Sunday, June 23, 2019
Our export prospects can burn bright - as long as we dodge a no-deal Brexit
Posted by David Smith at 09:00 AM
Category:

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

What will lift us out of the doldrums, this period of very weak growth and flatlining productivity Britain’s economy is stuck in? It will not, I judge, anything to do with Brexit. A survey of economists by Consensus Economics shows an average expectation of 1.35% growth this year and next, even in the context of a “smooth” Brexit; leaving under a withdrawal agreement,

A no deal Brexit would see growth drop below 0.5% next year, according to the survey, which was carried out among the 37 economists on Consensus’s UK panel, a prediction that is likely to encompass a technical definition of recession – two consecutive quarters of falling gross domestic product. Some are rather gloomier than that. Even the most optimistic outcome, no Brexit at all, only lifts growth to an average of 1.63% next year.

Confidence in the political system has been badly damaged – and a dispiriting Tory leadership contest has made things worse – so while there is certainly plenty of pent-up investment as a result of the clouds over the economy of the past three years, businesses will be cautious about unleashing it until they are sure they are on solid ground.

The backdrop to this malaise is that we are in a period of rapid technological change which ought to be having a positive effect on growth and productivity. Machines can do things better than ever and we have barely scratched the surface of what they may be able to do in the future.

A couple of decades ago, fewer than 10% of UK households had internet access, and clunky dial-up access at that, smartphones and tablets were yet to appear, and the vast majority of communications were by surface, or “snail” mail.
In two decades time, we will regard the way we live now as quaintly old-fashioned.

Artificial intelligence and robotics will be the norm, as will driverless, low-pollution cars. Driving a diesel or petrol car will seem as anachronistic as smoking in the office does now. And there will be technological changes which at the moment are only twinkles in the eyes of futurologists.

Technology can and should be an important driver of productivity, and thus prosperity, and as new research to be published this week demonstrates, an important driver of trade. Trade and economic openness is, of course, one of the ingredients of rising productivity and prosperity.

KPMG, in its Economic Outlook, due to be published this Thursday, devotes a special section to technology and trade. As it describes it: “Investment in innovation and technological change can drive a step-change in trade and an acceleration of trade growth in post-Brexit Britain.”
It looks at three scenarios, which it describes as “technology convergence” – its central scenario – the more optimistic “high connectivity” and a less promising “robotics and reshoring”.

To summarise these in brief, technology convergence will mean lower transport costs, widespread use of 3D printing, fully-automated and vertically integrated manufacturing and an increasing share of services in global trade, which will benefit Britain, which has a competitive advantage in services.
High connectivity, according to KPMG, implies “advances in communication technologies, such as the internet of thing …. advances in mobility and autonomous transportation lead to lower costs and greater efficiency in logistics … service sectors would benefit too, particularly from improved digital communications, service would increasingly become more tradable”.

As for robotics and reshoring, the least optimistic outlook, this would allow the use of technology, including £D printing, “to move the production of customisable components closer to their customers as digital information flows replace the transport of manufactured goods”.

All three offer considerable promise for exporters, even in the context of Brexit, according to the research. Export volumes to the Asia-Pacific region over the period 2019-50 would average 3.9% a year under the low scenario, 5.5% under the central outlook and 6.6% under the high scenario. For exports to North America, the figures are 1.8%, 3.1% and 3.8% respectively. For Europe, under the assumption of a smooth Brexit which does not hinder trade they are slightly better, 2.2%, 3.4% and 4.1% respectively.

(More...)
Sunday, June 16, 2019
Johnson's dead cat tactics on tax and a no-deal Brexit
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Now that Boris Johnson has decisively won the first round of the contest among Tory MPs, and is runaway favourite to win among the membership, we have to take seriously the prospect of a Johnson premiership. In this strange tribal mating contest, in which those who have the biggest and most colourful tail feathers to shake do best, he will be hard to beat.

There are two things that, so far, define the Johnson pitch. One is a stonking great tax cut for higher-rate taxpayers, by means of raising the basic rate limit, the higher rate threshold, from £50,000 to £80,000. On its own, when fully in place, that would cost £20bn a year, but about half would be clawed back by increasing the National Insurance ceiling. People with earnings in that bracket and above would see their marginal rate of income tax and NI in that range, currently 42%, drop to 32%. This is a huge tax cut for the better-off.

