Tackling our deficit with new levies would be economically and politically suicidal, says Max King
MICHAEL PORTILLO’S STANCE HAS BEEN VINDICATED
Not long after the 1992 election, I heard Michael Portillo speak at an investment conference in the City. Britain was then emerging from a recession, but the finances of John Major’s government were in massive deficit. Portillo’s message was clear. As Labour retreated from its capture by the Left in the early 1980s, the policy differences between Labour and the Conservatives, he predicted, would steadily narrow. But on one issue, taxation, there would continue to be “clear blue water” between the parties. If, however, the chancellor used tax increases to narrow the fiscal deficit, the Conservatives would be defeated at the next election and remain out of power for a long time.
Whereas Nigel Lawson had taken pride as chancellor in abolishing a tax in every budget, his successors adopted the opposite policy, perhaps egged on by Treasury officials. In 1993, Norman Lamont levied VAT at the rate of 8% on domestic fuel as well as freezing tax allowances and raising excise duties in real terms. Later that year his successor, Ken Clarke, introduced taxes on insurance and air travel and continued to raise inflation-adjusted duties.
ABOLISHING BOOM AND BUST
The combination of tax increases, spending restraint and economic growth eliminated the budget deficit as planned. But, as Portillo had predicted, the government got no thanks from voters at the 1997 election. It remained out of office for 13 years and could only govern in coalition for another five. Labour’s chancellor, Gordon Brown, was initially “prudent for a purpose”, but, believing he had abolished boom and bust, then threw caution to the wind.
In the 2008 financial bust, the government deficit again went through the roof. All that had been achieved by the fiscal rectitude of the Major government was to enable its successor to be reckless. When Labour lost the 2010 election, Liam Byrne, Brown’s number two at the Treasury, left a note to his successor saying “there is no money left”. It’s not surprising that the initial enthusiasm of the coalition government for cutting the deficit soon wilted or that the subsequent Conservative government was no more keen. The lesson that electorates don’t reward fiscal rectitude – yet it is a gift to the opposition – seemed to have been learned.
“YOU MAY THINK THE UK IS SPENDING LIKE A DRUNKEN SAILOR, BUT OTHER MAJOR ECONOMIES HAVE BEEN FAR MORE EXTRAVAGANT”
But has it really? The pandemic has seen government revenues plunge and expenditure soar so that public-sector debt is now over 100% of GDP. With public transport and many local councils bankrupt without bailouts and monthly deficits continuing, Treasury officials, egged on by the media, the opposition and, surprisingly, many Conservative backbenchers with impaired memories, are again calling for tax increases. The focus is on “the rich”, by which most people mean “someone other than me”, but taxes on the rich or well-paid never generate as much revenue as expected, if any. Such tax increases would inevitably be extended to everyone.
The obvious problem with this strategy is that it would impair economic growth and growth is always the principal driver of deficit reduction. The second problem is that taxes are already high; for example, the top marginal rate of tax, applied to annual earnings between £100,000 and £125,000, is 62%. The third problem is that it would be electoral suicide for the government.
BUYING TIME
There are no good answers, but with the cost of government borrowing down to derisory levels, there is no urgent need to take action on the deficit. It may seem to us that the government is spending like a drunken sailor and that a good part of the money has been wasted, but governments in the EU, Japan and the US have been far more extravagant. In time, economic recovery will increase revenues, limit spending and reduce the ratio of debt to GDP, provided that the rebound is encouraged.
There is action the government could take to reduce the current and future deficits. The collapse in rail traffic shows HS2 to be a grotesque waste of money and replacing student loans with a graduate tax would increase revenues, reduce the debt burden on graduates and be fairer. A trick was missed when some of the benefit to petrol prices from the fall in the oil price was not absorbed in petrol duty. Unfortunately, though, there are also taxes that need cutting: the rate of national insurance should be cut from 12% to 10% and levied above £12,500 (the income tax allowance) rather than £7,500. The top marginal rate of income tax is too high.
