Is it in our interest to meet Brown’s goal?

If prudence is Gordon Brown’s favourite word, productivity comes a close
second. The Chancellor wants the UK to start to outpace the US, France and
Germany and move up the league table of the world’s most productive economies.

This objective can seem little more than economic machismo – until you
translate it into hard cash. If the average British worker was as productive as
the average American, the UK economy would each year produce an extra £6,000 of
goods and services per head of population. That’s megabucks. It would allow
higher profits and higher pay, and provide scope for extra spending on schools,
hospitals and public infrastructure without raising taxes.

No wonder the CBI and TUC have put other differences to one side to discuss
how the Chancellor can meet his productivity goal. No surprise either that the
CIPD is putting ever-greater effort into demonstrating the central role of
people management in boosting productivity. As CIPD research shows,
organisations applying a range of people management tools are about a fifth
more productive than other organisations.

A key message must be, don’t confuse measures that improve the effectiveness
of staff with costcutting strategies that boost productivity at the expense of
jobs.

The latter approach can appear to make sense, especially during periods of
economic slowdown. Indeed, at the time of the last recession, this was
precisely what advocates of downsizing told us. "Slash and burn" said
management gurus, who advised employers to make maximum use of their enhanced
ability to hire and fire.

But by the mid-1990s the same gurus suddenly started talking about the
downside of downsizing. Large-scale job culls break the necessary bond of trust
between managers and workers that underpins commitment and motivation – so any
gain to productivity tends to be temporary.

There are times when employers may have to resort to mass redundancies – a
major slump in demand, or inefficient operation. But during the kind of
slowdown the UK economy is likely to experience during the coming year, most
organisations should hoard rather than shed labour.

Encouragingly, this is precisely what happened during the downturn in 1999.
Although manufacturing shed jobs under the weight of the strong pound, the bulk
of employers held on to staff. The prevailing rationale was that the downturn
would be short-lived and laid-off workers might be lost to competitors. The
irony is that as a result, economy-wide productivity dropped in the late 1990s.
But the preservation of jobs helped sustain consumer demand and allowed the
economy to quickly return to health.

And unlike the early 1990s, job satisfaction and the psychological contract
at work remained robust. Let’s hope the same happens in the coming year. Better
for productivity to take a short-term dip than hinder long-run progress toward
a high productivity, high employment economy.

By John Philpott
Chief economist, CIPD

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