PECM Issue 34 2018 | Page 40

WILL THE GOVERNMENT’S PRODUCTIVITY REVIEW HELP FIX MANUFACTURING PRODUCTIVITY GROWTH? Productivity is an important issue for UK manufacturing and historically the sector has been a strong performer, between 1994 and 2017 manufacturing productivity grew twice as fast (66.1%) as services (31.8%) and the whole economy (31.2%) which helps to explain why average pay in manufacturing is higher than both. In the run up to the financial crisis there was a consistent positive productivity performance across all sub-sectors of manufacturing, however since the crisis there has been significant sub-sector variation year on year. The impact of that is felt when compared internationally, productivity growth ran fast against our competitor countries (notably Germany, Italy and Spain) in the run up to 2009 helping to close the gap on productivity competitiveness levels. However, after 2009 growth in the UK flat lined with the gap reopening. What this signifies is that manufacturing was the main driver of productivity growth and can be again, but getting from current productivity growth rates to back on trend will require a more disaggregated look at factors holding back performance. The BEIS Business Productivity Review looks at some important things that can shift the needle, including technology adoption and leadership and management. However it also needs to look at fundamental characteristics of output-ecosystems/supply chains that could be improved and require government support. A firm level approach will miss these bigger opportunities. Looking at low productivity firms compared to the UK median as the Productivity Review does also masks other factors which are important in determining the productivity growth potential for businesses. In UK manufacturing our analysis of manufacturing sub-sectors suggests, size, source of revenues and export intensity are characteristics which can help to explain differences in productivity for UK manufacturing when compared internationally: Size – with larger companies being able to exploit economies of scale, vertical integration opportunities and with it higher levels of productivity. Our analysis shows sectors with a higher share of larger firms tend to outperform internationally. NEWS Source of revenues – more UK manufacturing sectors undertake ancillary services as part of business operations compared to international counterparts. This means that a manufacturing business, may not be doing just manufacturing. A focus on boosting productivity will be needed in each part of the business. Export intensity – Export intensive firms are more likely to report higher productivity growth. This link partly reflects the fact that competitivenes