Productivity and the Bonus CultureLiving 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. |
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 |
| 161 | |
| 165 | |
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Common terms and phrases
average bonus culture boost buy-backs capital consumption capital stock cash change in management change per annum changes in NTV comparing constituents of NTV corporation tax cost of equity debt decline demography depreciation dividends economists economy Eurozone expectations fall Figure 35 financial crisis forecasts GDP per head Gini Coefficient growth accounting growth rates historic cost hurdle rate impact improve income increase inflation interest rates labour productivity level of investment leverage living standards long-term Lorenz curve measured Mervyn King NAIRU national accounts NIPA Tables 1.1.5 nominal interest rate non-financial companies output overstated participation rates Percentage change period perverse incentives profit margins profits after tax published profits quoted companies rate of corporation ratio recession result return on equity rise savings sector share prices shareholders short-term shown in Figure shows Sº Sº Standard & Poor's stock market tangible investment unemployment unquoted volatility Z1 Table