Saturday, 7 April 2018

Productivity, Capital, Labour and Profits

Productivity is a major concern for the UK economy and we lag behind many of our European and global competitors.

One of the main reasons for this problem is that when profits are generated by many UK businesses they are squirrelled away in tax havens and re-invested in speculative financial markets in order to avoid or evade a proper contribution to UK taxation. This in turn means that the investment in our capital infrastructure and our capital equipment is severely restricted.

There seems to be a belief in some UK business that instead of investing in new and modern capital equipment we can plug the productivity gap by applying ever-increasing amounts of increasingly cheap labour to our industrial base, ignoring the fundamental economic law of diminishing returns. And when this fails to work we get into the situation we have now where increasing productivity places all of its eggs in one basket, that of reducing wages even further and/or trying to maintain the same output with fewer people.

There is a direct connection between the criminal or morally reprehensible behaviour of corporate tax cheats and the falling productivity rate in the UK and it is a problem which governments must deal with, and very soon, because it will only get worse the longer it is left unaddressed.