With such a strategy, the government might have nine years to get its finances in order, rather than four and a half. If only Portillo could take some time off his rail travels to repeat the powerfully vindicated warning he gave nearly 30 years ago.
What’s worse: monopoly power or government intervention?
AMAZON FOUNDER JEFF BEZOS: NO ONE FORCES YOU TO USE HIS WEBSITE
Politicians of all stripes increasingly agree with Karl Marx on one point – that monopolies are an inevitable consequence of free-market capitalism, and must be broken up. Are they right? Stuart Watkins isn’t so sure
Free markets left to themselves in a capitalist context are great at producing wealth, but will inevitably tend to concentrate that wealth in ever fewer hands, leading to increasing inequalities of income, power and wealth, and undermining the benefits that might be supposed to flow to consumers, such as cheaper prices. The logic inherent in market exchange must, in other words, progressively undermine the very qualities that the champions of the market promise they will deliver.
This, at least, was the view of Karl Marx. Perhaps surprisingly, it is also the mainstream view today. It is not all that easy to find a mainstream commentator, economist, think-tanker or policymaker who will raise a squeak of protest against the idea. All the main political parties – particularly in the US, where the problem is deemed to be particularly acute – agree that something must be done to curb the rise of the monopolies, namely that the state should step in and break them up, or at least restrain them.
Indeed, “Market Power, Inequality and Financial Instability” – a new paper by Federal Reserve Board economists Isabel Cairo and Jae Sim – argues that the concentration of market power in a handful of companies, and the resulting decline in competition, explains the deepening of inequality and financial instability in the US, as Craig Torres reports on Bloomberg. They blame the rising market power of big companies for the decline in the share of wealth that goes to workers, the rise in inequalities of wealth and income, and the growing debt burden. The authors call for policies that will redistribute wealth to the poor, perhaps by gradually raising the tax on dividend income from zero to 30%. They suggest that such policies might help to slow the rise of inequality and the growth in debt, and make financial crises less likely.
The paper is just the latest voice in a rising chorus. Towards the end of last year, The Great Reversal, a book by economist Thomas Philippon, presented a detailed empirical analysis of the question and argued that America can no longer be considered a free-market economy in any real sense. As well as confirming that the trends already sketched are indeed in play, he concludes that the main explanation is political – namely, that politicians have not enforced competition policy as they should, thanks in part to lobbying and campaign contributions. The result, to quote just one example, is that the price of broadband access in the US is roughly double that of comparable countries, leading to predictably higher profits.
The year before Philippon’s book, a similar one by Jonathan Tepper and Denise Hearn (The Myth of Capitalism) made the same point. “I realised that particularly in the US, which is probably the most advanced in this trend, you’re seeing more and more industrial concentration,” he said in an interview with MoneyWeek at the time of publication. That gives companies pricing power over consumers, more power over workers as they don’t have to bid against rivals for their labour, and power over suppliers. The result is that a small number of huge companies are capturing very high profit margins. Tepper, too, blames lax enforcement of competition laws for the problem.
The problem may be about to get worse. The response of governments to the coronavirus pandemic has led to a huge economic crisis, and their response to what they have caused is to throw money at it. The combined effect will be to push smaller firms out of business, quenching the fires of creative destruction, and for the well-connected, better organised larger companies to obtain all the government cash and bolster their already dominant position. Low interest rates may also contribute, as bigger companies are in a better position to get hold of cheap credit and invest it in expansion. If rising concentration and monopolies are a problem, it’s one that seems set to get worse.
THE CASE FOR THE DEFENCE
Are Marx and his mainstream followers correct? The answer, as ever, is – it’s complicated. A sounder tradition in economics would lead us to be cautious about the claims from first principles. As Edmond Bradley, a writer for the Mises Institute, put it back when Microsoft was the monopolistic bogeyman in the early 2000s, “the fear of industrial concentration is the last refuge of socialist theory” and the idea that governments must step in to save us from it is “wildly incorrect”. A company operating in a market economy might look like a monopoly “under myopically static analysis”, but a broader and historical view will reveal that even very large, dominant companies face intense competitive pressure – whether from the fear of potential competition from new entrants eyeing their high profits; or from competitors offering products and services of a different but nevertheless substitutable kind; or from losing customers altogether, should they decide they’d rather do without what is being offered.
