I think that based on the evidence of economic history, the UK led the world in productivity growth from 1776 to roughly 100 years later. This leadership was based on the invention and widespread diffusion of the factory system starting with cotton, the invention and widespread diffusion of the steam engine and the invention and widespread diffusion of the railway and telegraph systems. The first UK productivity puzzle can be dated from 1870s to the 1940s during which the UK was slow to invest in the disruptive innovations in electricity, oil, chemicals, scientific management and mass production.

The First UK Productivity Puzzle 1875-1948
The results of the first productivity puzzle were documented by Lazlo Rostas, an economist at the Board of Trade, who conducted a comprehensive analysis of UK productivity, using data from 1935 and 1936 , comparing it to the levels achieved in the USA and Germany. The number of employees in manufacturing was given as 5 million in the UK, 6 million in Germany and 10 million in the USA. These figures represent one-fourth of British employment compared to one-fifth in Germany and USA.

The exact figures of average productivity figures per head are:

  • Britain 1935=100
  • Germany 1936=100
  • USA 1935=199
  • USA 1937=227

The greatest superiority of the United States is in the radio and motor car industry, and in iron and steel products where output per head is four times as great as in Britain, and in pig-iron production and machinery, where it is threefold. It is interesting to note that the United States has a superiority in each single industry covered by our sample.

These productivity figures are somewhat surprising taking into account that a large number of the leading British firms had invested in the Bedaux system to improve productivity. But a brief analysis of two popular automobiles on sale in the 1920s (Ford’s Model T and Austin’s 7) suggests that these data were well understood in the 1920s.

The first Austin 7 went on sale in 1922 for £225 and was regarded as the first affordable car for many who had never owned a motor before. With its small frame, large thin wheels, and lightweight body, the Austin 7 quickly took control of the market, becoming Britain’s answer to the ‘Model T’. Total sales 1922-1939 totalled 290,000. In comparison, Ford’s output of Model T totalled 1,911,705 by 1925.

The Dollar / Sterling Exchange rate in 1925 was $4.83 to £1 sterling, the rate which held until the 1949 devaluation (to £2.80). If Ford could have imported the Model T directly from Detroit, the UK price before shipping and taxes would have been £53.80, less than a quarter of the price of the Austin 7! Ford’s attractive pricing for consumers was not at the expense of low wages. In order to increase production volumes Ford had to hire very large numbers of new workers, many of them newly arrived European immigrants. Yet by 1914 Ford was able to pay the highest wages in the auto industry, a staggering $5 a day for a production line worker.

As part of the preparation for the Marshall Plan, Paul Hoffman the administrator of the Marshall Plan expressed great concerns about the ability of the UK economy to use the investments proposed by the USA productivity. As reported by Gottwald, before signing off on the plan, he asked James Silberman, from the US Bureau of Labour Statistics (BLS), to review the current state of productivity in UK and French manufacturing. Silberman’s report, based on visits to thirty-five factories in the automobile, radio, electrical, machine tool, apparel, footwear, and textile industries in May 1948 was presented to Stafford Cripps (by then Chancellor of the Exchequer in the post-war Labour government) and its conclusions were as unwelcome as they were damning.

Silberman conducted a remarkable, highly-disciplined, four-week tour involving visits to thirty-five British factories, and including talks with every level of factory management, notes on products, manufacturing methods, equipment, and presentations to top British officials. On completing the visits he felt he had witnessed an antique world. Expecting to see equipment, processes, and procedures similar to those in the States, he saw instead factories as they were in America at the turn of the century.

Most industrial plants used the already antiquated system of belt-driven machines powered by a central motor. There were few jigs, fixtures, or power hand tools. Fork lift trucks and pallets were rarely available to ease the movement of heavy loads or to save space by vertical stacking of pallets. Even the American-owned GM, GE, and Hoover plants were not appreciably different. The British seemed to have little idea of the progress made by American industry after the turn of the century. Silberman concluded that existing judgment in British industry on the prospect of purchasing new plant and equipment with Marshall aid would result simply in reproducing the existing state of their technology, the continuation of a craft rather than a productivity-oriented society.

