Each week, BBC Radio 4 broadcasts readings from a book serialised in five 15-minute episodes. In the week beginning 18 January 2021, the readings were from English Pastoral: An Inheritance by James Rebanks, a farmer from the Cumbrian fells. His farm is relatively small, covering 185 acres.
He has attempted to make it much more sustainable and less intensive, reintroducing traditional Herdwick sheep, having a mixture of cows and sheep rather than just sheep, a greater sub-division of fields, and more natural scrubland, peatbogs and trees. As a result, soil quality has improved and there has been an explosion of biodiversity, with an abundance of wild flowers and insects.
Apart from being an autobiography of his time as a farmer and his attempt to move towards more traditional methods, the book examines broader issues of agricultural sustainability. It looks at the pressures of consumers wanting cheap food, the market power of supermarkets and wholesalers, the cost pressures on farmers pushing them towards monoculture to achieve economies of scale, and the role of the agrichemicals industry promoting fertilisers, feeds and pesticides which bring short-term financial gains to farmers, but which cause longer-term damage to the land and to biodiversity.
Rebanks has gained quite a lot of media attention after the publication of his first book, The Shepherd’s Life, including being one of the guests on Desert Island Discs and the subject of an episode of The Food Programme.
Listen to the Food Programme podcast and try answering the questions, which are all based on the podcast in the order of the points made in the interview.
- What are the incentives of an unregulated market for food that result in monoculture and a loss of biodiversity?
- To what extent are consumers responsible for changes in farming methods?
- Have the changes helped the urban poor?
- How is the monopsony power of supermarkets and food wholesalers impacting on food production and the pattern of agriculture?
- There are various (private) economies of scale in food production, but these often involve substantial external costs and long-term private costs too. How does this impact on land use?
- What are some of the limits of technology in increasing crop, meat and dairy yields?
- Will more recent changes in the pattern of food consumption help to increase mixed farming and biodiversity?
- Is it ‘rational’ for many farmers to continue with intensive farming with high levels of artificial fertilisers and pesticides?
- Is diversity in farming across farms within a local area a public good? If so, how could such diversity be achieved?
- How can farmers be encouraged to think and act holistically?
- Is there a trade-off between food output and biodiversity?
- What are the dangers in the UK reaching an agricultural trade deal with the USA?
- What are the benefits and costs of encouraging local food markets?
Three international agencies, the IMF, the European Commission and the OECD, all publish six-monthly forecasts for a range of countries. As each agency’s forecasts have been published this year, so the forecasts for economic growth and other macroeconomic indicators, such as unemployment, have got more dire.
The IMF was the first to report. Its World Economic Outlook, published on 14 April, forecast that in the UK real GDP would fall by 6.5% in 2020 and rise by 4% in 2021 (not enough to restore GDP to 2019 levels); in the USA it would fall by 5.9% this year and rise by 4.7% next year; in the eurozone it would fall by 7.5% this year and rise by 4.7% next.
The European Commission was next to report. Its AMECO database was published on 6 May. This forecast that UK real GDP would fall by 8.3% this year and rise by 6% next; in the USA it would fall by 6.5% this year and rise by 4.9% next; in the eurozone it would fall by 7.7% this year and rise by 6.3% next.
The latest to report was the OECD on 10 June. The OECD Economic Outlook was the most gloomy. In fact, it produced two sets of forecasts.
The first, more optimistic one (but still more gloomy than the forecasts of the other two agencies) was based on the assumption that lockdowns would continue to be lifted and that there would be no second outbreak later in the year. This ‘single-hit scenario’ forecast that UK real GDP would fall by 11.5% this year and rise by 9% next (a similar picture to France and Italy); in the USA it would fall by 7.3% this year and rise by 4.1% next; in the eurozone it would fall by 9.1% this year and rise by 6.5% next.
The second set of OECD forecasts was based on the assumption that there would be a second wave of the virus and that lockdowns would have to be reinstated. Under this ‘double-hit scenario’, the UK’s GDP is forecast to fall by 14.0% this year and rise by 5.0 per cent next; in the USA it would fall by 8.5% this year and rise by 1.9% next; in the eurozone it would fall by 11.5% this year and rise by 3.5% next.
The first chart shows the four sets of forecasts (including two from the OECD) for a range of countries. The first four bars for each country are the forecasts for 2020; the other four bars for each country are for 2021. (Click here for a PowerPoint of the chart.)
The second chart shows unemployment rates from 2006. The figures for 2020 and 2021 are OECD forecasts based on the double-hit assumption. You can clearly see the dramatic rise in unemployment in all the countries in 2020. In some cases it is forecast that there will be a further rise in 2021. (Click here for a PowerPoint of the chart.)
As the OECD states:
In both scenarios, the recovery, after an initial, rapid resumption of activity, will take a long time to bring output back to pre-pandemic levels, and the crisis will leave long-lasting scars – a fall in living standards, high unemployment and weak investment. Job losses in the most affected sectors, such as tourism, hospitality and entertainment, will particularly hit low-skilled, young, and informal workers.
