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Open Letter to UK Chancellor Osborne: “Here’s why your latest Budget forecast is pants”Rt. Hon. George Osborne MP, Chancellor of the Exchequer, HM Treasury. 1 Horse Guards Road, London SW1A 2HQ.
March 20, 2016.
Dear Mr Osborne,
Open Letter: “Here’s why your latest Budget forecast is pants“
Forgive the urban slang, Sir, but words these days have to be loud to get your attention. We all know that you’re trying your best to get the UK on its economic feet but your optimism is misplaced.
In your speech to Parliament, you mention the magic words productivity and productivity growth 11 times. Yes, they’re important – you accept it’s the key to your planned bottom line – but you’ve deliberately camouflaged the real position by burying our actual performance in its wider international context. It’s a yardstick, you say, that’s been “decelerating” in a vast number of countries, that it’s also a “concern” elsewhere and that it’s “too low” across the West, suggesting that everyone is suffering.
Yes, everyone IS suffering, but I must point out that our productivity and productivity growth is so low as to be competitively rubbish, which is what pants means.
Can I remind you that just six months ago (September 2015), the Office for National Statistics (ONS) was reporting that our productivity growth had hit a 25-year low – despite Government contributing to a highest-ever workforce and interventions in housing apprenticeships, skills, universities, transport and finance. Output per hour of UK workers fell 20 percentage points below the average of other leading industrialised nations, and the latest data you give on the subject is that there’s been no improvement. I can’t remember an equivalent collapse in 40 years.
To give a hard number indication of how important you now think is this factor of production, there ARE rough estimates of the cost of lost productivity in the UK – it’s around 7.5% of GDP (Proudfoot, 2005). At today’s level, that’s around £155 billion – equivalent to more than TWICE the Office for Budget Responsibility’s £69.4 billion deficit forecast for 2015/16. Whatever the reason for why we’re so inefficient – I’ll move on to that shortly – the question arises: Is this not a big enough number for this shortfall to be addressed directly?
May I dutifully point out that the UK’s low productivity scores has been an issue for decades. And that Government has been trying to fix it, albeit half-heartedly, for almost as long, throwing around Government-style solutions costing arms and legs in spades. And giving us just pockets of real competitive advantage.
So WHY? How is it that other industrialised countries outperform us so comprehensively on this critical aspect of wealth creation?
A clue to this comes from the repertoire of the late management guru Peter Drucker, whose counsel was that “It is only managers – not nature or laws of economics or Government – that makes resources productive (Managing in Turbulent Times, 1980), meaning that, at the end of the day, output has less to do with infrastructure and monetary inputs than what happens at the coalface of industry and commerce. If employees can’t get from “A” to “B” without going via “Z”, however un-potholed is the provided road, then said employees are simply less productive, ensuring that the money that employers throw at them is not particularly gainful and, from your lofty lookout, you don’t get as much tax income.
Whilst infrastructure-like things are very important, the real problem is management pure and simple. From the figures, it’s clear that management doesn’t do management very well and when that happens, neither can employees. What this means is that while you can continue to do Government-type things until you’re blue in the face, until management raises its game, much of your effort will fall on infertile ground.
Back to WHY? You’ve actually mentioned one of the reasons, describing education as the “single most important thing we can do to boost the long-term productivity of our economy” because – also in your words – the “nation’s productivity is no more and no less than the combined talents and efforts of the people of these islands”. Education is one of those things that you’ve been banging on for years, but – as the productivity numbers confirm – we’ve continually fallen short, suggesting that there’s something in the education system we’re not being taught.
May I respectfully point it out?
It’s because we’re particularly poor experiential learners, as your and previous Governments’ persistent efforts to reverse this endemic problem clearly demonstrates. Compared with others, we don’t learn lessons well. It’s not part of our DNA to look back, assess constructively and apply. Alongside our workplace pandemic of repeated mistakes and attempted cover-ups, “We must learn the lessons” is probably one of the loudest workplace noises we make. We’re more knee-jerk, preferring to employ what another management guru, Henry Mintzberg, describes as Business School stratagems that teach packaged versions of business problems rather than understanding real-world experiences. Bottom line, our business education doesn’t teach us real Experiential Learning (EL), making us very good experiential NON-learners.
For EL to take place, an awareness of ‘experience’ is self-evidently a pre-requisite. Unfashionable ‘history’ is another word for it, yet generically both are widely and demonstrably absent in both business education and the organisations that employ us.