The other main feature is his willingness to embrace a no-deal Brexit. The scale of Johnson’s first round victory and the defeat of a cross-party (but Labour-led) bid to rule out no deal has seen those who follow these things in the City raise the probability of a no-deal Brexit on October 31 from 10% to around 25%. Sterling slipped as a result.

There is still a belief in the markets that Parliament find a way of avoiding a no-deal Brexit, even if it means a vote of confidence and a general election under the new leader. That, for the markets and for business, might be just an out of the frying pan and into the fire moment. They, to slip into the kind of phrase beloved of the new Tory leader, would have no obvious way of steering between the Scylla of a Johnson no-deal government and the Charybdis of a Corbyn administration.

The question, as always with Johnson, is how seriously we should take the things he is saying. Indeed, a possible explanation was provided by the man himself, six years ago, when he was London mayor. Writing about a European Union proposal to put a cap on bankers’ bonuses, he said it was purely a distraction, a “dead cat” strategy.

Borrowed from the “rich and fruity vocabulary of Australian political analysis”, as he put it, the best thing you can do to divert attention is, as Johnson’s Australian friend put it, is “throwing a dead cat on the table, mate”. The key point made by the Australian friend, who I am guessing is Lynton Crosby, who has successfully managed campaigns for Johnson, is that instead of focusing on other things, everybody will be saying: “Jeez, mate, there’s a dead cat on the table!”

On this view, Johnson’s proposed tax cut, together with all the talk of a no-deal Brexit, are not only aimed only at the narrow electorate of Tory members, but are also dead cats.

The more that people focus on the tax idea, and whether it is fair and affordable (no in both cases) the less that people will concentrate on his record as foreign secretary and a list of foibles as long as both of your arms. Similarly with no deal. There is, as the writer George Trefgarne has suggested, a clear parallel with the infamous £350m a week on the side of the bus in the referendum. It was wrong, and everybody knew it was wrong, but the more that people concentrated on it, the less that other issues got the scrutiny they deserved.

Johnson is not the only one using the dead cat strategy. When Michael Gove pledged last weekend to replace VAT with a version of the purchase tax it replaced when the UK joined the European Economic Community in 1973, it looked like a pretty obvious diversionary tactic.

The risk of all this money flying around in the Tory leadership contest, a combined £84bn, is that it threatens to make even Jeremy Corbyn and John McDonnell look like models of fiscal prudence.

But I am guessing that nobody seriously expects them ever to be implemented, either because they would never get through the House of Commons – ask Philip Hammond about his experience of securing parliamentary approval for even mild controversial measures – or because once the deceased feline has served its purpose, it will be quietly buried.

(More...)
Sunday, June 09, 2019
As growth stagnates, we yearn for the go-go days of the 80s
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Sometimes these days it feels a bit like the 1980s. Younger readers will not know, and older readers need reminding, that back then the toll of jobs being lost, mainly in industry, was sufficient for ITN’s News at Ten, to be able to run a nightly map.

The headlines for manufacturing jobs are bad again. Ford’s announcement of the closure of its engine plant at Bridgend, a town I know, will be devastating for the up to 1,700 people whose jobs are directly affected and the thousands more in the supply chain.

Similar considerations apply to the 4,000 jobs directly at risk at British Steel in Scunthorpe, and the 3,500 that will go with Honda’s closure of its plant in Swindon. In both cases, supply chain job losses will add to the woe.

I would not overdo the comparison. The manufacturing shake-out in the 1980s had a much more immediate effect and was much larger in scale. In those days, partly because of demographic factors (the baby bulge of children born in the 1960s) a decent rate of economic growth was associated with high and rising unemployment. There was even a productivity miracle. These days, weak growth is accompanied by very low unemployment and there is no productivity growth. Either despite or because of this, or because of the deep visions in the country, we appear to be nostalgic for the 1980s. A YouGov poll a couple of days ago showed that by 37% to 28% people think life was better then than now.

