One thing to rule them all
George Osborne ridiculed "the French approach" to deficit-cutting in his Budget speech last week. It was always a hypocritical line - after all, the French public deficit has been smaller than Britain's for a decade. More importantly, the FT's Ferdinando Giugliano and Sarah O'Connor point out that French workers are much more productive than British ones - so much so that they produce more in four days than Britons do in five, as Stephanie Flanders put it in a comment on Osborne's Budget.
Productivity is more important than pretty much any other economic quantity, be it fiscal deficits, GDP growth, or real wages, for it is the one thing that fundamentally rules how the others can evolve. That is why Britain's deepest problem is not just that productivity is poor compared to all its G7 peers except Japan, but that it is stagnating.
Other European countries should not gloat, however. In France, Germany, and Italy too, productivity growth has slowed or vanished since the crisis. Karl Whelan warns that there is more to come: for the future of Europe, look at Finland and be scared, he suggests. Whelan picks up on the FT report from Finland earlier this month, which showed the country doing much worse than you might think from the lazy European ants and grasshoppers analogy.
Finland is three years into a recession, and its sluggish growth is actually easy to explain, says Whelan. It comes down to an ageing population and poor productivity growth (which is not the same as lack of "competitiveness": Finland easily pays its way in the world). Whelan argues that this poor productivity growth is likely to be replicated by the rest of Europe: "The future for growth in Europe appears to be Finnish". The reason is that even the mediocre growth rates Europe has experienced were to a large extent driven by capital accumulation, which is unlikely to keep up.
But wait, weren't the robots coming to take all our jobs? That should at least improve productivity, whose stagnation has been taken as a sign that the robot takeover is indefinitely postponed. But a new research paper finds that at least for "industrial" robots - those that perform "physical, production-related tasks" - have indeed increased both productivity and wages in the industries that have deployed them, without large effects on aggregate employment. The question is whether this result will hold up with other types of robots, and how much further the use of industrial robots will be extended. It still seems possible to hope for a quite literal deus ex machina to save our prosperity.
- Britain can prosper even if it leaves the EU, finds the think-tank Open Europe - but only if it becomes more open to immigrants.
- Torrents of cash are leaving the eurozone, writes the WSJ. It neglects to stress that this can be a good thing for Europe, as the fall in the euro should benefit businesses.
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