THURSDAY past was the anniversary of the 2008 Lehman Brothers bankruptcy, an event that is widely regarded as the key moment in what we all now refer to as the 'Great Financial Crash'. Since then, it feels like we have been in a period of relentless chaos.
We have had the recession that followed the financial crash, then we had a coalition government that set a course to repair the UK’s public finances through austerity, right at the moment where you would expect a government to step in and support the economy.
Those were difficult times, especially for people on benefits. Roll forward to today and you could nearly get nostalgic for those simpler times given what has happened since - the Brexit vote and the years of ‘getting Brexit done’ that have followed, Covid and the massive human and economic toll it took/takes, and now the worst cost of living crises many of us can recall.
Years of economic turmoil have absorbed so much of our time that I often have to remind myself to revisit the ‘old’ economic challenges that our economy faces. We know them well – high levels of economic inactivity and poverty, poor infrastructure, not enough entrepreneurs etc.
None of them have gone away and one age-old challenge is coming back into focus – productivity. The new Prime Minister suggested on the campaign trail that the UK should be growing at 2.5 per cent per annum and so the Chancellor of the Exchequer has taken this challenge on, telling Treasury staff that their focus should entirely be on growth.
Achieving growth of 2.5 per cent per year in the medium term is ambitious. While it achieved these rates in the years before the Great Financial Crash it has been averaging around one per cent since then.
Output per worker is low in the UK compared to other G7 countries, to the extent that French and German workers can produce in four days what it takes a UK worker a full week to produce.
If the UK is relatively poor on productivity, Northern Ireland is worse again. Here, we are close to 20 percentage points off the UK’s pace. Some of that can be explained by our different employment mix, where we have higher concentrations of employment in lower productivity sectors.
There is a myriad of other reasons being offered up too, such as less investment in more productive machinery and equipment and less expenditure on workforce training and development.
Solving the productivity and growth challenge will be made all the more difficult in the context of a government that has made it harder to trade with the EU, reduced education spending in real terms and hasn’t invested anything like enough in infrastructure. Those ‘big ticket’ items are the bedrock of improving growth.
There are other things that can boost our economic performance, one of which is often overlooked. Leadership.
The issue of Leadership has been front and centre in recent weeks as the seamless transition from one monarch to the next followed the Prime Ministerial transition from Boris Johnson to Liz Truss.
These momentous events invariably prompt questions about leadership styles. Certainly, the summer-long Conservative party competition to find a new leader raised many questions about leadership style – can PM Truss unify her party, will she invite different views into Cabinet, and on it went.
Management and leadership matters. We will all know this from our own experiences. Some bosses are viewed as cringe-inducing David Brent types and others are awe-inspiring motivators.
Some might think that quality of management and leadership isn’t really important – you come in, do your job and get paid.
Wrong.
A good leader can make a considerable difference to firm performance and staff morale. The World Management Survey backs me up on this. Established in 2004 to collect and measure management practice information from hundreds of medium sized firms, the Survey can count more than 20,000 interviews across 35 countries in its evidence bank.
The findings confirm a significant link between management practices and productivity, suggesting that between a quarter and one-third of productivity gaps between countries could be attributed to management.
Even within countries, a fifth of the difference between manufacturing plants could be down to management. Those are quite staggering numbers. Very interestingly, firms owned and managed by descendants of the founders tend to have the worst management scores.
There is something in the old adage ‘the first generation makes it, the second generation spends it and the third generation blows it’.
So, it seems obvious that Northern Ireland firms could make big strides towards improving productivity by improving management and leadership practices. Convincing managers and leaders to take the time out from the day job might be short-term pain for them but we could all benefit in the long run, and there might be more businesses that extend down the generations.
:: Andrew Webb is chief economist at Grant Thornton
