Productivity and the Bonus Culture

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Oxford University Press, Jul 11, 2019 - 192 pages
Living standards in the UK and US are in danger of falling. A decline in growth due to poor productivity and an unfavourable change in demography has weakened the stand of liberal democracy, and voter dissatisfaction is encouraging populist policies that threaten even worse outcomes. Whilst living standards once grew faster than productivity they now grow more slowly, and the working population is no longer growing faster than the population as a whole. To avoid falling living standards the productivity problem must be addressed.

Andrew Smithers argues that faster productivity does not depend, as many suggest, on technology; it also relies on investment. Current growth theory is based on a faulty model which has induced pessimism about our ability to encourage more growth. Productivity and the Bonus Culture sets out a revised model which demonstrates that weakness in productivity is the result of the bonus culture, and suggests ways to change this flawed system so that investment is encouraged and growth returns.

 

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Contents

The Legacy of the Financial Crisis
1
What I Seek to Show
13
Poor Productivity and Damaging Demography
18
The Cause of Poor Productivity
23
Ageing Populations
35
Other Influences on Growth
38
The Problem of Income Inequality
42
Two Models of Growth
45
Implications for Growth
88
Management and Shareholder Interests
90
Distractions from Serious Debate
94
Deflation
102
The UK Is Similar to the US
113
Reversing Perverse Incentives
115
Changing the Economic Impact of Current Incentives
121
Misinformation Adds to the Risks for the Economy
124

Investment and the Stock of Capital
53
Description of My Model
56
The Results of My Model
60
Testing the Proposed Model
65
Investment the Capital Stock and Economic Policy
69
The Bonus Culture Has Raised the Hurdle Rate
73
The Added Impact of Misinformation
80
The Economic Consequences of Higher Investment
127
Summary and Conclusions
136
Appendices
139
Glossary
155
Bibliography
161
Index
165
Copyright

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About the author (2019)


Andrew Smithers

Andrew Smithers is the founder of economic consultancy Smithers & Co. He is the author of Valuing Wall Street: Protecting Wealth in Turbulent Markets, The Road to Recovery: How Economic Policy Must Change, and Wall Street Revalued: Imperfect Markets and Inept Central Bankers. He is a former columnist for the London Evening Standard, and has also written columns and blogs for The Times and the Financial Times.

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