By definition going green reduces productivity

Diane Coyle is suggesting that there needs to be a good, hard and long look at Britain’s productivity problem. Which would be an excellent idea, of course:

But what explains the UK’s specifically dismal productivity problem?

Some culprits will be depressingly familiar. A new report from The Productivity Institute (TPI) documents the consequences of the decade of declining spending per capita on education at all levels above primary school, the way expenditure on research and development as a share of GDP has fallen far behind other G7 economies and the confusing mishmash of small business support schemes. There is no shortage of diagnostic evidence about the wide range of productivity-limiting challenges. But two overarching weaknesses stand out: long-term under-investment and policy churn.

Investment in the UK has been lower, as a share of GDP, than in other G7 countries for decades.

This then leads to this suggestion:

This political economy context is why this week’s report, which captures the views of many of the UK researchers investigating productivity, calls for a new independent and statutory body to monitor, evaluate and report on policies for productivity and growth.

This institution would parallel the Office for Budget Responsibility, with a remit covering supply-side policies. It would co-ordinate across areas of policy and levels of government, with a focus on spatial economic growth, and would involve relevant stakeholders in its assessments. And it would need to be protected from policy churn itself with a statutory footing.

No, we’re not in favour of yet another bureaucracy. But even if we were we’d insist that people get to grips with what is being measured when we talk of productivity. For, by going green, we are deliberately, definitely and with malice aforethought, reducing productivity. This is also by definition, this is not something arguable.

We’ve mentioned this before around here but here’s one we prepared earlier, elsewhere:

We are, by dealing with those externalities, devoting economic energy — and other economic resources, but think just of the human effort here — to solving things which are not included in markets, in prices, in GDP. It’s that last factor that should cause the dawning realisation. It’s entirely true that solar power creates more jobs than nuclear per GWh of ‘leccie produced. The GWh is worth the same from either source, though, and solar requires more human labour — that’s the same statement as “creates more jobs” — so therefore solar power lowers measured productivity.

Sure, sure, we can say that not melting Greenland is important — human utility maximising even — and that’s almost certainly true as well. That’s not in our economic measures, though (externalities, see?), which means that, yes, preventing Lowestoft sinking beneath the waves is actually recorded as a decline in UK productivity.

It could be entirely true that we’re better off by addressing climate change. But it would still also be true - and again by definition - that by addressing climate change and other green externalities we are reducing productivity.

Now, given that the person recommending a Productivity Institute - or as far as we’re aware, actually runs one - isn’t mentioning this point we’d assume they’re not thinking of it. Which means we’re really most unsure of the merits of the thinking being done. And we’d certainly not recommend entombing that thinking into the bureaucracy.

It really is true that going green reduces labour productivity. By definition. A conversation about productivity that doesn’t even mention this isn’t one worth having.