Realist, not conformist analysis of the latest financial, business and political news

To Explain Declining Productivity Growth – Not Enough Companies Going Bust

The single most important determinant of future living standards is whatever increase there is in labour productivity. Quite how that rises is, well, it’s arguable. Certainly, it’s not something that government directly controls. Sure, we get all that shouting about how i there was just more investment, a national investment bank, if The Senior Lecturer and John McDonnell controlled who did it, in what and where, then it would rise. Then we’ve the actual economists who seem to think that it’s about not enough new companies coming through. Or business dynamism, something we might describe as not enough companies going bankrupt.

The economists are right too:

Declining business dynamism and information technology

Gert Bijnens, Jozef Konings 19 July 2018

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5 years ago

Regulation in the US is increasing, but is regulation in Belgium really decreasing if you include the regulations of the EU? particularly regulation such as the Competition Board that has the overt goal of protecting established firms from more efficient upstarts. The basis of lobbying for the regulation is the undesirability of corporate death. Established firms’ rationale is “high quality” in the industry, as defined by them, which it is ruinous for newcomers to learn, provide, and prove they have provided, especially before they have won their first large contract. I am also skeptical that the shift to an information… Read more »

5 years ago

It looks to me like the willingness to take a pay cut during the GFC has made a difference – the firm survives and the worker stays employed with his productivity measured by income / divided by hours work having declined. In previous recessions the worker might have been out of work altogether, and we’d end up appearing to be more productive. Those who brought down the productivity figure would have dropped out of the calculation completely in days of yore. Public sector workers are part of the picture too, as their increased productivity during the Brown overspending years was… Read more »

5 years ago

@ Bongo
A large part of the alleged growth in productivity during the Brown years was simply due to an error in the RPI calculation formula that was introduced in Autumn 1997 and was found and corrected in autumn 2010. ONS does not know just how much the impact was but the Royal Statistical Society’s magazine estimated that it could have understated inflation by as much as 1% pa so productivity growth was overstated by up to 1% pa – doesn’t sound much but it means than 1.5% pa was falsely stated to be 2.5% pa.

5 years ago

“Bankruptcy” is a trendy, hip, eye-catching way of putting it. Although pheasant-plucking businesses no longer exist, not a single one of them went bankrupt. They made a jump into the chicken-plucking business, thus retaining customers, skills, knowhow and equipment. Ditto with hot lead, steam locomotives and collar studs. There are of course a few determined CEOs who go down with their ship but the majority, when they see that the wave is running out of energy, like surfers turn around and paddle out to catch another wave.

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