Why we are much better off than the official statistics say

The oldest surviving map of Britain was created in Canterbury a thousand years ago. Our ancestors had a good idea of how to get around. The country is depicted in its familiar shape. Understanding of the world outside Western Europe remained sketchy for centuries.  The phrase ‘here be dragons’ was allegedly used to conceal ignorance about substantial parts of the world.

Sir Charles Bean’s Independent Review of UK Economic Statistics was published last week.   It is an impressive and well argued document.  But it leaves the distinct impression that the state of our knowledge about how to measure the size of the economy is not much better than that of the Canterbury map makers.  The Office for National Statistics knows how to guide us around the old, familiar parts of the economy.

The second paragraph of the Bean report hones in on the dragons: “The Review was prompted by the growing difficulty of measuring output and productivity accurately in a modern, dynamic and increasingly diverse and digital economy.” An anecdote illustrates the point. Last week, our old washing machine finally packed up.  My wife went onto the internet in the afternoon, did some searches, read some price and quality comparisons sites and blogs, and placed the order.  Thanks to just in time stock control and vastly improved logistics, the new one was safely installed and working the next morning.

Even thirty years ago, the whole process would have required much more time and nervous energy. Perhaps writing to get catalogues, visiting retailers to inspect the machines, trudging around to compare prices, finally placing the order, and hoping that there wasn’t a six week wait for your chosen model, then finding someone to install it.

None of these savings of effort or improved quality of service appear in the national accounts. The national accounts just see a retail purchase, a delivery and an installation: exactly what they would have seen thirty years ago. Yet economic statistics are, again as Bean puts it, “central to monitoring, understanding and managing the economy, at both national and regional levels”.

A major issue for policy makers is the so-called productivity puzzle. Since the trough of the recession in 2009, output has grown by 12.6 per cent and employment by 7.0 per cent.  So productivity, output per worker, has only expanded by just over 5 per cent, or less than 1 per cent a year.  By historical standards, this is pitifully low, especially during a period of economic recovery.  Companies need to be sure that demand is growing before they take people on, so employment growth lags behind output growth and productivity rises sharply.  Or, at least, it did in every other recovery since the Second World War.

The Nobel Laureate Bob Solow, still going strong in his 90s, presciently remarked as long ago as 1987 “You can see the computer age everywhere but in the productivity statistics”. We can rely on employment data, based as it is on PAYE returns to HMRC.  But the Bean report implies we have been grossly underestimating output in the digital economy.

Paul Ormerod

As published in CITY AM on Wednesday 16th March 2016

Image: Old Map by rosarlo flore as licensed under CC BY 2.0

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ALEX O’BYRNE

Associate

e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.

ELLIE EVANS

Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.