For example, the teaching of economic history is declining and except for the mention of the industrial revolution in some classrooms, business history is non-existent. There’s another, even more forceful, fact, widely unacknowledged and actually systemic to the problem that helps to reinforce the Mintzberg observation that real-world experiences are not adequately acknowledged in decision-making. The flexible labour market’s distinguishing feature of short employer tenure – including managers, the average in the UK is around four to five years and falling – means that much employer-specific knowledge and experience gets dispersed, a description for the condition being corporate amnesia. Alongside huge jobs disruption, this dearth of available employer-specific knowledge and experience in the workplace – ultimately the responsibility of institutions themselves to deliver – provides little ability for rolling generations of new blood to learn from that actual experience. Any learning that does take place is from others’ experience that, while sometimes useful and even essential, is Mintzberg-like typically unconnected to the employing organisations’ ‘real-world’, requires adaptation to a new unfamiliar environment and, anyway, will suffer similar dispersal and disconnection when the new blood moves on. Persistent discontinuity + rolling corporate amnesia = programmed underperformance …..
And even if that knowledge and experience were available to be properly inherited and joined up, the skill of how best to learn from it is not provided.
What’s happened is that the flexible labour market, which has its positive points, is short-changing the evidential base that employees would otherwise use to make their decisions.
On the basis of your Budget speech, it seems that you’re depending on productivity improvement to reach your budgetary goal. On current numbers, Chancellor, we’ll have to improve productivity by a factor of many, many times to get us where you need us, something we’ve never achieved before. Perhaps you’re thinking that what goes down so fast can turn up just as quickly but productivity is, and has always been in modern times, our millstone. Even our more recent historical best will be a challenge.
I’d like to think that you have the time to cheerlead such a change in workplace practice but an improvement such as you need looks to be a destination too far for your short-term horizon. Nonetheless, industry and commerce could still do it for themselves.
Getting EL right involves employers properly capturing their short-, medium- and long-term knowledge and experience before it escapes through their revolving doors. At the same time business education will need to teach the absent discipline of experiential learning to have any chance of trimming that annual £155 billion of lost productivity. Only then will we be able to better compete with those nations whose instinctive nature for learning lessons is better than ours.
Postscript: Many professions – among them architecture, art, music, the military, medicine, politics, science, the clergy and so on – contain an element of their generic history in their education. Does the lack of history in business education and the workplace indicate that business, at least in its management role, is not a profession? If so, isn’t it time that a society wholly dependent on mercantile endeavour does a radical re-think?
An Open Letter to Britain’s Business Secretary: Our enduring productivity shortfall – Are we just inherently poor employees?Sajid Javid, MP., Secretary of State for Business, Innovation and Skills, 1 Victoria Street,London, SW1H 0ET. September 2015. Dear Mr Javid, Our enduring productivity shortfall – Are we just inherently poor employees? I’m trying to imagine how it must feel to be in charge of a failed policy that has every chance of continuing to founder. Your colleague, George Osborne, the Chancellor, has described our evident problem as the “challenge of our time” and the key to making Britain the “richest of all major economies” to surpass even the US in 15 years. Those were the words he handed down in his pre-election speech on July 9, 2014 and which follow the efforts of both your – and previous – governments for more than 30 years.Yet 14 months later (September 18, 2015), the Office for National Statistics (ONS) reported that productivity growth – the key to which Mr Osborne was referring – had retreated to a 25-year low. Despite Government contributing to a highest-ever workforce and interventions in housing, apprenticeships, skills, universities, transport and finance, output per hour from UK workers in 2014 fell 20 percentage points – yes 20 percentage points – below the average of other leading industrialised nations.Are we inherently poor employees? No, just untutored experiential learners, meaning that, unlike many of our competitors, we don’t learn very well from our own and others’ experiences.May I respectfully point out what your experts have MISSED.If you remember back in the 1980s, it was thought that high levels of labour market regulation equated with poor economic performance. Widespread deregulation followed, providing businesses with an easier way to hire and fire. The fact that many of our competitors also have flexible labour markets and better productivity growth scores only serves to confirm that they are better experiential learners. In our case we can produce turnover (à la our rising GDP) but its cost is extraordinarily high because of our inherent inefficiencies, which helps to explain, of course, our lower wage economy and correspondingly lower standard of living ….Employers taking advantage of your flexible labour market do little to address the unique and hard-won knowledge and experience that walks out of their doors on a rolling basis – in our case every four to five years on average.Imagine ….. EVERY employer having to experience this level of disruptive output for almost EVERY one of their employees, affecting EVERY job and EVERY department ….? Bottom line, it stops in its tracks the way most progress happens – organically, i.e. from the building of one experience on another.Without their knowledge and experience, employers have little ability to benefit from their own tried-and-tested practice. The result is that they become experiential NON-learners, as demonstrated by the pandemic of repeated mistakes, re-invented wheels and other unlearned lessons that litter the workplace – and characterised by the whistle blowing, cover-ups, gagging, the different types of public enquiries, post-project reviews, tribunals, commissions and the lists of ‘not-fit-for-purpose’ activities.
