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