By Neil Patrick
In the UK, the recession is over apparently. The press and politicians are busy telling us things are steadily improving; Britain currently has faster growth than any other country in Europe. We have record numbers of new company registrations. And record numbers of people in (low paid) jobs. None of these things amount to recovery apart from in a technical sense that only economists would recognise.
This week I've been looking at how a favourite statistic of the media and politicians really stacks up.
The statistic in question is the number of businesses registered at Companies House.
Today, in the UK, there are 3,153,248 registered companies, up by 581,173 from last year. You'd be tempted to think this represents a growth new businesses by 18.4%. Except it's not. Granted, it is higher than it has ever been before, but its not really 18% growth in actual businesses or anything like it as I'll reveal shortly.
The news of vast redundancy programmes by large employers continues to fill the media almost weekly. In the UK oil industry alone it is reported that 37,500 jobs are at currently risk. There’s no sign of large-scale redundancies from our big employers letting up in the alleged recovery.
And all the while, the march of technology is making people less and less valuable to organisations. This is what Jeremy Rifkin calls the zero marginal cost society and it’s becoming a reality faster than even he thought possible. I have provided an outline of this and what it means here.
In pre-election UK, the government is gleefully claiming a surge in business start-ups. A record breaking total of 581,173 new businesses were registered at Companies House last year. This was a higher total than the 526,447 in 2013 and 484,224 in 2012.
Is this an explosion of entrepreneurial activity? Sadly no.
Office for National Statistics (ONS) data reveals that only around 60% of start-up businesses survive beyond their first three years. According to research by Richard Murphy at Taxresearch.org.uk, around half of the businesses registered at Companies House have never even filed a tax return! Let’s ignore the distracting question about tax avoidance; the matter I am interested in is what this tells us about the scale of real business activity.
The disappointing truth is this measure tells us nothing. Every year around 500,000 companies registered at Companies House are dissolved. The total of 3,153,248 ‘active’ companies on the register is a merry go round of new registrations, dormant companies, strike offs and disolutions.
Even if this were a meaningful measure of entrepreneurial activity, the trouble is that in the UK, 88.8% of all UK registered businesses employ less than 10 people according to the Office for National Statistics (ONS) here
So if we take the 581,173 new companies registered for 2014 and assume that 50% are actual trading business entities, that means there were actually 290,586 ‘real’ new businesses registered in the UK in 2014. Assuming that 60% of them survive past 3 years, around 174,351 will survive. Assuming that by this point they employ an average of 3 people that’s 523,000 jobs…in about three years from now.
UK redundancies are now at their lowest level since the beginning of the recession, but were still running in the last quarter of 2014 at around 35,000 a month. Assuming this were to flat line at this low level, three years from now, this would amount to 1,260,000 redundancies, almost two and a half times greater than my admittedly rough calculations of the creation of new jobs above.
When the coalition government came to power in 2010, the recovery strategy was simple.
The Bank of England ramped up quantitative easing and tag teamed with the Treasury to provide cheap cash to banks. Chancellor George Osborne allowed borrowing to remain high. In 2013, new Bank of England governor, Canadian Mark Carney, promised low interest rates for as long as was deemed necessary.
Demand and growth duly returned. Pay deflation effectively made British goods and services cheaper.
But this strategy has now been played out. Britain now has a new challenge. Today, the economy can no longer be propelled faster by keeping the foot on the QE/low pay pedal. Instead, its worn out and low-tech engine must become more efficient.
The productivity situation is especially dismal in Britain. Output per hour worked is still 2% below its pre-crisis peak; in the rest of the G7 group of countries it is 5% higher. The French could take Friday off and still produce more than Britons do in a week. Confounding the stereotypes, Italians are 9% more productive.
Britain’s workers are a bargain though, because their pay is so pitiful. Of the fifteen original members of the EU, only Greece and Portugal now have lower hourly wages. A British employee produces a fifth less their French counterpart, but he or she is more than a third cheaper to hire.