If employees didn’t have to reinvent their employers’ raison d’etre so often, our productivity would automatically be that much higher, which would go a long way to realising Mr Osborne’s ambitious aspiration for UK employees to be on a par with our US counterparts.
Experiential learning is one of those business skills that we, as a nation, manifestly lack, and this deficit has now become especially damaging in our very flexible labour market. What’s needed is for employers to ensure that their employees share their unique knowledge and experience before they go walkabout, then provide their successors with the special corporate skills to learn from that experience. The former’s capture is an unnecessary oversight by host employers who have submissively neglected to realise that they have proprietary part-ownership of their own experience because they’ve been paying for it all the while, the latter being the defined formal discipline that takes the traditional one-size-fits-all approach to decision-making to its new required level to address the issue of short tenure. Simply stated, it’s the way to cut out many of our repeated mistakes, re-invented wheels and other poor decisions.
I am not suggesting that the Chancellor’s fiscal measures are not useful but your Government could make more of an impact on productivity growth by helping to offset the downside effect of the flexible labour market that you’ve been actively encouraging for all the time that productivity growth has been lagging our major competitors. If you’re still unconvinced, your predecessor, Vince Cable, DID acknowledge that the flexible labour market was “contributing to low productivity” (Resolution Foundation, May 13, 2014).
So, while the explanation for productivity growth’s weakening has got everything to do with skills, it has virtually nothing to do with the inherent decision-making abilities of employees, who are simply being short-changed by what their employers DON’T provide.
If you want to improve productivity growth, may I suggest that someone take additional heed of the counsel of the late Peter Drucker, the acknowledged founder of modern management, who believed “It is only managers – not nature or laws of economics or government – that make resources productive” (Managing in Turbulent Times, 1980).
THE ELEPHANT IN THE ROOM
January 2014: Under the surface of Britain’s latest indicator of recovery – the Office for National Statistic’s announcement of a 1.9% rise in the economy in 2013 – is buried a statistic that that has dogged the country for more than the five years of the latest recession. It is productivity, the ability to produce goods and services at a competitive rate.
Once again the figures showed a decline in output per hours worked, an outcome that has, according to reports, confounded our officials. The worry is that this dysfunction will ultimately make the recovery less sustainable, allowing any advantage acquired to dissipate.
The fact that productivity’s poor performance goes beyond the latest crisis signposts a more endemic problem. Which raises the question: what is stopping Britain from becoming more competitive?
Here it is. It is the inability to learn from our own experiences.
Beyond the usual educational and management suspects, there is an issue that few of these officials acknowledge. In fact it is actively encourage. It is the flexible labor market, that modern workplace phenomenon that has given us short jobs tenure. Forty years ago, an individual would have one, perhaps two, employers in their working lifetime. Today, the average number is around eight. In the US, for example, the median level of tenure of ALL the Fortune 500 companies is just three years and eight months. That’s across the board – all grades, including managers.
How this affects productivity is simple. Against the flexible labor market’s clear benefits, there is an iceberg-like limitation. It provides a discontinuous and incomplete institutional knowledge base, otherwise called corporate amnesia. This constrains much of the ability to learn from one’s own experience. Given that most progress is organic – i.e. organization-specific and dependent on the building of one experience on another – this increases the rate of repeated mistakes, re-invented wheels and other unlearned lessons. Expensive! VERY expensive!
Without an intimate awareness of one’s employers’ own knowledge and experience, any experiential learning is restricted to the knowledge and experience of replacement employees. Their contribution to the decision-making process is the business equivalent of a seedbed of otherwise healthy plants without any suitable top-dressing.
Whilst not railing the clear benefits of flexible working, the battle cry of “We’ve got to learn the lessons …” is now so common as to make the solution urgent. This blog explains how good Knowledge Management can help to make an employer’s tried-and-tested knowledge and experience less discontinuous for transiting employees, allowing for better experiential learning and decision-making.
“Dear Mr Osborne ….” – An Open Letter About ProductivityRt. Hon. George Osborne MP, Chancellor of the Exchequer, HM Treasury. 1 Horse Guards Road, London SW1A 2HQ. March 22, 2013.
Dear Mr Osborne,
Open Letter – What your 2013 Budget doesn’t grasp
I listened to your 2013 budget speech but not once did I hear you mention the single word that would have made all your efforts to kick-start growth more credible.
That word was productivity. As you well know our productivity is wretched. By 2010 the productivity gap with the US had soared by nine percentage points compared with 2006, the largest gap since 1994 (Office for National Statistic, 2011). For the two previous years the proportion of national income created by each worker per hour leapt in France, Germany and the US while it remained stagnant in the UK. US productivity per hour worked was 23 percentage points higher than the UK while Germany and France were ahead by 18 and 16 percentage points respectively. In October 2012, our outgoing Governor of the Bank of England, Sir Mervyn King, reported that productivity had dropped by 4% over the previous five years, with no-one – his words – really understanding why (http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech613.pdf).
