Productivity isn’t about who owns but who uses
As so often with the assertions of Will Hutton there’s a gap in the knowledge base here:
This year’s three Nobel prize winners in economics won because they all argue the alchemy of capitalist growth lies rather in “creative destruction” – letting outworn companies with redundant technologies go to the wall while fostering their rapid replacement by young and innovative companies based on the technologies of today or tomorrow.
Troublingly, most of Britain’s top companies 30 years ago are the same as today, and while we generate a multiplicity of young innovative challenger companies, 19 out of every 20 end up being acquired by either home or foreign buyers. Britain is weak at creative destruction; a meaningful budget must plot a way out.
Creative destruction is, of course, the thing and it hasn’t needed this year’s Nobel to prove it either - that’s just the cherry on top of that little cake. But to insert the bit that Hutton isn’t grasping. It isn’t who owns or invents those new technologies that matters to productivity - whether we talk of labour productivity or total factor productivity. It’s who uses these new things that does.
Yes, obviously, it’s nice if an economy harbours an Apple, or whoever it is that makes those weight loss drugs, or that new fangled automobile thing. But what drives productivity - and thus living standards, for as Paul Krugman pointed out productivity isn’t everything but in the long run it’s pretty much everything - is that people use smartphones, get thin and so can work harder, gain transport so that labour sorts into finer divisions.
To step back to an earlier round of that creative destruction, the mobile phone, not the smartphone. That sardine fishermen off Kerala get to use phones is what drives that economic growth stemming from greater productivity. It is the use of phones - allowing markets to complete where previously information gaps did not - which leads to that remarkable finding that mobiles in an economy without a landline network add to GDP. In fact, per 10% of the population with a mobile an astonishing 0.5% on GDP each year.
Back then, sure, Finland gained from Nokia making many of these phones. But that was a trivial effect compared to that half a percent per year - more as market penetration increased - added on to each poor country economy.
Who uses matters, not who makes.
Thus wibbling about who is inventing the new stuff is an irrelevance. What is necessary is to sweep away the rules that prevent anyone from using the new stuff. You know, the usual, kill the planning system, markets red in tooth and claw and sit back and marvel as growth, as if magically, appears.
For the thing is we know, absolutely, that there are already technologies out there that we are not using, or not using properly. Other countries are markedly richer than Britain. Britain is therefore not at that technological frontier. There is that catch up growth that can be done - which is to put to use those techs already invented and out there for us to use.
To repeat, who invents these ways of getting richer, of improving productivity, is interesting in one sense. We’d like to keep the incentives rolling for people to do so and so on. But what actually matters is an economy that puts these new ways to use.
Tim Worstall