Self-employment in the United Kingdom is at its highest-ever level. Productivity growth over the last few years has been dismal. Are these two data points, mirrored in many other developed economies, connected?
Productivity concerns are well-founded. Doing more with less is the only driver of economic growth that matters. Population increases can also boost growth but that is of second-order significance. We have a fetish about exports that is hard to understand. Unless export-led growth is also accompanied by productivity growth there really isn’t much point.
Just why productivity growth has been so abysmal is poorly understood. One theory is that it is down to technological disappointment. The tech revolution promised so much but, when it comes to productivity, has delivered little.
Elusive flying cars
That seems paradoxical: we carry around so much computing power in our pockets; so much can be done now digitally that couldn't be done before. But, as PayPal co-founder Peter Thiel put it, in a disparaging reference to Twitter, "We were promised flying cars but all we got were 160 characters."
Maybe we are simply mismeasuring our economies. The way data for gross domestic product is put together is essentially a method designed to measure physical output. The measurement of the intangible service sector has always been problematic for the bean counters.
The output of the digital economy is even more difficult to measure.When gross domestic product numbers were first produced, manufacturing was the biggest part of most modern economies. Today, barely 10 per cent of total output is from physical manufacturing in economies such as the US or UK.
The problem probably lies with pricing: the exponential fall in the price of things produced by many tech companies, including telephony, might have led to serious mismeasurement of inflation. Deflation might be a much bigger problem than we realise. Using the old-fashioned language of GDP, just what is the "volume" of (or "real") output produced by Google, Facebook and Vodafone?
Rapid self-employment growth is unlikely to be a direct driver of low productivity but it may have contributed to measurement difficulties. But the fact that both total employment and self-employment in the UK are at historically high levels is the flip side to low productivity growth: the economy has created a large number of jobs with relatively modest growth rates. This is absolutely good news for the unemployed (there aren’t that many of them any more in the UK) but is bad news for the longer term – if we are measuring things correctly.
The debate over technology speaks to shifting economic structures whose implications we poorly understand. The productivity slowdown might be temporary. Driverless cars have been much in the news but many people seem to think they are likely to have as much impact as those flying-car promises of old.
Driverless-truck licence
But the US state of Nevada has just granted a licence for the world’s first driverless truck. This innovation doesn’t look likely to end up in the trash bin, as Google Glass did, for instance. In the transportation sector at least, productivity will, if the reality lives up to the hype, explode. Once things become driverless, up to three million Americans could find themselves out of work – that’s how many people drive taxis, trucks and buses in the US.
Driverless cars will lead to more efficient fuel consumption and encourage out-of-town development which could in turn boost overall growth. The motor insurance market could be badly disrupted if the rate of accidents collapses, as seems likely. What will all those drivers and insurance workers do? The answer, I think, is to be found in that other shift, which is beginning to look structural: they will end up reinventing themselves in self-employment. It’s what other technologically disrupted workers are doing.
How best to deal with this? We need to ask ourselves about our culture of entrepreneurship. It is beyond cliche to observe we are not very good at it. How many schools or colleges even teach the basics of how to set up a business? Or even that it might be a really good idea?