In the 1980s, importantly, there was a free trader rather than a protectionist in the White House. And back then Margaret Thatcher was instrumental in creating the European single market, providing a greatly expanded home market for British business. Currently, of course, her Conservative party is trying to navigate how to take us out of the single market.

I think of the 1980s because there was a regular debate, certainly in the first half of the decade, about whether growth was petering out. Those worries were largely misplaced; there were four years in the 1980s when growth exceeded 4%, including 1983 and 1985, and the average over the 1982-9 period was more than 3.5%. This was a period when, notwithstanding those manufacturing job losses, the economy rediscovered its dynamism. We got out mojo back.

Now, concern over whether growth is petering out is more justified. Last week saw the publication of the three purchasing managers’ surveys for manufacturing, construction and services. Two of them, for manufacturing and construction,
showed a drop below the key 50 level, pointing to sectors which are contracting.

The other, for services, picked up marginally to 51, but this is consistent with barely any growth. The UK economy, according to these surveys, is performing worse than the eurozone.

And, according to Chris Williamson, chief economist at IHS Market, which produces the surveys, they are consistent with an economy that “remained broadly stagnant midway through the second quarter”. There was a similar message last weekend from the CBI’s growth indicator.

Spring definitely has not sprung, according to these surveys, nor on the basis of other evidence. After a surprisingly strong first quarter for consumer spending, a 0.7% quarterly rise, the British Retail Consortium suggests retailers are struggling, while private new car sales are down on a year ago.

For business, the deteriorating global environment, partly because of Donald Trump’s trade wars, is a constraint on exporters, though we should not expect a repeat of the surge in imports in the first quarter to beat the original March 29 Brexit deadline.

(More...)
Sunday, June 02, 2019
London bankrolls the rest of the UK - and that's not healthy
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Today I want to talk about something, based as always on statistical fact, that is guaranteed to raise the hackles. If you live in London and the southeast you will be even more convinced that your taxes are subsidising the ne’er do wells in the Midlands, the North, Scotland, Wales, Northern Ireland and even parts of the South.

If, on the other hand, you live in those other regions and countries, you will be confirmed in your view that the UK economy is dangerously London-centric and tilted towards the gilded south-eastern corner of the country, a situation that urgently needs tackling.

The figures, from the Office for National Statistics, released a few days ago, show that in 2017-18, the latest fiscal year for which this kind of detail is available, London ran a fiscal surplus, a budget surplus, of £34.3bn. Taxes raised in London exceeded public spending in London by a very large amount.

London has the biggest fiscal surplus, followed by the southeast, the capital’s hinterland, which in 2017-18 had a budget surplus of £20.4bn, The East of England, also influenced by the London factor, also had a surplus, albeit smaller, £5.9bn.

Outside these three parts of the UK, which together account for just under 37% of the national population and 16% of its land area, everywhere else runs a budget deficit. The biggest is in the north-west, £20.9bn. Scotland, based on a geographic share of North Sea revenues, had a deficit of £13.3bn in 2017-18, slightly smaller than that for Wales, which of course has a smaller population, which had a deficit of £13.7bn. Northern Ireland’s fiscal deficit was £9.2bn.

To be fair to the north-west, its large deficit partly reflects its size of population. On a per capita basis, the largest fiscal deficit per head in 2017-18 was Northern Ireland, £4,939, followed by Wales, £4,395, and the north-east, £3,667, the north-west, £2,884, and Scotland, £2,452. In all these places taxes raised fell short of public spending by thousands of pounds on average for every person.

But to also be fair to London, the south-east and the East of England, much of the recent improvement in the public finances would not have happened without their contribution, There were big improvements in the fiscal positions of London and the southeast between 2015-16 and 2017-18, while deficits were becalmed in many other regions. London and the southeast did the heavy lifting.

That is enough figures. What does it mean? We are a single country, the UK, and as such very good at redistributing these surpluses and deficits. The taxes raised in London and the southeast make possible higher spending on public services, and on benefits and tax credits, in the rest of the country.

Just to illustrate that, in 2017-18, London’s tax take was £150.1bn and the southeast’s £121.4bn, a large chunk of the UK total of £753.1bn. The UK’s average revenue per head was £11,434, figures greatly exceeded by London, £17,090, and the southeast, £13,427.

