A tale of two economies

As economists in the UK ponder why anaemic recovery is accompanied by rising private sector employment, in the US better growth is coming through the standard route of improved productivity.

The FT reports that businesses funded by the American Export Bank increased exports by 25% last year, at the same time as the number of people they employed fell by 12%. This is a micro picture of a macro situation in which the unemployment rate is hovering at just under 8% at a time when growth is pretty much running at the long-term trend of 2.5% a year.

One explanation for this is that we are seeing the productivity benefits of the digital network economy really coming into play now. Some researchers have put the gains from digital innovation as explaining 60% to 80% of the productivity improvements. The economic functions performed by the digital economy will be the same as the physical economy by 2025, according to researchers at the Palo Alto Research Centre. This is the scale of the third industrial revolution first explained in the mid 1990s by Manual Castells, but only now getting seriously underway.

Back in the UK, the puzzle is why the same isn’t being seen here. Instead the reverse is true, as exports stagnate whilst companies recruit. It would be nice to think we’re adjusting to lower labour demand by sharing it out. But that picture can only be rosy if accompanied by the same output gains that are occurring in the US. Otherwise we have to get used to sharing out the fixed amount of income as well as employment.

Thinking positively – there’s no reason that output has to be exported; production for domestic consumption would be fine. And the best way to get growth with increased employment would be though more production of labour intensive services – education, health, social care, child care, culture.

This entry was posted in Uncategorized and tagged , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s