Public and Private Productivity
The Office of National Statistics (ONS) has produced a staggering and shameful graph. Taking 1995 as the base of 100 (so 30 years ago effectively) both public and private productivity was at that level – 100.
I’m not trying to make political points here, but some of the correlations are clear and very pointed.
So for a couple of years from 1995 to 1997, public sector productivity was pretty flat. Private sector moved up quite steeply and continued to do so through 2005 so much so that at the 10 year mark, it was 25% better than at the start.
From 1997, public sector productivity fell, and with a few wiggles and wriggles continued to do so until 2010. At the 15 year mark it was standing at about 97. There was, as you will recall a change of government at that point and from then on public sector productivity began to rise and did so until Covid hit in 2020 – standing at about 105. So in 25 years it had improved just about 5%. Private sector had continued to grow though less quickly and by that date was around 130.
Covid struck and within 6 months public sector productivity had fallen off a cliff and by 2021 was standing at just 90. Private sector on the other hand didn’t suffer any significant fall and was still above 130.
Between 2021 and the end of 2024 the public sector managed to get back to – wait for it – 101. It might – or might not - have improved a bit since.
The private sector continued to grow albeit slowly until the 2024 election and has been struggling since. That is hardly surprising given the mountain of taxes, regulations and general hate for business that has been heaped on it. Even so, despite all that, it is pretty much holding its own.
So taking an overview, public sector productivity has fallen nearly 25 % relative to the private sector over the period. And don’t forget the pampered status of the public sector in general. A statistic that pretty much says it all is that in the Department of Transport you are 12 times more likely to die in service than be dismissed for any reason. Dare I say it the Unions pretty much prohibit it. In an ongoing total shambles and inability to make things work NHS England - abolished in case you have forgotten a year ago - still has 90% of its staff in place. Apart from wondering what on earth they are still doing it does rather beg the question as to what the NHS intends to happen. It's certainly not to get rid of the workers - or non-workers I suppose
Insanity is doing the same thing over and over again and expecting different results. Regretfully, the UK continues to use the same statist, interventionist and ideological insanity to try to improve things. It won’t happen. We have economic stagnation, the highest energy prices, the highest youth unemployment and burgeoning levels of debt which have not managed to shift any dial at all. The leftist policies have already been tested to destruction but we appear to be trying the same again and expecting better.
For reasons completely beyond me, Rachel Reeves in her Mais lecture stated that “growth today relies on an active and strategic state”.
Nothing could be further from the truth. 250 years ago the recipes for growth and a healthy economy were codified. Every time that these policies were abandoned, interfered with or generally forgotten in the intervening period, Britain has suffered a relative decline. The same is happening at the moment, and the policies being pursued on energy, on workplace rules, on taxation, spending and general regulation are such that I fear we may never recover.
Since 2008 our growth in productivity overall has been dismal It has been worse that the US (no surprise that one),the EU and Germany specifically. The net result is earnings growth has stagnated and we are falling behind other countries slowly but surely. The enormous growth in regulation and risk aversion has hamstrung what used to be our best sector.
In case the effect of the frog in a pot of heating-up water has escaped you, we are currently at the highest level ever of taxes and spending as a proportion of National income. We have got there despite decimating our armed forces and now have more than 50% of the working population on some kind of state handout. That is completely totally and absolutely unsustainable. In the not too distant future there will be a juddering halt to the caravanserai which will result in genuine hardship for many of the poorest in our society.
And yet our political leaders (though they hardly deserve than name) are STILL heaping more nonsense on us. That paragon of illiterate economic knowledge Zack Polanski suggests we need rent controls. He has clearly never studied any economic facts at all. Time and again these have been shown to distort the market to such an extent that fewer houses get built, fewer people can get somewhere to live and landlords simply stop renting. Take a look at Argentina where within a few months of abandoning state intervention in housing, more houses were built, rents actually fell because - guess what - a higher supply leads to lower prices and in general the whole market (not just the rental sector) revived and started meaning something in the economic statistics. And just look at those towns and villages where second homes and holiday lets have effectively been banned in the UK. The net result is not only no more housing for locals, but no more shops because there is no one to buy things. Interference is always a certain way to ruin any market.
I read a nice piece the other day. Economists are in general divided on every issue – except rent controls. In every case where they have been tried, the supply and quality of properties has been reduced. There has been a fall in the building of new properties and as a result mobility (one of the cornerstones of economic growth) has fallen.
Politicians in general dislike people making a profit. As a result, they fail to understand that it is the profit that enables further investment and growth which benefits everyone. We are facing a global energy crisis (which is only just beginning) yet here in the UK we have already thrown away almost all our unique advantages. The only solution is to increase supply. What are we doing? Restricting it. Net zero will only make us poorer and more reliant on hostile forces. A classic example of letting the market do its thing is the electricity supply in South Africa. The ANC - nothing if not leftist and corrupt to boot - had its cronies well dug in there. So much so that the euphemistically called “load shedding” – basically cutting off supply - happened literally all the time. Eventually the man and woman in the street got so fed up with it that there was effectively a populist revolt and the government was forced to take the shackles off and allow other, private, companies to generate electricity. Almost overnight the lights came back on with the even better result that people stopped taking power from the state-run entity to such an extent that even it had to shape up or ship out.
We should – as the politicians keep mouthing – be focussed on growth. We should reward success and allow innovation to flourish. Very sadly, as long as growing numbers of non-productive jobs are allowed to continue to grow and taxes increase we are doomed to a failing and falling future.
