The role of productivity in an industrial strategy

Research by The Productivity Institute has been widely cited in a policy paper by the CIPD, the professional body for Human Resources, Learning & Development and Organisational Development professionals.

The report, An industrial strategy for the everyday economy, explores the changes needed to develop a more progressive policy on the UK’s productivity, growth and industrial strategy.

The CIPD says it wants to see a bolder vision for economic growth to address the multiple challenges facing the UK and wants a new approach to industrial strategy to boost employer investment in tech, management capability and workforce development.

An industrial strategy relates to coordinating a wide range of economic policies to achieve particular objectives, which need not be purely economic. The UK’s Industrial Strategy, which began in 2017, was replaced in 2021 by the Treasury’s Plan for Growth, linked to the Levelling Up agenda.

The CIPD report lists a detailed series of strategies, policies, pilots, reviews, evaluations and approaches to help boost productivity over the long term and notes The Productivity Institute is one of the actors “that needs to be engaged” in the agenda.

Improving firm level productivity

The CIPD paper cites a research paper co-written by The Productivity Institute’s Nigel Driffield, writing: “there are only three ways of improving firm level productivity in a given environment… to encourage and facilitate the growth of new high productivity firms, to encourage productivity growth in existing firms, and to attract inward investment”.

The report adds: “In essence, the policy orthodoxy since the 1980s has been to focus considerable attention and resources on the first and the third of these methods, albeit often in a siloed and uncoordinated way that Driffield and colleagues argue is liable to be suboptimal in its effects. There has been relatively little focus on encouraging productivity growth in any shape or form. Focus has been on the first and third methods, with little focus on encouraging productivity growth.”

• To find out more about the research cited in the report, read Understanding productivity: Organisational Capital perspectives  on the TPI website.

Joining up supply and demand

The CIPD report also cites work by Damian Grimshaw and Marcela Miozzo about how the UK struggles to encourage or enable the spread of good management practices in its firms and the lack of business and innovation support infrastructure and schemes.

“The bulk of (government) interventions focus on supply-side reforms and the injection of yet more skills and R&D, and the encouragement of higher investment in plant and equipment,” the report says. “Relatively little thought is given to how well these ‘ingredients’ are then mixed and deployed to productive effect, and such issues occupy the margins of policy development at UK Government level.”

The report goes on to note that “although we have spent a great deal of time and energy obsessing about a ‘skill revolution’, the overall story is that enhancements in human capital (mainly paid for through public spending) have not had the anticipated scale of impact on productivity and have been attended by evidence of overqualification and poor utilisation of skills within the workplace.”

• To find out more about the research cited in the report,  read Human Capital and productivity: a call for new interdisciplinary research on the TPI website.

Further reading

Other research from The Productivity Institute cited in the CIPD report:

• Is there a link between small business leadership and productivity? – Leadership quality has been proposed as an important explanation for differences in the productivity performance between so-called ‘frontier’ and ‘laggard’ firms.
• Science and innovation policy for hard times: an overview of the UK’s research and development landscape – Examining the history and future of the UK’s science and innovation policy.
• FECs, innovation and skills: A literature review – Reviewing the literature on Further Education Colleges (FECs) in the UK and internationally and their role in skills provision to the local and regional economy.
• Skills, innovation and productivity: The role of further education colleges in local and regional ecosystems – Research from 16 interviews with FECs across England which finds six ways that government and business can boost their skills delivery.
• Productivity in the UK: Evidence review – Cost of UK productivity underperformance laid bare in first report of Productivity Commission.
• Tradability, Productivity and Regional Disparities: theory and UK evidence – Developing an analytical framework on how sectors determine regional outcomes and captures the impact of shocks from the 1970s.
• Levelling Up, local growth and productivity in England – Explores the current role of institutions and governance structures across English regions in tackling spatial inequality and low productivity.