A Christmas Parable and Productivity

No this is not an examination of how Santa Claus gets around the whole world in one night. But as my last post before Christmas, let me explain how I have automated the sending of Christmas cards over the last thirty years. I am by nature a lazy person, so handwriting and addressing the family’s Christmas cards was a task I chose to tackle with some automation many years ago. The first step was to put friends, family and business contacts into a contact management software product. This enabled me to reuse the same list every year, maintain it with changes easily, and once per year print self-adhesive mailing labels. More latterly I have used an email delivery service to distribute many of my Xmas “cards” electronically which included short newsletters in some years. Only a few cards now get posted to the favoured few or those not on email, thus saving postage costs.

So productivity before Christmas in terms of use of my time has improved enormously, and I can now send out hundreds of “cards” for less expense than the tens sent previously.

The Government is very concerned about the poor productivity of the economy in the UK. It has not been improving, and hence wages are unlikely to rise. The above parable shows it is necessary to do three key things to improve productivity: 1) Invest in new technology (in the above case, several software products); 2) adopt new ways of doing things (i.e. there needs to be cultural changes) and 3) invest time in learning how to use the new technology (education).

Obviously in business terms, such investment tends not to take place when labour is cheap or free (the equivalent of asking your spouse to hand address the cards). But even then there are still benefits from automation such as reducing postage costs, and reducing the environmentally damaging costs of transporting millions of cards around the country.

There was an interesting letter in the Financial Times recently from Andrew Smithers. He said “In the real world investment decisions are made in the interests of management [not of shareholders as in the classic economic model]. As a result of the change in the way managements are paid (that is the bonus culture) they are encouraged to prefer buy-backs to investment. This is the root cause of poor productivity.”

That is indeed one of the key problems. Typical bonus schemes such as LTIPs pay out based on earnings per share which are enhanced by share buy-backs. Just a few years ago for a company to buy its own shares was illegal. Perhaps we should revert to that situation? Alternatively outlaw such bonus schemes.

Another reason why productivity is not improving is that the incentives for the chief executives of public companies to invest for the long term is minimal. Their length of tenure before they retire or move to another company is so short that they would be mad to take risks in adopting new techniques or changing business processes. Indeed their pay is now so high that they don’t need to stick around for more than a few years before they have made enough money to feel secure in a comfortable retirement.

These are the issues the Government needs to tackle if UK productivity is to improve.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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