Cripps was one of the few politicians with any high-level managerial experience, having served as the Minister of Aircraft Production from November 1942 to May 1945. He was well aware of the need to increase the productivity of UK industries and had already set up the British Institute of Management in 1947. He argued strongly for the Marshall Plan and for active UK participation; this resulted in the Anglo-American Productivity Council (AAPC) which organised a comprehensive programme of visits by UK management and trades unions to a wide variety of American firms. At the end of the AACP in 1952, the Conservative government created the British Productivity Council to continue this productivity work.

Graham Hutton, a well-regarded UK economist was asked to write a brief history of the AAPC which he published in 1953 . In it he enthused that management, workers and government could work together to increase productivity and prosperity, stating that the differences between the USA and UK in productivity matters were primarily cultural. What both he, and the UK Government seemed to have completely ignored was the contribution made by BLS in measuring firm level productivity.

The differences between attitudes in the US and UK to productivity were not cultural, they were differences about the importance of efficiency measurement at the shop floor within the firm, exactly as Taylor had documented. Both the BLS and leading US Manufacturers had learned from Taylor that you can’t manage what you can’t measure, and from their own production experience that ‘the devil is in the details’.

The Marshall Plan and AACP
Stafford Cripps was one of the few politicians with any high-level managerial experience, having served as the Minister of Aircraft Production from November 1942 to May 1945. He was well aware of the need to increase the productivity of UK industries and had already set up the British Institute of Management in 1947. He argued strongly for the Marshall Plan and for active UK participation; this resulted in the Anglo-American Productivity Council (AAPC) which organised a comprehensive programme of visits by UK management and trades unions to a wide variety of American firms.

At the end of the Marshall Plan in 1952, the Conservative government created the British Productivity Council to continue this productivity work. The BPC published a large number of books and training materials focused on Work Study. This term brought together Industrial Engineering which had been traditionally implemented in manufacturing industries since Taylor’s time and the newer discipline of ‘Organisation and Methods’ also known as O&M which was pioneered by John Simmons at Lyons and colleagues in other leading UK Firms and Government. The BPC was active between 1952 and 1980 when it was defunded. The UK approach as measured by the results was measurably less successful than the Productivity Program designed as part of the Marshall Plan as noted earlier. However, long before the abolition of the BPC, Work Study, a key part of the US Productivity Program had almost completely disappeared. It took a Work Study engineer, who had himself made the transition from Work Study to Systems Analysis, to explain what happened the thousands of Work Study engineers and why.

Graham Briscoe’s explanation
Following the delivery of the IBM 1400 series in the early 1960s installations of computers rose very rapidly due to the much lower costs of the entry level IBM 1401. Because Wright’s Law applied to computer manufacturing in the same way as it applied to automobiles and aeroplanes, IBM’s high production volumes of over 10,000 1400 series machines delivered between 1960 and 1970 led to significant cost reductions year on year.

Since IBM shipped between five and ten time more units than any of its competitors, their unit costs were much lower than them. This enabled them to increase market share at the expense of all competitors, many of whom were selling in the hundreds rather than thousands of machines. In the UK this squeeze resulted in the exit of Lyons from the computer industry, by selling to English Electric and later the merger between English Electric, LEO, Marconi (EELM) and International Computers and Tabulators (ICT) to create a new British champion, International Computers Ltd in 1968.

In addition to the dramatic reduction in the price of computers, there was a second unexpected consequence, first identified by David Caminer, who was at the time a senior manager in Lyons Electronic Office, otherwise known as LEO. In his book co-authored with two other LEO alumni (Caminer 1980 ) he identified this dramatic shift in the early 1960s. In the early years of selling LEO, the approach was not to sell the hardware, but to work with the customer to fully understand the business problems that were to be addressed. This approach built on Lyon’s long experience in using Work Study techniques to document and manage their administrative processes which dated back to arrival of the Bedaux company in 1927. The Work Study approach was led by J R M Simmons who had worked as Head of Systems Research at Lyons since 1931 having joined the firm from Cambridge in 1921.

