Lock­down puts brake on As­ton sales

Chances for pro­duc­tiv­ity gains will be squan­dered if zom­bie firms are al­lowed to keep labour­ing on ‘A sur­pris­ing con­se­quence of the pan­demic is that many firms have been forced to adopt state-of-theart tech­niques’

The Daily Telegraph - Business - - Front Page - Alan Tovey By

AS­TON Martin’s sales col­lapsed in the first half of 2020 as the pan­demic de­stroyed de­mand for its cars.

The War­wick­shire-based lux­ury car­maker re­ported a 64pc slump in rev­enues to £146m in the six months to the end of June, with losses bal­loon­ing to £227m com­pared with £80m a year ear­lier. Car sales plunged 41pc to 1,770 af­ter lock­down made test drives im­pos­si­ble and ham­mered mil­lions of con­sumers’ fi­nances.

The com­pany is fight­ing to steady its fi­nances two years on from a dis­as­trous stock mar­ket float, with a string of profit warn­ings and fundrais­ing even be­fore Covid wrecked the mar­ket for lux­ury ve­hi­cles.

The im­pact of coro­n­avirus has been felt across Bri­tain’s mo­tor in­dus­try. Car pro­duc­tion in the UK plunged to a near 70-year low in the first half of 2020, with just 381,357 rolling off pro­duc­tion lines.

Fac­tory stop­pages and lower de­mand caused by dealer clo­sures and weak­en­ing con­sumer con­fi­dence drove the 48.2pc de­cline on the pre­vi­ous year, ac­cord­ing to data from the So­ci­ety of Mo­tor Man­u­fac­tur­ers and Traders (SMMT).

Eco­nomic suc­cess in the long run comes down to one sim­ple mat­ter: gains in pro­duc­tiv­ity trans­late into higher in­comes, wealth and earn­ings. Af­ter surg­ing through­out the 20th cen­tury, pro­duc­tiv­ity growth has lan­guished in re­cent decades among ad­vanced na­tions.

Out­put per worker, the stan­dard mea­sure of pro­duc­tiv­ity, in­creased across the G7 by just 9pc dur­ing the 2000s and by 7pc dur­ing the 2010s af­ter ris­ing by 16pc dur­ing the Nineties.

The con­se­quences of the slow­down are far-reach­ing. Track the prob­lem of po­lit­i­cal dis­en­fran­chise­ment to its root and, sure enough, you find stalling liv­ing stan­dards caused by slow­ing pro­duc­tiv­ity growth as a ma­jor cause.

West­ern­ers would have more read­ily ac­cepted the in­dig­ni­ties of glob­al­i­sa­tion and mod­ern life if they had been ac­com­pa­nied by more rapid and wide­spread gains in pros­per­ity.

In the UK, pun­dits of­ten re­fer to this creep­ing ail­ment as the pro­duc­tiv­ity “puz­zle”, which im­plies more mys­tery than re­ally ex­ists. The pro­duc­tiv­ity “prob­lem” – al­lit­er­a­tion pre­served – has two prox­i­mate causes.

First, we seem to be partly un­der­es­ti­mat­ing our own progress. Our age­ing sta­tis­ti­cal meth­ods for mea­sur­ing out­put were de­signed for a more prim­i­tive econ­omy dom­i­nated by pro­duc­tion, con­struc­tion and agri­cul­ture. In the old days, out­put could eas­ily be counted and ad­justed for chang­ing prices. But in our in­creas­ingly digital and ser­vice­sori­ented world, out­put can­not be counted us­ing what is ba­si­cally a highly evolved tally mark sys­tem.

Grow­ing ev­i­dence sug­gests that er­rors have crept in over time as the gap be­tween the job of mea­sur­ing eco­nomic out­put and the suit­abil­ity of the sta­tis­ti­cal tools used has widened. As a re­sult, statis­ti­cians have over­es­ti­mated in­fla­tion and, in turn, un­der­es­ti­mated the gains in out­put.

The UK’s na­tional statis­tics of­fice re­cently an­nounced that it had made ma­jor er­rors over the past 20 years mea­sur­ing prices and out­put in the tele­coms in­dus­try. When the up­dated es­ti­mate, which shows that prices in the in­dus­try de­clined by 95pc be­tween 1997 and 2016 rather than by half as ini­tially cal­cu­lated, is in­cor­po­rated into the na­tional ac­counts in the sec­ond half of 2021, head­line GDP and pro­duc­tiv­ity will likely be re­vised up.

In time, we will bet­ter un­der­stand ex­actly what pro­por­tion of the slow­down is due to mis­mea­sure­ment. Nev­er­the­less, the big­ger un­der­ly­ing prob­lem of gen­uinely weaker pro­duc­tiv­ity growth re­mains.

