Obsession with getting a good Brexit deal obscures a bigger prize: doing a better job of making the stuff that trading partners might want to buy
When the Chartered Management Institute (CMI) launched a manifesto for improving UK management earlier in June, it couldn’t have guessed how good its timing would be. In launching the manifesto, CMI CEO Ann Francke reasonably noted that the obsession with the art of the Brexit deal was obscuring a bigger and more fundamental prize: doing a better job of making the stuff that our trading partners, whatever their nationality, might want to buy. Closing the productivity gap with our European neighbours through better management and leadership, she pointed, would offset the yearly penalty of leaving the EU with some change left over.
Francke wasn’t to know how vividly the post-, and indeed pre-election shambles would underline the inadvisability of relying on British political management and deal-making skills to secure economic advancement. At the same time, she seriously underestimated the extent of the potential gains to be made by better conduct of the UK’s corporate – and governmental – business.
The estimates below are necessarily imprecise and non-exhaustive, but they provide some pointers.
In 2015 Investors in People, quoted by CMI, estimated that poor people management was costing UK firms £84bn a year in forgone productivity.
According to McKinsey Global Institute (MGI), also quoted by CMI, bridging the UK gender gap at work could generate an extra £150 billion on top of business-as-usual GDP forecasts in 2025 and translate into 840,000 more jobs for women.
For comparison, the OFS puts the penalty to the economy of leaving Europe at £75bn annually. But why stop there? There’s lots more where that came from that CMI doesn’t mention. For example:
Gary Hamel and Michel Zanini calculate that the UK has proportionally more surplus bureaucrats – managers and administrators doing non-value-adding tasks such as checking the work of others – than the US, where they think GDP could be boosted by $3tr if the drones were redeployed to more productive work. On that basis the equivalent figure for the UK would be around £400bn.
In a recent discussion document, MGI estimated that short-termism (largely a consequence of faulty governance arrangements) could be costing the US 0.8% of lost GDP a year. It concluded: ‘Our findings—that short termism is rising, that it harms corporate performance, and that it has cost millions of jobs and trillions in GDP growth—are sobering. Companies and governments should begin to take proactive steps to overcome short-term pressure and focus on long-term value. The economic success of their companies and their countries depends on it’. All of the above of course applies in equal measure to the UK. 0.8 per cent of UK GDP is roughly £20bn.
Regulation was meant to promote a more efficient welfare state. But the outsourcing and marketisation of public-sector service provision to a rent-seeking private sector (governance failure again) has led to a proliferating thicket of regulation which cost more than £1bn to administer at the turn of the millennium, according to the LSE, while imposing huge costs on auditees: an OFSTED inspection can cost a school directly and indirectly up to £20,000. As John Seddon point outs, these totals pale into insignificance against the huge unknowable opportunity costs of prescribing wrong methods (eg back offices, call centres), and, even worse, halting systemic improvement dead in its tracks.
Finally, as a knock-on consequence of all of the above (as I noted in my last), terrible public services. As with regulation, an unholy multiplier compounds the problem: managing by cost, or rationing, doesn’t reduce demand – it fragments it and, a bit like Japanese knotweed, each splinter takes root and grows into a vigorous new demand of its own somewhere else in the system.
There’s plenty of overlap in these categories, of course – but that signifies that there are also de-multiplier effects in the opposite direction: better social services remove failure demand from the NHS and other agencies, better regulation reduces red tape and releases innovation, and above all better governance by knocking short-termism on the head and enabling a move from command and control potentially cuts the need for regulation and bureaucracy both internal and external, promotes better work design, does away with the need for separate ‘people management’ and provides a sharper focus on the customer.
In fact, the systemic ramifications spread even wider. If, as Edward Luce argues in a fine recent article in the FT, Brexit itself, like Trump, is the messy rebuke meted out to those who have overseen the glaring cumulative failure of Anglo-American capitalism, the only answer is to devise a better, more inclusive model: ie, one with better governance and more productive management.
Blinded by its own sense of entitlement, the UK has always had a shaky grasp of its own management needs and priorities. We console ourselves by saying we’re good at pomp and circumstance, and these days at the execution of big projects (the Olympics, HS1 and Crossrail), when we get round to them, and excluding, of course, anything to do with computers. But these are one-offs. We’re hopeless at most routine management, which is why many of ‘our’ top performing sectors, like the motor industry, are foreign-owned and/or managed, with, as the CMI notes, a long tail of underperformers trailing behind. Even our supposed jewel, the City, is largely foreign-owned. As I have noted elsewhere, this makes us highly dependent on foreign management, not to mention alarmingly vulnerable to the effects of Brexit.
Management failings, as the OECD has pointed out, are a brake on competitiveness, quite independent of our trading arrangements, and Brexit only makes them more significant, not less. An urgent programme to address these weaknesses isn’t glamorous – needless to say, the CMI manifesto has passed unnoticed by the press or politicians. But it’s practical, doable and, unlike Brexit, fully in our own control. There is nothing to lose. It perfectly accords with historian Linda Colley’s sober observation that in light of reality ‘[Britain’s] politicians need to talk and think and plan not in terms of a transformative, glowing Brexit or a new modern socialist millennium, but to put their minds together to establish what the least worst options are that they can feasibly and usefully pursue.’
What are they waiting for?