On Wednesday 29 May the Royal Society of Edinburgh hosted the Director of the Productivity Institute Professor Bart Van Ark, who gave a talk on the challenges facing the future of productivity in the UK and Scotland.

The evening was opened by Professor Sir Anton Muscatelli and featured a cross-party* panel discussion with Maggie Chapman MSP, Michael Marra MSP and Brian Whittle MSP.

Maggie Chapman et al. sitting at a table
Photograph: Ian Georgeson Photography
A group of people watching a screen
Photograph: Ian Georgeson Photography

Professor Van Ark opened by saying that the question posed by his talk was not a new one – he has given similar talks in recent years around the same theme – however it is still a relevant one as he believes that productivity can be revived, but opportunities can be missed if it is not handled correctly. He added that some outside influences may have an impact on productivity, but also there may be a revival going on, but it is being missed in the data.

He said: “We have seen productivity revivals before and it has sometimes taken us time to see it, and today we are in the world of very rapid technological advance, we see that all around us – but at the same time if we look at the productivity numbers it seems to be slow. It might be that we are just reliving something that Nobel Prize-winning economist Robert Solow said in 1987 [the advent of the personal computer and the internet] “We see computers everywhere except in the statistics.”

The difficulty in measurement

Professor Van Ark outlined that measuring productivity beyond simple gross domestic product metrics was challenging as there are a variety of different factors, intangible soft skills and so on that should be incorporated but are difficult to quantify.

Professor Van Ark then added that there were difficulties both in terms of finding and showing productivity, and in addition there was a lag in seeing the productivity figures rise as a result of new technologies.

Other current challenges Professor Van Ark outlined included the ageing of the workforce, climate change and the effects of deglobalisation.

Professor Van Ark added: “It could be that this is just another productivity paradox, but it could also be that this might actually be some kind of [new] productivity paradox and we need to talk about what that means.”

He went on to explain that one of the reasons that productivity stalls in an economy is that there are too few people or companies that can contribute and benefit.

The correct level of productivity is becoming more difficult to measure as the UK and Scottish economies become increasingly services-driven and intangible.

Why is it important to measure productivity?

Professor Van Ark demonstrated that there are many negative connotations associated with measuring productivity – it is damaging to the environment, uses natural resources, it means working longer hours and can lead to burn out, and so on.

However, he added that productivity is the only sustained source of economic growth in the longer term, it frees up resources to invest in new technologies and is the “engine” of growth, and productive companies tend to create more job opportunities in the longer term. Not only that but productive people tend to have a better quality of life, and productive places tend to have a positive impact on citizens and society.

“Productivity has a broader definition than the GDP-per-hour that you read in the newspapers. It is about how you ultimately use resources – that are limited – in order to create better outcomes,” he said.

Why has productivity slowed?

Professor Van Ark explained that the slowdown of productivity growth is not unique to the UK, and that it was a challenge being faced globally. Western countries have seen a slowdown over the past 15 years, but even in China – which had seen a boom in productivity in the 90s has also seen a slowdown in growth.

In fact, he explained, the only economy within the “G-19” that has not seen this slowdown in productivity is India, which has seen an improvement in productivity.

“We have a global issue here which we have to understand,” he said.

He then added that not only was the slowdown in growth an issue, but it was exacerbated by the low level of productivity to begin with.

“If you have low productivity levels it means it affects the resilience of a place to deal with these big impacts that the global economy has. Too many places in the UK have productivity levels that are so low that it becomes harder to deal with the cost of living crisis, with climate change, to deal with ageing and so on, and a single intervention or a small investment is not going to make a difference in these places.”

He explained that in such places big investments and systemic changes were required to break the cycle. He went on to say that many places in the UK suffered from broad-based underinvestment, in some cases for several decades.

“We have been underinvesting – compared to other countries – in the UK for a very long time, not just in machinery and equipment, but also in people skills and places and all those broader areas.

