Wednesday, 17 August 2022

Getting it right whilst still being spectacularly wrong


Once upon a time, I found myself trying to drive through a major investment in IT with the intention of improving the productivity of software development in the company where I worked at the time. Somehow, I had to persuade the big boss that the investment was going to produce the returns to justify it, and it wasn’t an easy task. Partly, that was because of the difficulty in measuring productivity in the first place. In principle, ‘productivity’ is easy enough to calculate. It’s simply a question of dividing output by input: the more output you get from a given number of person-hours/ salary costs, the more productive the team is being. Whilst the input is easy enough to measure, the output from software development is a much more difficult task. ‘Lines of code’ is a simplistic approach, but any experienced coder (using the tools available in the 1980s) would know that the number of lines of code required for a given functionality is variable, depending on skill, knowledge and experience, and that some of the best coders wrote fewer lines of code to achieve the same result. Obviously that didn’t mean that they were less productive; generally it meant the reverse. And then, how about accuracy? If the working definition of an operational piece of software is code with all the obvious errors removed, how do the remaining errors (and there were always some, in those days at least) impact on productivity? But the difficulty of measuring productivity was only part of my problem; the biggest part was convincing said big boss that we couldn’t just stand over people with whips (almost literally what he said to me) and force them to work harder, thus achieving the desired improvements whilst avoiding the capital spend.

This week, Liz Truss, who clearly comes from the same school of management as the afore-mentioned big boss, has proved that even the most obtuse politician can sometimes get something more or less right. She is right to draw attention to the poor level of productivity in the UK economy, and right to point out the regional variations in productivity, which appear to show that London has the highest productivity levels. She has, however, rescued her reputation for ideology-led ignorance by getting her diagnosis (people outside London don’t work hard enough), and her solution (bigger whips) so spectacularly wrong. We should be seriously concerned that someone so divorced from reality could ever get anywhere near the levers of power.

The main driver of improved productivity is investment, and the reason that the UK has such a poor level of productivity compared to most other developed economies is because there has been such a low level of investment in recent decades. That in turn has been led by an emphasis on short-term profits, cost-cutting, and asset-stripping. A UK economy which used to be led by people who knew what producing and selling stuff was all about has been replaced by one where everything is about short term returns; a Conservative Party which used to be in tune with productive industry now dances to the tune of the hedge funds and private capital asset-strippers. For sure, profits can be increased in the short term by stripping out costs, leveraging balance sheets, reducing standards and bearing down on the terms and conditions of employees (maybe even by wielding bigger whips), but the extent to which that is possible is limited, and the longer term damage caused by a failure to invest is immense. That lack of investment, in turn, is a direct result of modern Tory ideology, whether applied by Thatcher, Blair or whoever – and the problem doesn’t go away by simply doubling down on the ideology. Or improving whip manufacturing.

The regional differences aren’t all they appear either. That takes us back to the first of the problems I referred to earlier – how to calculate output, in order to measure productivity. There’s a useful explanation here of the three different ways of calculating GDP (which should all produce the same answer), and one of those simply adds up the total of wages and profits in the economy. One of the consequences of that is that a CEO based in London and paid £2 million per annum ends up contributing the same to total output as 50 widget makers, each paid £40,000 per annum, employed in his company’s factory in Wales, despite the fact that the CEO, personally, produces precisely nothing. Since London is often the location for head offices and senior staff, it will almost inevitably appear that London therefore has a higher economic output per head than the rest of the UK – but much of that ‘output’ is, in effect, simply being transferred (some might even argue, ‘stolen’) from elsewhere in the UK. What Truss is telling us is that the widget-makers of Wales (and elsewhere in the UK) add little of value to the economy, especially compared with the bankers, head office staff, hedgies, speculators, and gamblers of London. Truss and her Britannia Unchained colleagues are arguing that the problem is that the widget-makers are just indolent and need a damn good kicking; a rational economic analysis would be asking whether we’re really valuing different economic activities in a sensible way.

No comments: