Michael Fry: Public sector is failing to properly modernise – and Scotland suffers

It may be a rather obscure economic topic, but in a crucial sense it is a key to the entire future of Scotland. Without an improvement in productivity, we will not become a richer nation and unless we do get richer, or at least have a credible prospect of getting richer, we will not in a majority vote for this nation’s freedom.

Instead, on any material calculation, it will instead be inevitable, if deplorable, that the majority will settle for dependency in Brexit Britain, heaven help us all.

I put the stakes that high after another report from the Office for National Statistics. This is, of course, an official UK organisation, but with a record of being reasonably objective in what it says about Scotland (leaving aside a few wobbles before the referendum of 2014). Anyway, in the report just issued, ONS concentrated not on the nations of the UK but on its sectors – public or private.

We can still draw a few Scottish inferences because the public sector here is bigger than the English one. And we have a government that believes fervently in the public rather than the private sector.

After several decades during which privatisation was a key part of UK economic strategies, the Scottish Government now even makes occasional attempts to expand the public sector once again. It does so pretty feebly, but it is the thought that counts.

When we estimate productivity, we look for the outputs we get from our inputs of capital, labour and technology. If academics want to write an equation for that, they will divide gross domestic product (the total output of our economy) by the number of hours all its workers have worked. On this measure, the UK comes out badly in comparison with our European neighbours. French and German workers produce in four days what it takes us five days to produce. Before the great financial crisis broke in 2007 we were better able to keep up. Since then we have flatlined. The ONS offers no hope of an early improvement.

Things are not quite so bad everywhere in the UK economy. For the first time in ages, there have been signs of a revival in manufacturing (though again, Brexit may nip it in the bud). The ONS report showed manufacturing output up by 1.7 per cent in 2018, and this out of an actual fall in hours worked.

Who says we can’t pull our socks up it if we try? Yet the manufacturing improvement was nullified by an awful performance in the services sector, and especially in the public services sector.

By comparison with the relative health of manufacturing, the private services sector, including everything from finance to retail, achieved an increase in productivity of a mere 0.1 per cent. But the real villains of the piece were to be found among the public services, where productivity shrank by 0.3 per cent. In other words, our angelic nurses and doctors, or the heroic teachers who do daily battle against juvenile ignorance and thuggery, produced less health and education than in the past. It is true these abstract concepts are hard to define and measure in statistical terms, and the ONS itself is less than satisfied with the accuracy of the results.

It is trying new methods of calculation, and we must wait to see if they stand the test of time.

To repeat, those are all UK figures, yet I am inclined to believe they must be true of Scotland too. This is because our government unconsciously yet actively fosters and preserves inefficiency in the public sector it controls. For example, because of the freeze in the community charge from the time the SNP took office, the local authorities had to live with severe financial constraints. These led to deep cuts in some sorts of spending – reflected in the depth of holes in the roads, for example. Yet the councils are not allowed to impose any compulsory redundancies to reflect how they have less to do. It’s another official policy. So we are left with the same number of employees engaged on a smaller number of tasks. Here is the definition of inefficiency and falling productivity.

And this when Scotland has reached full employment! We now see over 96% of our workforce in a job, and the remaining 3% are for the most part between jobs. Nobody is being thrown on the scrapheap.

Yet our official policy rests on memories of the 1930s or the 1980s, when thousands or hundreds of thousands faced years on the dole. Here we are in the second decade of the 21st century, and we have yet to get the measure of the economy we live in. We apply the remedies from a Scotland of coalmines and steelworks to a Scotland of digital technology and just-in-time production. In fact, of course, this Scotland of low productivity perversely preserved by us will hold down, rather than keep up, its workers’ living standards.

It is also the reason why we pay so much in taxes (more in Scotland than in England), yet seem to get so little by way of return. I don’t buy the Unionist argument that the Scottish NHS is uniquely awful, but I do think that, for the money we spend on it, it could be better than it is. A small example: I’ve reached an age where I need regular medical checks for this, that and the other, and the reminders always come by post. Often I need several reminders, because these letters go into a pile of stuff I don’t want to read while, if they appeared on my laptop’s inbox, I would try to clear them by the next day. The Scottish NHS spends tens of millions to print and post letters to outpatients who could be emailed.

With this sort of low-level routine waste so rife across the public services, it becomes harder to reward employees for performing well, to offer them incentives to do better or to fire those who fail.

Since 2000, the private sector has cut the numbers of its office workers, replacing them with computers, seven times as fast as the public sector.

If the public sector had matched the private sector, the Scottish NHS could by now have afforded 15,000 extra front-line staff, actually curing the patients, and half a million extra treatments a year.

This column labours the need for Scottish productivity to grow because it is a key indicator of the nation’s prospects and future living standards. Without such growth, companies will struggle to produce more with the same resources and, as a result, will be unable to give their workers pay rises that keep ahead of inflation.

Not only will living standards stagnate but businesses will also lose their competitive edge against foreign rivals. Lower real pay and reduced corporate profits mean less tax will be collected. So in the end everybody suffers. And for Scotland there is the particular problem that, unless our government bucks up its hopelessly antiquated economic ideas, then national independence will remain beyond our reach.