“The second problem is that we have great companies and great sectors in the UK, but we are not very good at diffusing that knowledge so that smaller firms and other places within the economy can benefit from that knowledge.

“Thirdly we have a problem with our institutional framework. The UK is the most centralized economy in the OECD [Organisation for Economic Co-operation and Development], and it is also the most fragmented in the OECD. We have a huge number of local governments and so on that do their own thing but are not very well integrated.”

Professor Van Ark explained that while some devolution of powers helped, the lack of provincial structures that made layering differing policies at different levels challenging.

He added: “Those three things: chronic, broad-based underinvestment; a lack of knowledge diffusion; and institutional fragmentation, are at the core of why the UK is even worse than other countries.”

Is artificial intelligence the answer to productivity problems?

Professor Van Ark also explained that, contrary to the prevailing belief, artificial intelligence was not currently being adopted as widely as it would appear.

He said: “It is very different from what you hear. Everybody has sort of played around with Chat GPT, but the number of companies that are actually systematically implementing that into their business process is still very, very few, so we have a long way to go.”

However, he added that artificial intelligence could be adopted and used to improve productivity more successfully, but there was some distance to go in this regard.

He added: “What do you need for a successful, productive application of AI. You need the education of the workforce, you need more software, you need good data – because if you don’t have the data, it is “garbage in, garbage out”. So, data is a big, big issue.

“Finally, AI is using a lot of energy, and there is a lot of evidence now that suggests our current computing power is not good enough so we need new technologies – quantum computing for example – that might be energy-saving.”

A group of people watching a screen
Photograph: Ian Georgeson Photography

How can policy help?

Aside from the question of artificial intelligence, Professor Van Ark explained that the correct implementation and coordination of policies was the key to reversing the current trend.

He added that the current system meant that there was a high number of different organisations that have a stake in productivity in the UK. In addition, these are spread across a range of different organisations such as the Treasury and departments for education, transport, housing, climate change and so forth.

He said: “That makes it really hard because it means that the government machinery needs to coordinate policy between these departments.

“It also changes over time so if you get it right, a new technology comes along and you have to rethink it, you have to restructure your policies.”

He added that it is not as simple as copying another country’s approach as there were so many differences in history, culture, and institutional frameworks.

Professor Van Ark closed his remarks by explaining the need for policies not only to be well coordinated, but inclusive too.

“Inclusive productivity growth really means that first we make sure that as many people, places and firms get access to the sources of productivity growth. If you don’t have access to the skills, if you don’t have access to the technology and innovation you cannot begin to think about productivity.

“Then you need to support them in order to make sure that they can effectively and efficiently transform it into better outcomes.

“And finally, you need to make sure that these outcomes are really well distributed, and that if someone puts something in, they are also going to get something out of it. If I put in my skills, I need to see it reflected back in my wages, and unfortunately that is not always happening.

Professor Van Ark said that Scotland was “not doing badly” in some areas as it boasts some highly productive areas of the economy – for example in export intensity and tertiary education,

“There are some other areas where Scotland is not doing incredibly well, so we have a very mixed bag of performance issues in relation to the UK, and we need to think about why it is that we can’t really get the whole thing together.

“There are many contrasts here – some things work well, some don’t. That is not necessarily a problem as that can sometimes be an opportunity, but the problem is that some of the good things are not sufficiently distributed. For example, we have a highly educated workforce, but large parts of the workforce have no skills,

“We need policies that begin to manage that somehow, making structural changes happen but make sure that we take as many people and places along as possible, and that requires stronger institutional capabilities that should allow for continual learning.”

In closing, Professor Van Ark quoted William Shakespeare’s Julius Caesar as a call to action not to miss the opportunities we are presented with:

There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat;
And we must take the current when it serves,
Or lose our ventures.

*An SNP’s Kate Forbes was invited however due to the cabinet reshuffle was unable to attend

Keeping reading more on productivity

Productivity really matters to us all; and is both misunderstood and under-discussed by many. Productivity is a key factor so