“HISTORY SHOWS THAT LARGE FIRMS ARE ALWAYS IN DANGER OF HAVING THEIR PROFITS COMPETED AWAY AT ANY MOMENT”
And if that’s what first principles tell us, there are plenty of reasons to be sceptical about what the real-world data are showing, too. A roundtable discussion of the subject by experts, hosted by the OECD group of wealthy nations in 2018, concluded that although market power did indeed appear to be rising in many countries, the causes were unclear. It might reflect a reduction in competitive intensity, but it might equally be the outcome of intense competition. If the causes are unclear, then there’s no way to be confident about what the correct policy response should be.
In any case, the rise in industrial concentration may not be all it appears to be. As a 2019 paper by Alessandra Bonfiglioli, Rosario Crinò and Gino Gancia for the Centre for Economic Policy Research notes, all the existing evidence for the increase in industrial concentration and the fear that this will usher in a new era of monopolies has been based on national data. They find that when competition from foreign imports is included, the overall level of competition may in fact have intensified rather than fallen – even if the number of firms from the home country entering the market falls. So increased global competition and greater national concentration may be two sides of the same coin – “growing global competition may force unproductive firms to exit and top firms to consolidate on their best products”.
IS MONOPOLY SUCH A BAD THING ANYWAY?
Amazon is one of the companies charged with unfairly exploiting its dominant position to crush competition and hence harm customers. Indeed, its boss, Jeff Bezos, was recently dragged before the US Congress and had to defend his firm from hostile questioning. But if Amazon is a monopoly, then the first question that arises is, is that such a bad thing? Amazon started out as an idea in Bezos’s mind, which he put into action using money he raised himself from family and investors, working from his basement and carrying parcels to the post office. It was, from the beginning, a high-risk venture, deemed by most to be almost certain to fail. Yet by consistently offering consumers what they didn’t know they wanted, and winning their approval and then loyalty, Amazon rose above its competitors by sheer excellence. It’s not as if its customers have been forced into anything.
“WE NEED LESS GOVERNMENT INTERFERENCE, NOT MORE”
Moreover, even in its current dominant position, Amazon faces plenty of intense competition. As Bezos pointed out in his testimony to Congress, customer trust is hard to win and easy to lose. Amazon’s globe-spanning dominance would end very quickly should that trust disappear. There are plenty of competitors snapping at its heels. Amazon accounts for less than 1% of the $25trn global retail market, according to Bezos, and less than 4% of retail in the US. There are more than 80 retailers in the US alone that earn more than $1bn in annual revenue – that includes Walmart, which is more than twice Amazon’s size and whose online sales grew 74% in the first quarter. In the wake of the pandemic, plenty of other companies are competing with Amazon in the race for online orders for goods, including Shopify and Instacart.
The briefest review of relatively recent history should be enough to show that large companies of the kind that draw fire from those concerned about monopolies are in reality always in danger of having their profits competed away at any moment – witness Kodak and Myspace, to take just two commonly cited examples. As those economists who most consistently defend free markets insist, monopolies are only ever really a threat, not as a result of companies operating in free markets, but as a result of government interference – particularly, in our day, as a result of money printing and ultra-low interest rates. What is needed, then, is not more government interference to solve the problems they have created, but less. In this sense, the rising threat of monopoly as a result of the coronavirus pandemic is a clue to the real source of the problem.
THERE ARE BETTER SOLUTIONS THAN ENFORCED BREAK-UPS
Even if you’re not buying all that, and are convinced that rising concentration and market power is a problem that the government should try to tackle, is it really worth the bother? As Ryan Bourne of the Cato Institute has pointed out, over the past 100 years or so, major anti-trust cases have seen huge amounts of time and resources spent litigating against companies that seemed dominant. And yet in most cases, the firms in question were overtaken by competitors even as the investigation was going on (see the box on page 28). Companies would be better off focusing on improving their offering to consumers rather than resentfully pursuing their competitors in the courts. And the political energy spent pursuing monopolies would be better spent pursuing polices that make free-market economies more robust and dynamic, says Bourne.