Britain has accomplished a recovery which has been fuelled not by growth in entrepreneurialism and productivity but a simple slashing of costs and an injection of cheap foreign labour..
And where investment is happening, it’s not in human capital, it’s in technology capital. This is why the outlook for future jobs still looks dire. And why average household incomes continue to fall:
According to the Office for National Statistics (ONS), between October and December 2014 in the UK, there were 107,000 redundancies, an average of 35,600 or so a month – an annualised level of 427,200 a year. The good news is that the peak of quarterly redundancies is long past – there were a whopping 300,000 redundancies in the UK in January to March 2009. But there's a lot of ground to make up. In total, since Jan 2008, the UK has experienced 4,347,000 redundancies.
And low wage Britain has attracted a swath of eager immigrants from even lower wage economies around the world. This has been helpful for the short term in providing abundant low cost workers for business. But as the challenge shifts from survival to growth, this part of the workforce is not equipped to deliver this critical next stage of recovery.
The simple facts are that whilst job losses are slowing, and new businesses are growing, there are just not enough new businesses employing enough people to compensate for the endless stream of technology driven redundancies from larger organisations.
It’s this substitution of technology and low cost labour for higher skilled and higher paid people which means we have a recovery in name only. In essence, the relentless march of technology and global labour mobility is destroying jobs far faster than our economy can create new ones. And sadly the legions of brave new entrepreneurs cannot come to the rescue.
Today, in the UK, there are 3,153,248 registered companies, up by 581,173 from last year. You'd be tempted to think this represents a growth new businesses by 18.4%. Except it's not. Granted, it is higher than it has ever been before, but its not really 18% growth in actual businesses or anything like it as I'll reveal shortly.
It’s typically quoted as an apparently simple measure of whether or not the business stock of the country is expanding or shrinking. It’s often presented as a measure of entrepreneurial activity.
We are told this record high number is a sure sign that we are on the path to recovery. But this deceptive raw statistic conceals the fact that this is a jobless recovery. And worse, it’s a low wage recovery to boot.
Jobs can only be recovered with the growth of new smaller businesses
We are told this record high number is a sure sign that we are on the path to recovery. But this deceptive raw statistic conceals the fact that this is a jobless recovery. And worse, it’s a low wage recovery to boot.
Jobs can only be recovered with the growth of new smaller businesses
The news of vast redundancy programmes by large employers continues to fill the media almost weekly. In the UK oil industry alone it is reported that 37,500 jobs are at currently risk. There’s no sign of large-scale redundancies from our big employers letting up in the alleged recovery.
In large organisations, a relatively small percentage cut in headcount can easily result in tens of thousands of lay-offs. These jobs have to be taken up elsewhere and there’s really only one sector where this can happen - smaller growing private businesses. They are certainly not going to be absorbed by the public sector, which is still endlessly cutting jobs to meet austerity targets.
And all the while, the march of technology is making people less and less valuable to organisations. This is what Jeremy Rifkin calls the zero marginal cost society and it’s becoming a reality faster than even he thought possible. I have provided an outline of this and what it means here.
Why record numbers of company registrations don’t mean a thing
In pre-election UK, the government is gleefully claiming a surge in business start-ups. A record breaking total of 581,173 new businesses were registered at Companies House last year. This was a higher total than the 526,447 in 2013 and 484,224 in 2012.
Is this an explosion of entrepreneurial activity? Sadly no.
Office for National Statistics (ONS) data reveals that only around 60% of start-up businesses survive beyond their first three years. According to research by Richard Murphy at Taxresearch.org.uk, around half of the businesses registered at Companies House have never even filed a tax return! Let’s ignore the distracting question about tax avoidance; the matter I am interested in is what this tells us about the scale of real business activity.
The disappointing truth is this measure tells us nothing. Every year around 500,000 companies registered at Companies House are dissolved. The total of 3,153,248 ‘active’ companies on the register is a merry go round of new registrations, dormant companies, strike offs and disolutions.