Before coming on to what all this means, let me address a couple of urban myths. One is that, because London is awash with civil servants, it is not surprising that it has an economic advantage over other regions.

It is not true. London has just over 80,000 civil servants, less than a fifth of the national total, and dependence on public sector employment is typically higher elsewhere. Past regional policy involved the dispersion of civil service and other public sector jobs to the regions. This has proved to be something of a double-edged sword in recent years. In the period since 2010 roughly half a million public sector jobs have been cut.

Myth number two is that London gets the lion’s share of infrastructure spending, without somehow paying for it. It is true that the capital has dominated infrastructure spending, on the far from irrational grounds that an international city like London has to be seen to be working, and has seen a lot of spending, from the Olympics through to the yet uncompleted Crossrail project.

This spending is, however, included in the figures. So far this century, London has the third highest spending per head, including capital spending, in the UK, after Northern Ireland and Scotland, but has continued to run a fiscal surplus, because of its higher tax take. The southeast and the East of England, incidentally, both fiscal surplus regions, have the lowest public spending per head.

So what is it? Many years ago, researching a book, North and South, I tracked the decline of regional headquarters, in favour of London. Companies that used to have their headquarters close to their production facilities, in Leeds, Manchester, Birmingham, Liverpool, Glasgow, Cardiff or Belfast, no longer did so, in many cases because those production facilities had been moved offshore. This “headquarters effect” boosts London’s tax take at the expense of the rest of the country. In that respect, perhaps, the streets of the capital are paved with gold.

It is part of a wider phenomenon. The City of London is a huge generator of tax revenues and the combination of financial centre – the biggest in Europe – commercial centre and seat of government guarantees the dominance of London and its hinterland. In America the financial centre, New York, is different from the seat of government, Washington, as it is in Germany, with Frankfurt and Berlin. France is Paris-centric and Italy Rome-centric for the same reason that the UK is London-centric.

Can and should anything be done about it? Brexit, according to the government’s own cross-Whitehall assessments, will widen the regional divide rather than narrowing it. It will hurt the fiscal deficit regions of the Midlands and North, as well as Wales, Scotland and Northern Ireland.

(More...)
Sunday, May 26, 2019
When China sneezes, the world catches a cold
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

It is said that we owe to Metternich, the distinguished 19th century diplomat, one of the most famous phrases used about the global economy. In an era when Europe dominated the world economy, he came up with: “When France sneezes. Europe catches a cold.” That was easily adapted, with the rise of the United States, to: “When America sneezes, the world catches a cold.”

It remains true today. The sneezing fit that began in America’s housing market in the 2000s gave us the global financial crisis of 2008-9.

There is, however, another country we should worry about in the sneezing stakes, highlighted by the Organisation for Economic Co-operation and Development (OECD) is in latest economic outlook. China’s rise is not new, but it is still easy to understate its importance to the world economy.

China’s gross domestic product at market exchange rates is about two-thirds of that of America, and ranks as the second biggest economy in the world. The EU, if counted as a single economy, slots in between the two. On a purchasing power parity basis, adjusted for relative prices, China’s economy is the biggest in the world and more than 20% bigger than America. On that basis, incidentally, the EU economy is 7.5% larger than the US.

The OECD, which revised down its growth forecast for the world economy to what it described as a sub-par 3.2% - its forecasts for Britain are for 1.2% growth this year and 1% next, on the assumption of a smooth Brexit – cited weak import growth in China as a key factor in the downturn in world trade.

Amid Donald Trump’s trade war with China, which has taken its toll on trade flows between the two countries – both export and import volumes are showing annual percentage falls in the mid-teens – there is plenty of collateral damage. China’s reduced appetite for imports is hitting Europe, and in particular the export powerhouse of Germany, as well as Japan and other Asian economies.

It is being felt in Britain. Though it is easy to mock Britain’s export performance in China – Germany sells four times as much – exports have been rising, to £18.5bn for goods and £23.1bn for goods and services last year. China is still a smaller export market for Britain than Ireland, along with America, Germany, the Netherlands and France, but the value of exports to China last year was almost three times the level a decade earlier.