And even if you agree that Facebook, say, deserves to be split up, just how would that work? You might say that it should sell off Instagram and WhatsApp, two subsidiaries that are now enormous platforms in their own right, as James O’Malley points out in The Spectator. Yet those three platforms are tightly integrated and share the same back-end infrastructure. Demanding a split would be like demanding that McDonald’s sell off some restaurants and then expecting those branches to operate without staff or supply chains, says O’Malley.
Even if the split worked, there would be nothing to stop Facebook launching its own alternatives, which would probably win out in the end thanks to network effects and Facebook’s existing dominance. So if governments are serious about dealing with the problem in a way that the cure won’t be worse than the disease, they’ll need to be at least as savvy as Silicon Valley in crafting regulation that is fit for purpose. Anyone looking at governments’ response to the coronavirus worldwide would be justified in suppressing a chuckle at that idea.
Trouble is, that doesn’t mean they won’t act. Panicky governments aren’t in much of a mood for listening, or for restraint, or for good judgement. The coronavirus panic is leading to ever-bigger government, and bigger government has to be seen to be doing something. Taking on the tech giants and breaking up monopolies is “something”. So it wouldn’t be wise to bet against it happening. That’s something to keep an eye on if you are invested in big tech, say – which, given their huge weighting in the main indices, probably means everyone with a pension or an index tracker. For more on what that might mean for your money, see box at the bottom of the page
A brief history of competition law
Laws governing monopolies (and who was allowed to hold them) have been around for almost as long as human beings have been trading with one another, writes John Stepek. One of the earliest surviving examples of competition law is from around 50BC, when Rome passed a law (the Lex Julia de Annona) imposing heavy fines on anyone who tried to drive up the price of corn artificially by disrupting supplies. Note that food price inflation would have been one of the biggest threats to social order at that time (as it still is today). Competition law has always been political and it’s almost certainly no coincidence that today’s increasing hostility by politicians to Big Tech in particular, go hand in hand with the general sense of voter anger.
So there has always been a recognition of the risks posed to consumers by overly dominant producers. However modern competition law as we know it has been most heavily shaped by the US. In 1890, the Sherman Anti-Trust Act was passed, banning trusts (hence the term “antitrust”) and other monopolistic entities. The move came in response to the power of groups such as John D Rockefeller’s Standard Oil Trust, which Rockefeller used to consolidate the oil industry. Again, note that the act passed at the height of America’s “gilded age”, another era of heightened inequality and political turbulence, which is often compared to today. Eventually, in 1911, Standard Oil was broken up by the US Supreme Court into 34 smaller companies (its surviving successor companies include ExxonMobil and Chevron). That said, by that point its share of American refining capacity had fallen from 90% in 1880 to below 65% – due to competition.
In 1961, none other than Alan Greenspan, during his early days as a disciple of Ayn Rand, declared that the Sherman Act had stifled innovation by “inducing less effective use of capital”. The former Federal Reserve chairman argued that while the free market itself “does not guarantee that a monopolist who enjoys high profits will necessarily and immediately find himself confronted by competition”, it does ensure that “a monopolist whose high profits are caused by high prices, rather than low costs, will soon meet competition originated by the capital market”. In other words, if someone else can do the job better than you, or more cheaply than you, or both, then it’s impossible to sustain profiteering prices in a genuinely free market.
Companies in the firing line – and those that are not
The most obvious targets of today’s competition concerns are the big technology companies, writes John Stepek. That matters, as Stuart notes above, because the big tech stocks – or FAANGs – also happen to be some of the most valuable companies in global markets right now.
It’s worth noting that not every member of that group is in the immediate firing line. Streaming service Netflix is important but it has plenty of competition. Microsoft – not in the acronym but often lumped in with these companies – has also largely escaped scrutiny (although it did have its own run-ins with the competition authorities in the late 1990s).
