London Tech Week: London and South losing out on productivity

Digitisation is regarded by many as the fuel to accelerate recovery post-pandemic. But in a talk at London Tech Week, Mario Gruber, research fellow at King’s Business School and co-lead of the London and the South Productivity Forum, discussed why London and the South is failing in terms of productivity.

“London has had virtually no productivity growth since 2008,” said Gruber, adding that the UK has fallen behind in terms of research and development investments. “We must spend a whopping 50% more on R&D to equal the OECD and we rank 126th out of 148 countries in capital formation,” he said.

Gruber said the Productivity Forum, which is part of the Productivity Institute, is currently investigating the best approaches to addressing these problems. Among the areas being investigated is the role that innovative organisations can play in connecting the dots and what actions are needed from a policy perspective to improve the future of UK productivity, he said.

“Technological change is the central driving force behind productivity growth, therefore leaders in technology will play an important role in inspiring greater productivity,” Gruber added.

Looking at London, he said: “London has an extremely high level of productivity, but in the last decade, it has experienced no productivity growth, unlike Paris, which has seen growth at a higher pace.” The 2008 financial crisis had a significant impact on the City, said Gruber, Brexit also had quite a strong negative impact on foreign investment, and then there has been the Covid-19 pandemic.

“In London, productivity is divergent,” he said. Research from the Productivity Institute found that the top 10 businesses are three times more productive than the bottom 10, he added. The less productive businesses were those with a low-wage workforce and lower levels of technology skills.

Gruber said small and medium-sized enterprises (SMEs) in London and the South are considerably less productive than SMEs in Germany. Among the challenges these businesses face, he said, is that it is too hard to scale up, too hard to grow and they face difficulties in getting access to finance and skilled labour.

In an evaluation of 22 countries, Gruber said the UK has the worst alignment of skills considered important for performance and the skills acquired by training at work. “Technology is only as useful as the ability of the people who use it,” he said. “Up to 55% of the productivity gap between the UK and US is down to managerial skills.”

Another problem area is the ability to retain skilled staff. he said. “Forum members say they cannot retain university graduates. Advanced skills are not being fully utilised.” According to Gruber, intermediate, industry-specific and technical skills need to be developed. 

Apprenticeships is one approach. At the same time, Gruber believes that less knowledge-intensive jobs can be upgraded to enable new recruits to deal with more complex problems, work in teams and take advantage of digital technologies. But SMEs will not be able to close the productivity gap without support from the government, he said.