Even if this were a meaningful measure of entrepreneurial activity, the trouble is that in the UK, 88.8% of all UK registered businesses employ less than 10 people according to the Office for National Statistics (ONS) here
So if we take the 581,173 new companies registered for 2014 and assume that 50% are actual trading business entities, that means there were actually 290,586 ‘real’ new businesses registered in the UK in 2014. Assuming that 60% of them survive past 3 years, around 174,351 will survive. Assuming that by this point they employ an average of 3 people that’s 523,000 jobs…in about three years from now.
Of course the number of new business start-ups is broadly encouraging, but it’s not a meaningful barometer for the health of UK business overall.
UK redundancies are now at their lowest level since the beginning of the recession, but were still running in the last quarter of 2014 at around 35,000 a month. Assuming this were to flat line at this low level, three years from now, this would amount to 1,260,000 redundancies, almost two and a half times greater than my admittedly rough calculations of the creation of new jobs above.
Growth prospects for business in Britain
When the coalition government came to power in 2010, the recovery strategy was simple.
The Bank of England ramped up quantitative easing and tag teamed with the Treasury to provide cheap cash to banks. Chancellor George Osborne allowed borrowing to remain high. In 2013, new Bank of England governor, Canadian Mark Carney, promised low interest rates for as long as was deemed necessary.
Demand and growth duly returned. Pay deflation effectively made British goods and services cheaper.
But this strategy has now been played out. Britain now has a new challenge. Today, the economy can no longer be propelled faster by keeping the foot on the QE/low pay pedal. Instead, its worn out and low-tech engine must become more efficient.
The productivity situation is especially dismal in Britain. Output per hour worked is still 2% below its pre-crisis peak; in the rest of the G7 group of countries it is 5% higher. The French could take Friday off and still produce more than Britons do in a week. Confounding the stereotypes, Italians are 9% more productive.
Britain’s workers are a bargain though, because their pay is so pitiful. Of the fifteen original members of the EU, only Greece and Portugal now have lower hourly wages. A British employee produces a fifth less their French counterpart, but he or she is more than a third cheaper to hire.
Britain has accomplished a recovery which has been fuelled not by growth in entrepreneurialism and productivity but a simple slashing of costs and an injection of cheap foreign labour..
And where investment is happening, it’s not in human capital, it’s in technology capital. This is why the outlook for future jobs still looks dire. And why average household incomes continue to fall:
Is there an end to the mass redundancies of recent years?
According to the Office for National Statistics (ONS), between October and December 2014 in the UK, there were 107,000 redundancies, an average of 35,600 or so a month – an annualised level of 427,200 a year. The good news is that the peak of quarterly redundancies is long past – there were a whopping 300,000 redundancies in the UK in January to March 2009. But there's a lot of ground to make up. In total, since Jan 2008, the UK has experienced 4,347,000 redundancies.
And low wage Britain has attracted a swath of eager immigrants from even lower wage economies around the world. This has been helpful for the short term in providing abundant low cost workers for business. But as the challenge shifts from survival to growth, this part of the workforce is not equipped to deliver this critical next stage of recovery.
The simple facts are that whilst job losses are slowing, and new businesses are growing, there are just not enough new businesses employing enough people to compensate for the endless stream of technology driven redundancies from larger organisations.
It’s this substitution of technology and low cost labour for higher skilled and higher paid people which means we have a recovery in name only. In essence, the relentless march of technology and global labour mobility is destroying jobs far faster than our economy can create new ones. And sadly the legions of brave new entrepreneurs cannot come to the rescue.
So long as the bureaucrats and others can feather their nests, who cares about the middle class... until some demagogue politician taps into the anger. And bad things happen.
ReplyDeleteYou see, there's a myopia in thinking that since things have been stable in the past, they'll continue to be stable ongoing. Now please don't misunderstand, I'm not trying to make threats, or suggest or condone any sort of actual violence.
But desperate people do desperate things. Squeeze anything hard enough, it breaks. And when you threaten peoples' ability to put food on their table, etc., long enough - especially as those "at the top" spend so conspicuously - envy turns to wrath which becomes action.