China is, of course, a prime source of imports for Britain, £44bn last year for goods alone, and last year’s goods and services deficit with China was a chunky £22bn.

But the Chinese economy matters for exporters, could matter much more in the future, and it matters a lot for some now. Jaguar Land Rover’s £3.6bn loss for 2018-19 including special factors, was for a range of reasons. High among them was the drop in sales as a result of what it described as “the backdrop of a weaker China market”.

That, as far as JLR is concerned, is putting it mildly. Last month it saw sales in Britain up 12.1% on a year earlier, with US sales up 9.6%. But sales in China were down by a staggering 45.7% on a year earlier, contributing to an overall fall in sales of 13.3%.

The White House’s additional tariffs on Chinese imports will cost the average American household $831 (£660 a year), according to research from the Federal Reserve Bank of New York. The OECD is not alone in calling for an easing of trade tensions, which are taking their toll, to put the global economy back on track.

There is a wider point, also highlighted by the OECD. As it says: “The post-World War II process of globalisation driven by multilateral agreements that allowed ever-increasing trade openness is being challenged.”

When Brexit and Trump’s election victory happened within a few months of each other in 2016, it represented a lurch towards protectionism. The US president was explicit on taking over; “protection will lead to great prosperity and strength.” In each case, however, the tide of globalisation had already begun to ebb. It is not clear, even as the economic costs of trade wars rise, that attitudes will change.

After many decades in which the growth in world trade had been seen to lead global economic growth, the period since the crisis has seen trade struggle to keep up. Protectionism had increased before Trump came and along with other factors such as the availability of export credit, reduced trade growth. The US president was more explicit but was going with the flow, particularly towards China.

Attitudes to globalisation, meanwhile, had shifted. The boost to consumers from cheap Chinese imports, which at one time used to be seen as a key practical benefit of globalisation, gave way to concern, though many years too late, about the loss of traditional manufacturing jobs.

Where do we go from here? It would be naïve to think that an outbreak of sweetness and light between America and China is on the cards, even if the current trade dispute is would down. Google has been forced to restrict Huawei’s access to some of its apps and updates. The battle for control of the 21st century knowledge economy is joined.

For China, which had already seen a growth slowdown from an average of 9.5% a year since the late 1970s to roughly 6% now, this is the first serious challenge to tis rise. The poster-boy of globalisation is adjusting to a world of de-globalisation.

(More...)
Sunday, May 19, 2019
EU workers are returning - but maybe not for long
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Every so often some figures come along which change your perceptions. This happened a few days ago. We have got used to the idea that the number of European Union nationals working in Britain has been falling. Indeed, this fall has contributed to a tight labour market and recruitment difficulties across many sectors.

So, for example, during the course of 2018 there was a 61,000 drop in the number of EU nationals working in Britain, and the total was down by almost 90,000 from its 2017 peak. Having risen by an average of nearly 140,000 a year since 2004, this drop in the number of EU workers represented quite a turnaround.

That was the story, and it chimed in with what businesses have been saying. It was a surprise, therefore, when official figures last week showed that, far from falling, the number of EU workers in Britain recorded a rise of 98,000 in the year to the first quarter. This meant, incidentally, that the cumulative rise in the number of EU nationals working in Britain since just before the referendum is 237,000, to the current total of 2.38m.

It was driven in the past 12 months by workers from Romania and Bulgaria, up by 70,000 over the year, with smaller rises of 9,000 in so-called EU8 workers – those from Poland, Hungary and the other countries which joined in 2004 – and 14,000 in workers from the longer-term EU14 Western European EU members. But it was a rise nevertheless. Does it mean the tide has turned?

Before answering that question, it is worth rehearsing why EU workers have been such a benefit for the UK economy. They have a high employment rate; 82.7% of EU migrants of working age are in jobs compared with 64.8% of non-EU foreign nationals in Britain.

They have not prevented a rise to record levels in employment levels and rates among UK nationals, have had a zero to minimal impact on wages for indigenous workers, and have been net contributors to the public finances, paying more in than they take out. Though freedom of movement has become toxic in the Brexit debate, it has been one of the great advantages of EU membership for this country, filling important gaps in the labour market.

