November 1998's pre-Budget report from the Treasury, which identified the following as key causes of the UK's poor performance:
- the lack of a culture of enterprise and ambition;
- lack of investment;
- weak competitive pressures; and
- skill deficiencies.
The 1998 competitiveness white paper
Adopting a different approach from previous administrations, the DTI's 1998 competitiveness white paper, Building the knowledge-driven economy, recognises that the UK economy does suffer from long-standing structural problems. The underlying thrust of the white paper is that we are now living in a "post-Fordist" world, with rapidly changing technology and markets and increasingly sophisticated consumer demands. This requires the UK to compete on the basis of knowledge, skills and creativity, rather than on lower costs. Such a strategy would, therefore, involve a major shift away from the current over-reliance on low-skilled employees producing in low value-added markets.
The white paper, which includes 75 initiatives aimed at creating a "knowledge-driven" economy, rejects "old-fashioned" state intervention and industrial policies and endorses a philosophy of "making markets work better". This entails a number of measures largely aimed at helping small and new firms and improving inter-firm collaboration. A key area of expenditure is an extra GBP 1 billion to improve the science and engineering base. The Department for Education and Employment's "skills task force" is considering deficiencies in the country's skills, education and training and reports later in the year. As a result, initiatives in this area are limited and include the following proposals:
- a national strategy to meet the skill needs of the information and communication technologies sector;
- a cross-departmental review of government-sponsored skills development schemes;
- development of best practice models; and
- a publication entitled Creating a great place to work, aimed at promoting the business benefits of skill development and good management.
As for developing essential "modern employee relations practices, built on a spirit of partnership in the workplace", the National Minimum Wage Act (UK9807135F), the Working Time Regulations (UK9810155N) and the legislation proposed in the Fairness at work white paper (UK9902180F) are the proposed vehicles. It is assumed to be the role of the Confederation of British Industry (CBI), as opposed to the government or trade unions, to develop a code of conduct on partnership at work.
Employer and trade union responses
The emphasis on further deregulation and extra funding for science and technology and small firms led to the white paper being broadly supported by business organisations. The CBI welcomed the proposals, arguing that the focus on creating the right climate for business success set the appropriate tone. In contrast, the TUC expressed clear disappointment about the lack of strategic role given to unions or employees. The trade unions have been emphasising the importance of social partnership, particularly with employers at the workplace, as the key to a successful economy (UK9811158F). The white paper gives this view only limited endorsement, with no supporting initiatives.
Commentary
The Labour government is continuing to intervene in the economy in a very similar manner to previous Conservative governments. It is the US model, rather than the "European social model", which is felt to offer the UK the route to improvements in productivity and economic success. However, there is a failure to acknowledge the negative aspects of the US economy, which includes long working hours and high levels of income inequality. There is also little recognition that a major source of US high productivity levels are the large economies of scale that are not available for companies operating within EU countries.
The white paper offers very little to trade unions, despite their own shift towards embracing social partnership. The DTI's pronouncement that the UK labour market "with its long tradition of voluntarism and lack of over-prescriptive legislation - is well placed to take advantage of these opportunities" does not suggest that there is support for further legislation, either to enhance the role of unions or to provide greater protection for employees. The emphasis on fewer regulations, making markets work better and encouraging an enterprise culture reflects a continuation of the UK's distinctive approach.
The initiatives aimed at addressing the failures of the UK economy stress both business-led changes through a market approach and the government helping with the provision of more skills. A key question is whether this minimalist approach to intervention can produce the "step change" in the economy, which the government believes is necessary to reverse a century of relative economic decline. (Caroline Lloyd, IRRU)