Brash, globalised, unequal and deeply indebted, the Premier League has often seemed a relevant metaphor for Britain’s economic model. And when it comes to international competitiveness our footballers too seem to have contracted the British disease of weak productivity. Between 2005 and 2012 there was a British representative in the Champions League Final in every season bar one. Since 2012 however, not a single British team has graced European football’s elite denouement with only plucky Leicester City competing in this year’s last eight. As for the international game: forget about it. England’s last tournament venture saw it humiliated by Iceland, a country with less registered footballers than the city of Coventry.
Sadly, our performance in the productivity league is, if anything, even worse. Fortunately, the G7 doesn’t currently operate a relegation system but if it did then rest-assured Britain would be in danger of the drop. Of the top-tier countries only Japan churns out less output per head, whereas title contenders such as Germany, the U.S and France produce over 30 per cent more per hour. In fact, France could even afford to implement socialist Presidential hopeful Benoit Hamon’s four day week and still create more output than we do here in Britain.
Of course neither of these problems can be solved by a single issue silver bullet. Both our firms’ and our footballers’ failings are stories about the marginal gains lost to wearily familiar difficulties. For weak skills, crumbling infrastructure and low investment in the economy, read schedule burnout, tactical naivety and poor youth development in football. Nevertheless, there is one issue – call it the ‘Roy Hodgson problem’ – that may be strangely relevant to both. Management.
Few economists now contest the idea that management is a significant component in Britain’s productivity puzzle. Indeed, according to John van Reenen of the London School of Economics it may even account for half our productivity gap with top performers like the U.S. The football metaphor holds too (well, sort of). Yes, British clubs under foreign management continue to struggle in Europe but foreign managers now exert a total dominance over the domestic Premier League. Put aside Sir Alex Ferguson, a one man statistic-skewer, and you have to go all the way back to 1995 to find a British winner (Kenny Dalglish with Blackburn Rovers). Amazingly, since the competition’s 1992 inception it has never been won by an English manager.
This lack of managerial nous was the tricky terrain navigated by Sir Charlie Mayfield, Chair of the John Lewis Partnership, as part of a government commissioned review. And central to his findings is the revelation that productivity dispersion in Britain is more unequal than in other developed countries (see Fig One). In other words, here we have more laggard firms bumping along the bottom and a stronger cluster of super-productive high performers near the top. Crucially however, this ‘long tail’ distribution curve applies even when accounting for sectoral and regional variation – this variation can’t be explained by the traditional economic rebalancing narrative. Poor management therefore, does seem a more plausible explanation and with that must come an urgent conversation about how to spread good management between firms.
Undoubtedly, this is a useful initiative – and the Government was right to commit around £15m investigating it at the last Autumn Statement. However, it also rather oversimplifies the complex nature of the ‘Roy Hogson problem’. For it is clearly not possible to divorce a firm’s management culture from its economic context: the British approach to management is inevitably shaped by our public policy choices on everything from the size and structure of the state, to corporate governance rules and financial regulation. After all, those British managers struggling near the foot of the Premier League may well accept they could learn a lot from Jose Mourinho. Yet they may also wryly point out that a different regulatory environment on issues of financial regulation may result in radically different levels of performance.
That said, one startling piece of data recently published by Andy Haldane, Chief Economist at the Bank of England, reveals just how messily intertwined the questions of foreign ownership, productivity and management have become. Because out of every measurable factor – region, sector, export status, innovation, firm size and debt leverage – it is foreign ownership that demonstrates the strongest relationship to better productivity dispersal (see Fig Two). That is to say, without the cluster of high performing foreign-owned companies our productivity would be even more meagre.
For those now negotiating Britain’s new economic relationship with the world this is a chastening reminder of the value of openness. So when, as it will, the cry goes up to restrict foreign ownership and use ‘Brexit’ to back British industry, they would be wise to remember the sort of economy this would produce. Because it might end up, to continue the football analogy, as weak and ineffectual as watching England.
Figure 2: Bank of England – p32-33