Currently in the spotlight, following the testimony of their chief executives in front of US politicians in July, are Facebook, Amazon, Apple and Alphabet (Google). As James Clayton reports on the BBC, both the Republicans and the Democrats have their quarrels with Big Tech, and both parties want to be seen to champion small businesses. “It’s hard to avoid the conclusion that whoever wins the next election, Big Tech is going to get whacked. The question is how and by whom.”
We may not even have to wait that long. In November last year, notes CNBC, analyst Paul Gallant of the Cowen Washington Research Group tried to forecast the odds of action being taken by the US government against any of the big four. In his view, Alphabet was deemed the most likely target regardless of the political party in charge, and as it turns out, there are reports that US attorney general William Barr wants to announce a case against Google – based primarily on its dominance of internet search – ahead of the election.
Also, competition cases don’t just have to be brought by the government. Both Apple and Google are increasingly being challenged by other companies over the commission fees they take on sales made through their apps with Epic, developer of the popular Fortnite video game, currently the most prominent.
With the big tech stocks looking expensive, any decisive setbacks could be bad news for their shareholders. But perhaps what investors really need to grasp is that – as was the case in the “gilded age” (see the box on page 28) – this focus on competition is just one symptom of increased concern about the perceived concentration of power and wealth in society, and a wider sense of voter dissatisfaction.
In essence, governments are reminding corporations that when push comes to shove, they’re the ones who have the power, not the companies. That might work in favour of “value” sectors that have already been humbled – banking and fossil fuels, say. You might also see it as an reason to own smaller stocks that won’t appear on government radars for a long time. And you might also see it as a reason to own a bit of gold as a defence against politically induced volatility.
Abour 70% of the visitors to Bicester Village last year were tourists
GEOFF PUGH
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Rows of Audis, BMWs and Range Rovers filled the car park outside Bicester Village last Wednesday afternoon. Inside, shoppers were waiting to be ushered into Gucci’s glittering emporium, and the lunchtime queues at Pret A Manger were five deep.
Britain’s pre-eminent discount retail destination is still drawing crowds that the average shopping centre landlord would kill for. The only problem? The visitors’ accents bear the stamp of Birmingham and London rather than Beijing.
Only Buckingham Palace is a bigger draw for Chinese tourists than Bicester Village, a twee, faux high street awash with discounted luxury fashion. Yet its owners fear the government is pulling the rug out from beneath them.
American real estate heir Scott Malkin
DAVE TACON
At the end of the year, the government will abolish the VAT retail export scheme, which allows visitors from outside the EU to claim a 20% refund on goods bought here.
The Treasury expects to claw back £500m as a result — but it could be the death knell for retailers and restaurants already starved of tourists.The Centre for Economics and Business Research (CEBR) has forecast that the move could ultimately cost the Treasury £3.5bn.
“We were around for the ‘tech wreck’, we were around for the financial crisis, and through both of those, spending at our centres grew — but this is different,” said James Lambert, deputy chairman of Value Retail, co-owner of Bicester Village. “We expect there to be a substantial defection of Bicester customers to Europe if this goes through.”
Lambert’s peers at Selfridges, Harvey Nichols and Marks & Spencer have also called for the Treasury to reconsider. It would have a big impact on London’s West End, particularly Bond Street.
With Brexit approaching, the Treasury had to choose between extending the scheme to EU residents, which it estimated would cost up to £1.4bn a year, or axing it to comply with World Trade Organisation rules. It said that fewer than 10% of non-EU visitors used the scheme and that retailers could still offer tax-free shopping on goods shipped to visitors’ homes.Bicester Village is the creation of Scott Malkin, an American real estate heir whose family once owned the Empire State Building. To broaden its appeal beyond bargain-hungry Brits, Value Retail, the company Malkin founded, partnered with tour operators and laid on special discounts to lure tourists to the site in Oxfordshire.