The sec­ond fac­tor caus­ing the slow­down is a lack of tech­no­log­i­cal dif­fu­sion. OECD re­search finds that the speed at which the fron­tier of tech­no­log­i­cal progress has ex­panded has re­mained fairly steady dur­ing the pe­riod that pro­duc­tiv­ity has slowed. How­ever, as dig­i­tal­i­sa­tion and glob­al­i­sa­tion have con­tin­ued to rapidly push out the fron­tier, sub­stan­tial parts of the econ­omy have not adopted the new tech­nolo­gies. The firms that have man­aged to keep pace with the tech­no­log­i­cal fron­tier are a well known mi­nor­ity that in­cludes the Sil­i­con Val­ley giants and top Euro­pean man­u­fac­tur­ers.

In ser­vices, the best-in-class de­sign, tech and fi­nan­cial ser­vices firms all utilise cloud com­put­ing and other such tech­nolo­gies to sup­port re­mote work­ing. In man­u­fac­tur­ing and dis­tri­bu­tion, the lead­ers are heavy users of cut­ting-edge tech­nolo­gies such as ad­vanced ro­bot­ics, three­d­i­men­sional print­ing and big data.

Early adopters of tech­nol­ogy of­ten out­per­form un­til their peers catch up. How­ever, the cur­rent gap has lasted longer than dur­ing past phases of dif­fu­sion, such as the wide­spread adop­tion of the PC in the Eighties.

But some things just take time. Af­ter all, it was not un­til some 50 years af­ter Thomas Edi­son’s “Elec­tric Light Com­pany” started to pro­duce and sell light bulbs (c1880) that half of US house­holds had access to elec­tric power in their homes.

Things may be chang­ing for the bet­ter al­ready. One sur­pris­ing con­se­quence of the pan­demic is that many firms, faced with ma­jor dis­rup­tions to their nor­mal work­ing prac­tices, have been forced to adapt and, in do­ing so, adopt many state-ofthe-art tech­niques. In pro­fes­sional in­dus­tries, work­ers are util­is­ing re­mote-work­ing tech­nolo­gies, in­clud­ing video-con­fer­enc­ing and cloud-com­put­ing in­stead of mak­ing the daily trip to their of­fice.

In pro­duc­tion and man­u­fac­tur­ing in­dus­tries, firms are re­act­ing to the mas­sive dis­rup­tion to global trade flows by short­en­ing and di­ver­si­fy­ing sup­ply chains. If this leads to a wave of on­shoring to pro­tect against fu­ture dis­rup­tions, firms will need to in­vest in new pro­duc­tive ca­pac­i­ties and tech­no­log­i­cal up­grades sim­ply in or­der to re­main com­pet­i­tive.

Lock­downs have forced ma­jor in­dus­tries to in­no­vate. The pro­duc­tiv­ity gains may only be­gin to show up in the data in three to four years’ time, once economies ex­ceed their pre-Covid lev­els of GDP. Even if ma­jor economies man­age to avoid re­newed lock­downs, it will take time for em­ploy­ment and out­put to re­turn to ex­ceed the pre-Covid lev­els.

Against these pos­i­tive un­der­ly­ing trends, we need to tackle one real con­cern: whether the high debt en­vi­ron­ment, in which many un­prof­itable “zom­bie” firms man­age to just sur­vive thanks to gen­er­ous pol­icy sup­port, will pro­hibit ma­jor over­hauls and up­grades of key in­dus­tries.

This is in­deed a risk. It is cru­cial that pol­i­cy­mak­ers do not suc­cumb to po­lit­i­cal pres­sure and pro­vide too much sup­port to fully save in­dus­tries such as trans­port, travel and tra­di­tional store retailing, whose fu­tures are less bright as economies ad­vance. Gov­ern­ment pol­icy should em­pha­sise re­train­ing work­ers for new in­dus­tries rather than pre­serv­ing un­sus­tain­able jobs.

As long as healthy firms have easy access to cap­i­tal and can ex­pand, the prob­lem of zomb­i­fi­ca­tion would only de­lay rather than in­hibit a pro­duc­tiv­ity leap that comes from greater tech­no­log­i­cal dif­fu­sion.

For now, while still in the mid­dle of a cri­sis, the job of gov­ern­ments and cen­tral banks is to just keep economies afloat and help them recover from the mega re­ces­sion. But once the head­winds of the pan­demic have passed, pol­i­cy­mak­ers will need to em­brace the tail­winds of cre­ative de­struc­tion again. If they do so, stronger pro­duc­tiv­ity growth could lift in­comes and wealth at a faster rate than in the last few decades.

Work­ers at Nis­san’s fac­tory in Sun­der­land, which has used ro­bot­ics to ad­vance pro­duc­tiv­ity

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