Chancellor, the private sector may well have picked up more than a million jobs under your stewardship, much of it from the public sector, but this means very little if that employment’s output is less than competitive.
The importance of productivity – real productivity, not output disguised by a reduced sterling value and things like less red tape – has not been adequately addressed for years. It’s about producing products and services cheaper, quicker and better, in other words getting from A to B without going via Z. In addition to Government’s red tape-like efforts, it means better decision making at the sharp end of commerce and industry.
Did you know that the annual cost of wasted productivity is around £120 billion – yes £120 billion (Proudfoot Consulting, 2005)? That was in a year when the economy was in its bull mode. Is not this a big enough figure for you to do something – or get someone else to do something?
This elephantine sum includes all the repeated mistakes, re-invented wheels and other unlearned lessons that litter the public and private sectors. Do you recognise this business landscape? The fact that productivity’s other matrix, productivity growth – a measure of inbuilt headway and another good indicator of policy and decision-making skills – has been declining since the 1950s (Groningen Growth and Development Centre and the Conference Board, Total Economy Database, 2004) surely confirms that we’re pretty poor experiential leaners. And given this conclusion covers a period when business education’s availability has never been greater, our ability to teach how to make good and better decisions is similarly suspect.
Mervyn King said no one understood why our productivity had dropped recently. May I point out a contributing factor – and what you could do to help?
You may not be aware that the actively encouraged flexible labour market has had an enormous unintended consequence. The high level of employee turnover has meant that employing institutions’ own unique knowledge and experience is constantly walking out of the front door. There is good academic research that points out that when individuals leave, they take with them up to 90% of their employers’ distinctive knowledge and experience (D. Bonner, American Society for Training & Development, 2000), leaving only their paper trail. What actually disappears is the vital tacit knowledge component of their tenure that is typically unrecorded and, usually, just as important as the remaining explicit data and information. The result? Our institutions can’t learn very well from their own special experiences.
I am not going to suggest that the flexible market be discouraged – it has some very valuable short-term benefits for both employers and employees; rather, commerce and industry need to be encouraged to use their past knowledge and experience to allow their walkabout employees to better learn the lessons for which they’ve already expensively paid.
Experiential Learning (EL) is now a recognised and dedicated discipline that business education and commerce/industry have been slow to take up. As its name suggests, it’s a way of applying the evidence of tried-and-tested precedent (whether successful or not) to improve decision-making instead of having to re-invent things every generation. It falls under the wider discipline of knowledge management that involves the efficient capture of said knowledge and experience before it walks out of the front door. Then walkabout employees need to know how best to apply this valuable intellectual capital to their employers’ new circumstances and conditions in the cause of better decision making, which is where the opportunity arises for our business educators.
If decision-making improves, costs can come down, prices can be reduced, competitiveness will get better, sales will rise, ipse facto GROWTH. It’s not rocket science and it doesn’t require huge capital expenditure around which commerce and industry is balking. What it does do is capitalise on the knowledge and experience that we’ve already paid for at great expense. The oldest industrial economy in the world should be able to utilise its tried-and-tested experience to much better advantage.
Most people would see this as a way of using “history” as a management tool. True enough. There are plenty of words of wisdom that more eloquent people have uttered to support the concept – among them Winston Churchill’s “The furthest backward you can look, the furthest forward you can see” and George Santayana’s “Those who cannot remember the past are condemned to repeat it”. My own preference is US author Russell Hoban in his 1973 book The Lion of Boaz-Jachin and Jachin-Boaz: “If the past cannot teach the present and the father cannot teach the son, then history need not have bothered to go on, and the world has wasted a great deal of time.” Truly, history – I call it organisational memory (OM) – can provide experience cheaply. It gives institutions a way of using the knowledge and experience of prior employees – without putting them back on the payroll. Discarding it makes no sense.
If you need further endorsement of the pathway to growth, look at what our next Governor of the Bank of England, Mark Carney, said in Davos about “self-sustaining productivity” (http://www.dailymail.co.uk/news/article-2269099/Growth-important-inflation-says-new-Bank-boss-insists-maxed-ideas.html) and the President of the European Commission José Manuel Barroso’s appeal for greater competitiveness across his 27-country constituency (http://ec.europa.eu/news/pdf/sg-2013-00286-01-04-en-tra-00.pdf). After that, look at the March 13, 2013 issue of Civil Service World (http://www.civilserviceworld.com/every-department-should-have-a-historical-adviser-argues-lord-butler-of-brockwell/) where the former Cabinet Secretary Lord Butler suggests that Government departments appoint historical advisers to improve their decision-making.
Then, follow https://biggernumbers.wordpress.com/ for the extent of the problem – and the solution.
Collegially,Arnold Kransdorff. firstname.lastname@example.org www.pencorp.co.uk