As they came, the brands followed — and Bicester became the template for a further 10 “villages” in Europe and China, valued at £5.4bn. Last year, 7.3 million shoppers visited Bicester Village, roughly 70% of them tourists. Hammerson, which owns Birmingham’s Bullring centre, holds a 50% stake, but has little involvement in day-to-day operations. “It’s the ultimate retail experience in the UK. They could probably let it 30 times over,” said Sam Foyle, of property agency Savills.
Value Retail could not be accused of being an absentee landlord. To ensure its staff chat with tenants every day, they are not provided with a head office. It lets shops on short leases so it can chop and change tenants, and links rents to their turnover — a model that high street chains are now forcing on landlords.
For brands, the centre has gone from being a dumping ground for unsold stock to a way of reaching less affluent customers and turning them into devotees. These days, retailers re-order last season’s best-sellers and slip in some of their new collection at full price. Sales per sq ft can be triple that of central London.
This approach can cause friction, though. One tenant said: “They demand store upgrades each year and if they think the manager isn’t up to it, they’ll ask you to change them.”
While some tenants have bounced back, others say footfall and sales have more than halved. That makes the end of tax-free shopping, which accounted for about a quarter of sales across Value Retail’s luxury outlets last year, all the more galling.
The CEBR has forecast that the move will see UK tourist spending drop by between £1.1bn and £1.8bn, with the loss of up to 41,000 jobs.
Before the pandemic, so many Chinese tourists packed on to Bicester-bound trains from London’s Marylebone that platform announcements were made in Mandarin. Last Wednesday, the waiting room at Bicester Village station was deserted. If tourists don’t return for old-fashioned retail therapy, its boom times may be gone for good.
One of the topics I get asked about a lot is productivity. People do not necessarily put it this way, but is the coronavirus crisis unleashing the “creative destruction” that will propel us out of more than a decade of productivity stagnation? Is the working-from-home revolution and other changes adopted by businesses, which, in other circumstances, might have taken years to evolve, good or bad for productivity?
What about the shakeout in jobs that we are seeing? Is the extremely bad news for the hard-hit hospitality sector, and the people who work in it, good news for the economy’s overall productivity?
These are big questions and I cannot promise definitive answers on all of them. Before I try, let me give you another in the series of extraordinary statistics this crisis is throwing up. The Office for National Statistics (ONS) has just published figures for productivity in the UK’s public services. The measure used is slightly different from the way we typically measure productivity for the economy as a whole, which is on an output per hour or output per worker basis. Public services productivity is measured by the amount of inputs going in — public spending — versus the outputs emerging in return.
On this basis, productivity in public services plunged by 35.7% in the second quarter, compared with a year earlier. This was comfortably the largest fall since it was first measured on this basis, the previous record being the 3.8% annual drop in the first quarter.
It happened because inputs into public services, mainly health and social protection (benefits, free school meals, etc), increased sharply, while outputs fell. School closures hit the output of education, and non-Covid work in the NHS also dropped. No public sector workers were furloughed.
These huge declines should not be taken as evidence that the public sector can never deliver productivity gains. Between 2010 and last year, productivity in public services rose by more than 5%, with the biggest gains occurring during the period of maximum austerity. Treasury old hands used to say that putting the squeeze on spending was the only sure way of delivering such gains.
The official statisticians are still working on final productivity data for the whole economy in the second quarter, to be published shortly. We will have to wait even longer to see how much productivity bounced back in the third quarter, if it did, as the economy recovered from its slump. Friday’s monthly GDP figures for August were a touch disappointing, showing monthly growth of only 2.1%, but they put the economy on course for a 16% third-quarter bounce.
In the meantime, we have the ONS’s “flash” estimate for second-quarter productivity, which showed a 19.9% fall in output per worker and a 2.5% drop in output per hour. The fall in output per worker was so large because furloughed employees were counted as still being in jobs, even when they were not working. The output per hour drop, though smaller, was still the biggest on record.
These figures will change — the second-quarter drop in GDP was marginally smaller than first estimated — but they will confirm that any productivity recovery will start from a low base. What are the prospects for such a recovery?
