Paddington Bear wrote: Tue Dec 05, 2023 10:12 am
An economy that taps in to massive supplies of cheap labour has no incentive to improve productivity
There's some element of UK GDP growth tracking immigration, but it's not an easy task to disaggregate immigration from everything else in the economy like productivity/investment/skills base.
Lets take the much maligned fruit picker who Rees-Mogg wants out to reduce headline immigration numbers (despite being temporary workers). What that worker is doing is making a business viable, the business model is the fruit picker, the tax returns fund the welfare state (benefits/NHS/education/state pension). Take that labour away and it's not certain that the business invests in automation (the business has to compete against foreign businesses that still have access to the temporary worker business model, and likely the same automation options too). But lets say the business decides to take the risk, London has deep capital markets, but they're mostly closed off to this type of business (something productive in the real world). Last time I looked it up, a small fraction of the UK's private sector loan book by value was in SME debt (unfortunately I cannot recall the %). But the business owner basically puts up everything he has as security and gets the loan (they always want personal assets like the house). The business attempts to swap labour for capital, because of political intervention. The business is then confronted by a deep cultural hostility towards modernisation, the council says he can do some things but not others, politicians with no stake in his business dictate how the business will grow (just as Rees-Mogg did on immigration). People don't want to see a massive greenhouses or metal framework/rails for robots as they drive by, and NIMBYs have votes politicians want. Labour costs have maybe gone down (not entirely though, he's now paying less people more money to maintain/run the machines), but other inputs have risen (energy).
At this point the business is probably fucked. It's competing against producers which still have access to temporary workers/all the automation he does (depending on their capital markets)/Dutch greenhouses. But it gets worse, the UK doesn't have the economies of scale a larger market does (both on the supply and demand side), there is less land in the UK than in the US and less people eating fruit than in the US. But the UK desperately wants a trade deal with the US, and is happy to open up to more agri competition with those places in wants trade deals. The best hope for the business after all this political intervention, is that a large multinational wants to buy land and the business owner gets to keep his shirt.
Over the road an agri business of a similar size faced with the same issues decided "we're not investing to try and keep going, and instead we're becoming an unproductive caravan park to extract rent from the land", they are doing very well. Are they adding as much to the economy as the agri business that used temporary workers, no is the answer. Another version of this is the common "lets convert this business premises into flats". If the labour market shrinks there's also the possibility of lower productivity, which should probably be the base case assumption.
It's like this in most sectors, agri is a bit different in that land is the definition of fixed. Other businesses can pack up and go elsewhere, or stay in the UK but any expansion happens outside the UK.
Rhubarb & Custard wrote: Tue Dec 05, 2023 10:20 am
I remain unsold there's such an obvious link between supply of labour and productivity, and if it's there I'm certainly to be convinced it offsets the link between raised wages and inflation.
Likely one just gets an older population and a smaller GDP, and more pressure on the remaining workforce to pay for the older population. And that isn't in all ways perhaps a bad thing, we could useful use some economic ideas that don't simply relate to increased consumption and/or GDP. I don't think we really have any of those, but now's the time for... well maybe not Liz Truss (though she still thinks it is) but someone, and no not you either Boris.
Of course they have to yet to actually deliver on any of this, and I'll confess upfront I suspect it's more about headlines saying they'll do something than actually doing something
Well exactly. For something that radically new to emerge voters would very likely need to have a higher tolerance of inflation, and politicians would need to decrease the use of interest rates to target inflation. Which is another way of saying it's not happening. At the moment it's "have our cake and eat it too" which is impossible. Damaging things which are supported end up happening, then the damaging outcomes are opposed too.