UK could boost productivity by giving workforce stake in growth

Despite a long-noted ‘productivity crisis’, a new report suggests that the UK is the 16th most productive economy in the world. However, despite generating over $77 per hour worked, that still sees the UK economy lag behind 13 other European nations.

Productivity is said to be the engine of the modern economies – yet traditional modes of measuring it often fall short, failing to capture the complexity of 21st-century challenges like climate change, biodiversity loss, social transformation, and aging populations. To that end, Strategy& has conceived the new Potential Productivity Index (PPI), to help governments understand where their countries perform well, and where they could help yield greater value.

According to Dima Sayess, partner at Strategy& and one of the creators of the index, while many productivity models “focus on the past, analysing historic performance rather than identifying future opportunities,” the new model – developed with the World Governments Summit – aims to expand the understanding of productivity. This means it will also examine metrics including human capital, physical capital, social capital, and natural capital – while factoring in an approach that complements fact-based productivity with ‘softer’ measures of advancement.

“The Productivity Potential Index really redefines how productivity is measured, integrating dimensions critical for our age such as environmental sustainability, wellbeing, innovation, and institutional quality,” Sayess added.

Currently populated with baselines for 60 countries, including the world’s largest economies and a number of emerging markets, the index, will now be used by the firm’s consultants around the globe to provide counsel to government leaders and policy makers. And as that happens, it may well yield important insights for the UK – where economic growth remains stagnant, something long attributed to struggles with productivity.

Showing how the complexity of productivity is often underestimated, official figures in 2023 suggested that UK productivity has barely grown since the financial crisis – but even so, Strategy& has found the UK outperforms many other global economies. The analysts estimate the UK economy generates $77.40 in value per hour worked, ranking 16th in the world. In particular, it was above the global average when it comes to labour and human capital, physical capital, and innovation.

This still ranks the UK behind 13 other European nations, however, suggesting there is plenty of room for improvement. And the PPI offers key insights into just how all the economies featured might unlock an extra $87 trillion in productivity gains, should they put in place the right policies, strategies and roadmaps.

To help leaders identify these opportunities, the Productivity Potential Index pinpoints strengths and weaknesses by country, and offers actionable pathways that can help countries “close gaps, leapfrog performance, and reach the levels of the world’s most productive economies.” In the case of the UK, that most overtly seems to be in relation to a long-standing hesitance to address inequality, as well as the investment of its residents in society.

When the “distance to best” was measured by Strategy& in these areas, the UK was lightyears away from the study’s leaders. According to the study’s estimations, the country sees an 89% distance to best with regards to inequality – meaning that while mainstream politics continues to maintain ‘a rising tide lifts all ships’, outside of a wealthy minority, many people are simply not benefitting from economic growth.

This is leaving a growing number of people feeling they have no investment in the prosperity of the UK. In Britain, social capital – or the sympathy, and connections created by social interaction within and between social networks – is at a distance of 95.3% from best in this case. Meanwhile, societal trust, and the idea of being in the same boat, is 95.3% from best. What that might suggest is that if the UK is to kickstart its productivity, tax cuts for billionaires or lumping staff with more responsibilities via AI ‘co-pilots’ may not be the way forward. Instead, showing people they still have a stake in the health of the economy, which will actually pay off for them, might be the motivation the British workforce needs to get its mojo back.