As far as the public sector is concerned, and productivity in public services, one feature of this crisis is that a lot of money has been poured in, the “inputs”, often without due diligence. Contracts have been hastily signed and the services not delivered. That is not unusual — there was much wastage in the Second World War — but it does not bode well for public services’ productivity.
For the private sector, there are two big questions. One is whether productivity gains will result from changes in working practices. We should not exaggerate such changes. The latest ONS business impact of coronavirus survey showed that from September 7 to September 20, 9% of employees were furloughed and 28% were working remotely, but 59% were at their normal place of work.
Looking to the future, only 19% of the companies surveyed expected to use increased homeworking as a permanent business model. Of these, improved productivity was only the third most popular reason, cited by 34%, behind improved staff wellbeing (60%) and reduced overheads (55%).
This will be the test of changes in working practices — whether firms can point to productivity gains — and so far the evidence is thin. I am aware of surveys showing that employees believe they are more productive when working from home, as well as an improved lifestyle when they do not have to commute. For salaried workers, however, getting a set amount done in a shorter time so you can take the dog for a walk does not mean an increase in measured productivity. Only when more is done each day does productivity improve. I note that some firms are keeping a remote eye on employees, to make sure they are working.
Any productivity gains from changes in working practices have to be set against other losses. Sir James Dyson was speaking for many when he said that businesses need the interaction of people working together. “I’m 73 and when I come into work I’m learning all the time, we’re learning from each other,” he said. “You can’t train people and learn when you’re sitting at home.”
The jury is out on this. What about the changes in the economy resulting from Covid-19, which the chancellor has described as a “permanent adjustment”? All sectors have their productivity leaders and laggards, but a labour-intensive industry such as hospitality has much more of a challenge in improving productivity than, say, manufacturing. Many hundreds of thousands of hospitality jobs are at risk.
Economists talk about the “batting average” approach to productivity, which is that if you eliminate low-productivity firms, indeed large parts of low-productivity sectors, the economy’s average productivity will be higher.
That may happen, but it is probably not a good thing. Hospitality and other domestically focused services may drag down the productivity average but they have generated huge numbers of jobs and they have a minimal impact on the UK’s ability to compete in global markets. At this time in particular, we need those hospitality jobs.
The keys to raising our productivity game are the same as before: more investment, more innovation and better infrastructure, together with improved skills. This crisis is extremely unlikely to come to the rescue.
PS I asked for jokes to get us through these difficult times, and you provided them, but I’m always greedy for more. Stephen Gold reminded me of Woody Allen’s definition of a stockbroker: someone who invests your money until it’s all gone.
Geoff Hope-Terry, a past winner of my annual quiz, defined the difference between a sales trip and a marketing trip: if you got an order, it was a sales trip, if you didn’t get an order, it was a marketing trip. And, while many of us are yearning for the return of entertaining, his memory of the finance director’s advice on ordering wine struck a chord: “Ask them if they know anything about wine. If they say yes, then say, ‘They have a rather splendid house red here.’ If they answer no, say, ‘OK, we’ll just have the house red.’ ”
Steve Haynes went slightly surreal with this one. A dog goes into a pub, puts his paws on the bar and asks for a pint. “Wow!” says the landlord. “A dog who can talk. You should apply for a job in the circus.” “Why?” says the dog. “Do they need an accountant?”
Finally, I should pay tribute to the joke machine that is David Lewis. He provided enough for a week-long stand-up engagement. A few examples of David’s art. Timely: “At this point I would feel safer if the coronavirus held a press conference, telling us how it is going to protect us from the government.” Technological: “I asked the wife how to turn off Alexa. She replied ‘Walk around the room in your socks and underpants. It works for me.’ ” There’s also one mocking tech nerds. A wife says to her husband, a software engineer: “When you go shopping, buy one carton of milk, and if they have eggs, get six.” He comes back with six cartons of milk. She asks him: “Why the hell did you buy six cartons of milk?” ... “They had eggs!” More from David’s vast collection next week, unless you can do better.