If there is a concern about the latest figures, taking them at face value, it is the change in the mix of EU workers. Not to impugn Romanians and Bulgarians, but many of them find themselves in lower-skilled jobs, for which they are often overqualified, than earlier waves of EU migrants. Those lower-skilled jobs need to be filled but the contribution of these workers, including to the public finances, is proportionately lower.

The question is whether we should take the figures at face value, and I have to say that I smell a bit of a rat. The figures for EU nationals working in Britain are not seasonally adjusted, so have to be interpreted with care. There has in the past sometimes been an increase in the number of EU workers in the UK in the first quarter of the year, perhaps reflecting the fact that firms seek to recruit for the year in the early months.

This year, however, the jump was exceptional, 107,000 between the final three months of 2018 and the first quarter of this year. It contrasted with a quarterly fall a year earlier. It was entirely responsible for the turnaround.

What was going on? The Office for National Statistics has identified no special factors in the rise. It seems to me, however, that we might have seen the human equivalent of pre-Brexit stockpiling. Firms, in other words, rushed to recruit ahead of the initial March 29 Brexit date and EU nationals, keen to establish a foothold in the UK labour market, were keen to be recruited.

March 29 has come and gone and so might this temporary blip in the number of EU workers in Britain. It would be better if this were not so but normal service, in terms of a fall in the number of such workers, seems likely to be resumed, for familiar reasons. EU nationals feel less welcome, are uncertain about their future status and have suffered a pay cut measured in their own currencies because of sterling’s weakness. There are also often better opportunities closer to home.

(More...)
Sunday, May 12, 2019
There's no need to sacrifice growth to save the planet
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

It is hard to get away from climate change these days. Most people would agree that it is a bigger issue, certainly for the long-term, than the one that has been unnecessarily preoccupying us for the past three years. Parliament has trouble agreeing on much these days but it has this month declared “a climate emergency”. The Environment Agency has warned that entire communities may have to be moved because of flooding and coastal erosion.

Climate change is also actively affecting policy. The Scottish government has just cancelled a planned cut in air passenger duty, because reducing the cost of flying would run counter to its ambition of making Scotland a zero-carbon economy before the middle of the century. In a different political environment, Philip Hammond could use the same logic to end the long freeze on fuel duty, which has lasted all this decade.

That we should be concerned about climate change is not in doubt, and it did not take the recent Extinction Rebellion protests to create that concern. Sir David Attenborough tops the list of Britain’s national treasures and his warning of a climate “catastrophe” in his BBC programme, Climate Change – The Facts, had a big influence. As he put it, we face “irreversible damage to the natural world and the collapse of our societies"

Not all of the problems of the natural world.are due to climate change, but many are, and last week’s report from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES made for sobering reading.

Around a million of the world’s 8m plant and animal species (5.5m of which are insects), face extinction. Three-quarters of terrestrial environment and two-thirds of marine environments have been “severely altered” by human intervention and there has been an 85% drop in wetlands in the past thee centuries.

According to Sir Robert Watson, the chairman of IPBES: “The health of ecosystems on which we and all other species depend is deteriorating more rapidly than ever. We are eroding the very foundations of our economies, livelihoods, food security, health and quality of life worldwide.”

This is not something, in other words, we can ignore. There is a feedback loop from the natural environment to economic activity and prosperity. It is not a question of the economy or the environment; the two are intimately linked. A report on Thursday from the Institute for Public Policy Research’s Centre for Economic Justice declared that “environmental breakdown has reached a critical stage” and added: “Our current economic model is fundamentally unsustainable.”

Is it? Sometimes in this debate there is a crude lesson drawn on economic growth and the environ-ment, which is that the only way of saving the planet is by giving up on growth. Not many sensible people say this explicitly but many activists do, and it is not far below the surface even in some of the heavyweight reports. The IPBES notes a 15% increase in global per capita use of materials since 1980 as one of the factors behind environmental degradation.

It is, however, plainly the case that you can both have economic growth and do right by the planet. The UK’s expert committee on climate change, in a recent report, noted that there has been a 44% reduction in Britain’s greenhouse gas emissions since 1990, alongside a 75% increase in real gross domestic product. Economic growth and reduced greenhouse gas emissions have gone hand in hand.