Without articulating it, Lyons had developed a practical implementation of the socio-technical systems approach by bringing together Work Study, which focused on the work-activities and the processes and the new technical computing system provided by LEO. Caminer’s user driven innovation followed this approach by using Work Study techniques to document user processes and nascent systems design methods to develop requirements which could then be coded by software engineers. LEO not only developed the computing hardware, but the systems analysis, programming and operations roles needed to deliver a working application. Once the IBM 1400 series ramped up production, computer sales were taken over by specialised salesman, who focused on the features and benefits of the computer hardware compared to alternative sellers.

Graham Briscoe explained that he was a trained Work Study engineer in the Midlands where he started in manufacturing. He later moved to the insurance industry, but was encouraged by them to convert a Systems Analyst role since they were about to buy a new computer and no-one knew what to do with it! The training as a Work Study engineer equipped Graham to understand the social system that was to be computerised and the systems analysis work was focused on translating the user requirements into a systems specification that could be programmed.

During his career in Work Study and Systems Analysis, Graham amassed a personal collection of more than 400 books on work study , as well as copies of the industry journals, all of which he gave to the Open University. I can remember that when I joined the computer industry as a graduate trainee in 1968 people did mention work study and time and motion but none of us every learned what it was. We were being trained as computer people, either as systems analysts or salesmen by that time.

The Abolition of Technical Colleges
The loss of Work Study practitioners was reinforced by the loss of technical education. The UK had long fallen behind European countries on technical education, but there had been a post-war effort to rectify this by creating technical colleges to provide practical training and knowledge for the large part of the population who did not go to university. These colleges taught the Work Study and O&M curricula which reinforced the work done by the BPC and other institutes so when the colleges finally closed the Work System curriculum was no longer taught.

The Second UK Productivity Puzzle 1948-1979
Graham Hutton, who had written the best-selling book on the Anglo-American Productivity Council in 1953 was asked to write a retrospective paper in 1979. By then, Hutton, who had been so optimistic in the early 1950s was in despair. In a short paper written for the Institute of Economic Affairs (Hutton 1980) he wrote.

Since 1953, in 26 years, Britain has fallen from second place in the economic growth and productivity stakes to 20th place among the 24 leading industrialised nations of the Western or free world. This is a catastrophic performance.

His paper went on to argue that whilst UK manufacturing industries compared poorly in productivity terms with their European competitors, the position of the public sector and services sector (which at that time accounted for 50% of GDP) was even worse. Absence of measurement of public sector productivity and difficulties in measuring private sector services industries suggested little or no productivity growth at all.

The UK did get positive results from the AACP and the Marshall Plan by achieving a higher rate of productivity and growth post 1950 than had been achieved post 1920. The problem was that UK growth rates were half those achieved in continental Europe, and a quarter of those achieved by Japan. According to Hutton output per man-hour in manufacturing industries in 1977 was £2.70 in the UK, £4.50 in France, and a massive £7.10 in Germany.

The UK picture compares really badly with our international competitors. The period from 1950 to 1973 is often called the ‘Golden Age’ of productivity growth. During this period the European economies and Japan recovered from the devastation and debt of the second world war with the American assistance provided by the Marshall Plan in Europe and the US occupation of Japan under General MacArthur. The chart below (Hennessey 2019 ) shows the extraordinary recovery of the European and Japanese economies following WW2. What stands out the most from this chart is the relative performance of the UK compared to its European rivals.

However, as the following chart shows , between the 1950s and the 1970s the UK achieved its highest productivity growth rates for 100 years, and these growth rates were not improved on by the nearly 20 years of Conservative governments from 1979-1997.

The last twenty years have seen the poorest labour productivity growth since the 1890s and 1930s, and this is despite high levels of investment in the internet, own use and custom software packages and widespread fixed and mobile digital communications. So, we can clearly label this period as the Third Productivity Puzzle.

At Opagio, we want to see firms and the economy grow. Use Opagio’s unique Growth Platform to drive Revenue, EBITDA and Valuation growth. Get started now with your free Growth Consultation.
Get started
  • SMEs can only increase real wages and EBITDA based on improving both labour and capital productivity

    By Published On: November 30, 2022
  • Opagio Awarded Innovative and Pioneering UK Smart Grant Award

    By Published On: January 6, 2022
  • Help Save the Hospitality Sector

    By Published On: May 6, 2021