Janus Henderson's Ward has sympathy with this point of view, remarking that: "Technological progress has always presented a challenge for productivity measurement, but the current speed of change suggests a greater risk of understatement, for example consumption of 'free' internet content is undercounted in GDP data that feed into productivity statistics."
James Carrick, economist at Legal and General Investment Management, says the innovation of computers in US offices in the 1980s was not properly picked up by the data until the early 1990s, to the extent that in the late 1980s many were griping that computers were not really helping productivity or growth.
The second factor McWilliams cites is the relative size of government in the UK, and some of the policy measures.
He says that while the tax paid by UK citizens has gone up sharply, “I don’t know anyone who thinks the level of service has gone up by as much, and paying more to receive less is less productivity”.
McWilliams adds that it may be that ensuring remote workers are productive is harder in the public sector.
Lagarias says one impact of the pandemic has been that companies are moving supply chains closer to home, even when this makes the cost of production more expensive in normal times, and this has a negative impact on productivity.
QE or not QE?
The introduction of quantitative easing in the aftermath of the global financial crisis involved steep increases in the money supply across the world on a scale not seen before.
The wider economic impact of the policy may only be felt when the unwinding of it is complete.
But in terms of the specific impact on the productivity, Ward says the debate is between those who think QE averted a deeper and more prolonged recession, which would have had a long-term negative impact on productivity as unemployment and business insolvencies would be higher, and those who believe the effect of QE was to enable companies that are not visible to survive, as the cost of capital was so low.
The latter view is held by Lagarias, who says that QE enabled capital to be “misallocated” so that it went into inefficient companies as well as efficient companies, and that this drives down average productivity because both survived.
In a more normal economy, the least efficient companies go bust, and the most productive survive, causing average productivity to rise.