Britain has had a better record than most, but in the first 15 years of the current century there were more than 30 other countries, mainly advanced industrial countries, which combined economic growth with falling emissions.

Those following this debate will be aware that the official way of measuring greenhouse gas emis-sions is not the only one. The young activist Greta Thunberg told MPs last month that Britain was guilty of “creative carbon accounting”. What she meant, I think, is the reduction in emissions since 1990 is on a production basis.

(More...)
Sunday, May 05, 2019
Robots aren't destroying jobs, but nor are they boosting productivity
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

The future is, by its nature, something that is yet to happen. In some ways though, what we think of as the future – things like artificial intelligence (AI) and robots – are already with us. So, without wanting to sound like some terrible advertising slogan, the future is now, and that allows us to make an early assessment of its impact.

To pessimists, new technologies like AI and robotics are always going to be a destroyer of jobs on a vast scale. People will be replaced by machines that, in many cases, will be a lot smarter than they are.

I have always argued, by the way, that while some jobs might be replaced by machines employment would not be. Technology would in future create as many jobs as it destroyed, if not more. It is not the best example but the cottage industry that has grown up to replace smashed smartphone and tablet screens, and can be seen in every high street and shopping centre around the country, clearly would not exist if there were no smartphones and tablets.

The optimistic argument about AI and robotics goes a lot further than “they won’t bring mass unemployment”. The argument here is that these technologies will unleash a period of strongly rising productivity and prosperity, shaking us out of our post-crisis lethargy and into a much brighter and better future. The march of the machines, in other words, should be something we welcome with open arms.

As it happens, a couple of new reports, one from the Organisation for Economic Co-operation and Development (OECD), its latest employment outlook, and the other from the Chartered Institute of Personnel and Development (CIPD) speak to this very subject.

The OECD’s outlook is called The Future of Work and goes into every aspect of the labour market effects of new technologies. It notes that we are in an era of more rapid diffusion of technology. In America it took seven decades for the proportion of households with landline phones to rise from 10% to 90%, while for mobile phones it took only 15 years, and for smartphones eight years. Business spending globally on information and communication technologies (ICT) has risen rapidly and there has been a fivefold increase in sales of industrial robots this century.

Across the 34 members of the OECD, 14% of jobs are said to be at high risk of automation and 31.6% at risk of significant change as a result of new technologies. For the UK the figures are 11.7% and 26% respectively. “The manufacturing sector is at high risk, but so are many service sectors.” It says. “And, even though the risk of automation is low in health, education and the public sector – many people will be affected because those sectors employ a large share of the workforce.”

On automation, the OECD agrees with me that we should not confuse the risk to individual jobs with the risk to overall employment. As it puts it: “Despite widespread anxiety about job destruction driven by technological change and globalisation, a sharp decline in overall employment is unlikely. While certain jobs may disappear, others will emerge, and employment has been growing overall.”

This does not mean we can relax entirely. People will need help, and training, to transition out of the jobs that are being replaced by machines and into new ones. Some workers, and some regions, are at greater risk. Young people, particularly those with no post-school education, are at the greatest risk says the OECD.


The CIPD, in a survey carried out with PA Consulting, found that a third of 759 businesses it questioned had invested in AI and automation over the past five years. The employment effects were, contrary to fears, positive; 35% saw more jobs in the areas affected, and 25% less. By nearly three to one, 44% to 18%, employers said AI and automation had made jobs more secure. Among employees, more than half, 54% said these new technologies had not helped them do their job better. There was little evidence that AI and automation were associated with significant productivity improvements, which the CIPD puts down to “lack of thought and planning on how people and technology are working together”.

It is, as I say, early days but it is fair to draw some initial conclusions. There are sector like retailing, which saw a 2.4% drop in employment in the year to the first quarter, where an effect on jobs from automation, such as customer-operated checkouts, can be detected, though separating that from other factors affecting jobs is difficult. In Northern Ireland I came across a firm that had no alternative but to automate because of the loss of EU migrant workers. I am sure there are many others.

(More...)