Lies, damned lies and statistics

By Neil Patrick

We all know this saying. But it came into sharp focus last week, when I was researching what the numbers of companies recorded at Companies House actually means.  Answer - not as much as some people would have us believe.

These types of numbers are routinely quoted by politicians as evidence of the correctness of their argument or viewpoint. But politicians are rarely even numerate, let alone statistical experts.

In 2011, Ipsos MORI carried out a test to find out how good with numbers our politicians actually are.

A total of 97 MPs were asked this probability problem: If you spin a coin twice, what is the probability of getting two heads?*

According to the BBC report, among Conservative members, 47% gave the wrong answer, which is disappointing enough. But of the 44 Labour MPs who took part, 77% answered incorrectly!

*The correct answer is of course 25%.

This is truly shocking I think. Whilst MPs of all parties are quick to claim that the nation’s general standards of numeracy are not high enough, their own levels of numeracy are truly frightening. If you or I are not great with numbers, we are the main losers. When it comes to MPs, if they cannot understand numbers they will make potentially disastrous decisions that affect us all.

According to Wikipedia:

"Lies, damned lies, and statistics" is a phrase describing the persuasive power of numbers, particularly the use of statistics to bolster weak arguments. It is also sometimes colloquially used to doubt statistics used to prove an opponent's point.

The term was popularised in the United States by Mark Twain (among others), who attributed it to the 19th-century British Prime Minister Benjamin Disraeli (1804–1881): "There are three kinds of lies: lies, damned lies, and statistics."

I never really attributed much significance to the saying. It was merely a witticism to me. But last week, after spending an inordinate amount of time trying to find some simple numbers in the website of the Office for National Statistics (ONS), I began to see deep meaning and wisdom in the saying.

Then on Friday night I sat down in my local pub with a well-earned pint and encountered a friend. I recalled he worked for the ONS as a compiler of government data.

At first as I was feeling off-duty, I merely ribbed him about how hopelessly impenetrable his employer’s website was. Instead of pushing back, he actually agreed with me.

A rather more earnest conversation ensued. What emerged was less sensational than conspiracy theorists would have us believe, but also much more illuminating than anything I had thought of.

And it boils down to this. The ONS who are the main compliers of all UK government data which is used to inform decisions made by many including the government and Bank of England, depends on millions of inputs every month from individuals and organisations. A few, (my friend suggested less than 1%), take their reporting of data very seriously. But the vast majority see it as a difficult and burdensome task and consequently give it little priority or care (there is no benefit to them in being super diligent after all).

In most cases the task gets delegated to a very junior person who also cares little about accuracy, and probably doesn’t even know for sure what the correct figures are. According to my friend, the usual outcome is that a number similar to the last one provided is simply provided. After all if a big change is reported, even if it is true, the number may get queried, creating even more unwanted work. So the default is to just put in a similar number to the last one provided, even if this bears no resemblance to the truth.

I’m not suggesting that this means all government statistics are meaningless. On the contrary, they are probably the best indicators we have. But they are not correct and will never be. However, even if they over or under report the actual figures, the inherent errors will be consistent. This means that the most important information i.e. the trends rather than absolute numbers will be broadly informative.

So next time you see a press headline which quotes an actual number rather than a change in a number, remember this number is almost certainly wrong.

And if it’s quoted by a politician, remember they almost certainly have little idea of what the number actually means.

As everyone in IT is constantly telling is, “ If c**p goes in, c**p comes out”. And this is clearly what is happening with our national statistics.

Why entrepreneurs alone cannot solve the jobs crisis

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.

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 

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.

Why we should all be concerned about banking job losses

By Neil Patrick

News reached me this morning that RBS is to make 20,000 (about 20%) of its staff redundant in the next few years. These job cuts will take RBS staff numbers to their lowest level in more than a decade.

RBS is expected to exit its Connecticut-based US investment banking business, as well as shutting down large parts of its Asian investment bank.

 Ross McEwan, Chief Executive of RBS. Photograph: Ian Macaulay/PA

If you are not familiar with RBS, in brief, these job losses and business closures will likely see RBS staff numbers, which stood at 161,000 at the time of its £46bn government bailout in 2008, fall to below 100,000 for the first time since the bank’s 2000 takeover of larger rival NatWest.

Since the bailout, the RBS share price has been languishing in the doldrums:

So what?

You may not care about bankers losing their jobs. You might even think it’s the very least they deserve.

I spent almost 20 years in banking and finance and left it for good in 2004. I cannot claim any great moralistic reasons for this choice or even foresight about the tsunami which was headed towards the sector. No, I was just a bit bored and wanted to do other things. But I have retained an interest in the sector and watched its grisly agonies like a train wreck.

So I feel I have a unique perspective. First inside experience of how banks operate and stage manage their communications and second a degree of detachment which makes me neither sympathetic nor an outright bank hater.

Why this news is significant

The public reaction to this news was even more interesting than the news itself. People’s reactions are shaped by their political and social beliefs more than anything else it seems.

Those of a socialist persuasion see this as some kind of moral victory, but also suspect that these redundancies will be softened with generous exit packages. Those of a more capitalist orientation see it as share price manipulation and the share price did tick up a few points on this news granted. Those who are inclined to a conspiracy view of the world see this news as evidence of yet more government and big business bosses in collusion for their own ends.

I subscribe to none of this positions, though I can see some truth in all of them. What I am really interested in though is what this tells us about the future of work in general.

This is yet more evidence of how technology will continue to destroy jobs for everyone

Buried behind the headlines was this comment:

Project Cook, the internal codename for the plans, will deliver cost cuts which are intended to help fund increased investment on vital IT systems after a series of embarrassing glitches caused millions of the bank’s customers to lose access to their money.

Ross McEwan, CEO, is understood to believe that only increased automation will allow the bank to compete with rivals such as Barclays and Santander UK, which have spent billions of pounds building state-of-the-art computer platforms to offer customers better online and mobile banking services.

This is how the banks frame their statements for public consumption. These headcount cuts are presented as being an investment to enable them to deliver better customer services through more and better IT.

The job cuts are explained as being necessary so that customers and investors can both benefit. Regulators will be happier too as these changes will improve the bank’s capital ratios.

These things may all be at least partially true. But they don’t matter. What matters is that thousands of high paying jobs will be lost and replaced with a combination of technology and lower cost labour. And because similar trends are developing within the rest of the sector and businesses as whole, many within this massive exodus of workers will find nowhere to be rehired.

This accelerated contraction of the banking sector jobs means these people will soon be looking for jobs outside the sector. Which may well mean they’ll be after your next job.

This is why this isn’t good news for anyone.