1. Introduction
The scope of this paper is to give a broad perspective of the return derived from industrial and commercial productivity in the United Kingdom. A productivity trend is identified in this paper and the sustainability of this trend is assessed. The productivity of the United Kingdom is also compared with that of the United States in order to derive country specific factors. Finally, attention is given to key implications that the factors identified hold to investors and senior managers.
2. Returns Derived from Productivity
Industrial and commercial productivity can provide macro- and micro-returns. Macro-returns are the returns that a whole country or community can derive. A key return generated from productivity is that the country can be more competitive than other countries on particular goods or services (Carayannis and Grigoroudis, 2014). This stimulates foreign entities to invest in this country and also increases the ability of the country to export goods and services that it is productive in. The second return derived from higher industrial and commercial productivity is linked to the increase in the gross domestic product. Gross domestic product can increase due to a number of factors, such as new technology or more government spending (Williamson, 2014). Hariri (2017) posits that productivity growth also provides stronger growth in the gross domestic product. Gross domestic product can be defined as the quantity of goods and services created in a country during a specified time frame (Williamson, 2014). When the gross domestic product increases it leads to economic growth. Economic growth helps to decrease the rate of unemployment and increase disposable income. Higher disposable income positively affects the standard of living of the people because they can start buying more luxury products (Cartwright, 2011). Moreover, it increases the revenue that can be generated by organisations providing luxury goods and services. Harari (2017, p. 3) supports the above claim by stating that productivity is directly related to standard of living and the ability of a country to enhance its standard of living during the years is “entirely dependent on productivity growth”. However, higher disposable income, which leads to better standard of living will have a negative impact on companies that produce inferior products because customers will start preferring to acquire luxury substitute goods and services.
Micro-returns reflect benefits that organisations can derive from better productivity. Horngren et al. (2015) posit that productivity helps the organisation to improve its profitability. This arises because an increase in productivity reflects more units produced from the resources inputted in the production process. Thus, this aids in decreasing the total cost per unit produced (Atrill and McLaney, 2009). Better profitability is also beneficial for investors because it increases the ability of the firm to pay dividends (McLaney, 2014). Moreover, it decreases the risk that the company becomes insolvent. Thus, it helps to decrease the investment risk of ordinary shareholders.
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3. Sustainability of Productivity Trends in the United Kingdom
The productivity level in the United Kingdom has increased significantly from 1971 to 2007 (Harari, 2017). It has decreased during the financial crisis and stagnated after the financial crisis.
Figure 1 Productivity Levels in the United Kingdom.
Source: Harari, 2017, p. 5
Figure 1 shows that there was a rising trend from 1971 to 2007. During the financial crisis (2008 and 2009) the productivity level decreased by 0.9% and 1.6% (Harari, 2017). In 2010 and 2011 there were signs of recovery as indicated by the percentage growth of 1.6% and 0.9%. However, in 2012 and 2013 there was another decrease of 0.9% and 0.4% (Harari, 2017). There was again recovery in 2014 and 2015 (0.6% and 0.9%) but in the third and fourth quarter of 2016 there was a decrease of 0.1% in both quarters (Harari, 2017). Jackson (2018, p. 1) contends that the United Kingdom has “experienced a lost decade of productivity growth”. This is due to the fact that the increase in the labour productivity in the United Kingdom over the last decade is the worst in comparison to previous periods since the 1820s and productivity level is barely above that prior to the financial crisis (Jackson, 2018). Therefore, there is