The commonly held belief attributes the UK’s productivity struggles to the aftermath of the 2008 Great Financial Crisis. However, these challenges actually began much earlier, reaching back to the era when the beloved sitcom “Friends” dominated television screens from the mid-1990s to the early 2000s.
Nostalgia for this period is thriving on social media, with many mothers sharing snapshots of their youthful days, basking in the memories of a simpler time. Their focus leans more towards fashion trends like emulating Kate Moss in low-rise jeans rather than dwelling on economic figures. Yet, when it comes to productivity, looking back fondly might be justified, even if those memories are now viewed through bifocal lenses.
According to recent findings by the Jobs Foundation, labor productivity, defined as the national income per hour worked, experienced a robust growth of 2.5 percent annually during the 1980s and 1990s. This growth rate allowed living standards to double in just 28 years.
For Generation X, those born between 1965 and 1980, this meant they earned about twice as much as their parents did, in real terms. In stark contrast, achieving the same feat today would require nearly 80 years.
This issue seems particularly acute in the UK. When comparing purchasing power parity, the UK lags 46 percent behind Norway and falls short of Germany, the Netherlands, and the United States by roughly 15 percent, as noted by Andrew Allum, one of the report’s authors.
This is a particularly British disease. In purchasing power parity terms the UK is 46 per cent behind Norway and trails Germany, the Netherlands and the US by around 15 per cent, according to Andrew Allum, one of the report’s authors.
Going for growth: One old-fashioned but brilliant route that should be shouted from the hilltops is regular stock market saving
Business lobby groups report privately that overseas investors are already asking questions about the UK’s political and economic stability following the local election results.
But a chronic failure to invest in our own businesses is part of the explanation. The country is not short of capital: British people hold around £2.3trillion in cash, much of it silently eroded by inflation.
Some 13.5m households have between £10,000 and £250,000 in net financial wealth on top of their housing assets, totalling around £800billion – large enough, Allum argues, to address the investment gap.
If this could be mobilised from underneath the metaphorical mattress, the elusive productivity gains every recent Chancellor has chased might materialise, and ordinary savers would make better returns.
The theory is sound, and so are the report’s core recommendations for better financial education, pro-investor tax measures such as scrapping stamp duty on share deals and new products such as infrastructure bonds for small savers.
In practice, people are reluctant to invest for emotional and psychological reasons that run deeper than lack of information, suitable products or even tax.
Most of us work very hard for our money and, rationally, are afraid of losing it.
Asset prices are moved by numerous factors, from the whims of Donald Trump to the weather. Expecting people to manage these complexities alongside jobs and families is unrealistic.
Financial education alone is not the answer, especially for an ageing population. In Japan, pensioners suffering cognitive decline control around $2trillion (£1.5trillion) of assets, according to Sumitomo Mitsui Trust Bank.
This money is prone to fraud, mismanagement and dormancy. For the economy, it is a recipe for low growth and poor capital allocation.
Share investment should be democratised. But DIY is daunting, and only one in ten Britons has a financial adviser.
One old-fashioned but brilliant route that should be shouted from the hilltops is regular stock market saving.
People can put in as little as £25 a month through a platform to gain exposure to investment trusts and other funds holding a spread of assets. Drip-feeding neutralises the risk of being blown out in one fell swoop, so eases the fear factor.
It could help the productivity crisis – and more of us might get rich slowly.
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