But why have the forecasts got gloomier? There are both demand- and supply-side reasons.
Aggregate demand has fallen more dramatically than originally anticipated. Lockdowns have lasted longer in many countries than governments had initially thought, with partial lockdowns, which replace them, taking a long time to lift. With less opportunity for people to go out and spend, consumption has fallen and saving has risen. Businesses that have shut, some permanently, have laid off workers or they have been furloughed on reduced incomes. This too has reduced spending. Even when travel restrictions are lifted, many people are reluctant to take holidays at home and abroad and to use public transport for fear of catching the virus. This reluctance has been higher than originally anticipated. Again, spending is lower than before. Even when restaurants, bars and other public venues are reopened, most operate at less than full capacity to allow for social distancing. Uncertainty about the future has discouraged firms from investing, adding to the fall in demand.
On the supply side, there has been considerable damage to capacity, with firms closing and both new and replacement investment being put on hold. Confidence in many sectors has plummeted as shown in the third chart which looks at business and consumer confidence in the EU. (Click here for a PowerPoint of the above chart.) Lack of confidence directly affects investment with both supply- and demand-side consequences.
Achieving a sustained recovery will require deft political and economic judgements by policymakers. What is more, people are increasingly calling for a different type of economy – one where growth is sustainable with less pollution and degradation of the environment and one where growth is more inclusive, where the benefits are shared more equally. As Angel Gurría, OECD Secretary-General, states in his speech launching the latest OECD Economic Outlook:
The aim should not be to go back to normal – normal was what got us where we are now.
- Why has the UK economy been particularly badly it by the Covid-19 pandemic?
- What will determine the size and timing of the ‘bounce back’?
- Why will the pandemic have “dire and long-lasting consequences for people, firms and governments”?
- Why have many people on low incomes faced harsher consequences than those on higher incomes?
- What are the likely environmental impacts of the pandemic and government measures to mitigate the effects?
Late last year I wrote a blog post describing how the UK Competition & Markets Authority (CMA) was looking into Amazon’s investment in online food delivery company Deliveroo. Through this investment Amazon would become a minority shareholder in Deliveroo and be able to participate in the management of the company.
At this time the CMA had completed its initial investigation and decided that it had concerns about the impact the investment would have on competition. Since Amazon and Deliveroo did not then offer any proposal to address these concerns, the CMA referred the case for a full-blown investigation. They were not expected to make a decision until June. However, earlier this month the CMA announced that they would provisionally clear the investment.
This decision is a result of the impact coronavirus pandemic has had on the UK economy. The lockdown in the UK has seen many of the restaurants Deliveroo previously delivered from temporarily shutting down. In response, Deliveroo has significantly expanded the online grocery store delivery part of its business. Despite this, it appears that overall the pandemic has significantly reduced their revenues. This will clearly have a significant impact on gig economy workers who, more generally, are particularly affected by the current circumstances (see the earlier post on this site).
As a result of the pandemic, Deliveroo informed the CMA that they would go out of business without the investment from Amazon. This is very much in line with wider evidence of the impact the pandemic is already having on businesses. The CMA accepted that without additional funding Deliveroo would exit the market and that under the current circumstances it would be very difficult for them to secure an alternative source of funding. Furthermore, they regarded Deliveroo exiting the market as the worst outcome for competition, with Stuart McIntosh, Chair of the inquiry group, stating that:
This could mean that some customers are cut off from online food delivery altogether, with others facing higher prices or a reduction in service quality. Faced with that stark outcome, we feel the best course of action is to provisionally clear Amazon’s investment in Deliveroo.
The unprecedented circumstances created by the coronavirus pandemic provide a clear justification for the approach the CMA has taken. However, in the long-run there may be adverse consequences for competition. For example, the reduction in competition in online grocery store delivery that the CMA originally feared may materialise. In addition, it will be interesting to see whether the effect the pandemic has on Deliveroo’s business makes it more likely that Amazon will look to fully acquire them.
- Distinguishing between the short and long run, how do you think the market would change if Deliveroo were to exit?
- Why do you think it would be difficult for Deliveroo to find alternative sources of funding at the current time?
- What trade-offs would the CMA have had to consider when deciding to clear Amazon’s investment?
Since the financial crisis of 2008–9, the UK has experienced the lowest growth in productivity for the past 250 years. This is the conclusion of a recent paper published in the National Institute Economics Review. Titled, Is the UK Productivity Slowdown Unprecedented, the authors, Nicholas Crafts of the University of Sussex and Terence C Mills of Loughborough University, argue that ‘the current productivity slowdown has resulted in productivity being 19.7 per cent below the pre-2008 trend path in 2018. This is nearly double the previous worst productivity shortfall ten years after the start of a downturn.’
According to ONS figures, productivity (output per hour worked) peaked in 2007 Q4. It did not regain this level until 2011 Q1 and by 2019 Q3 was still only 2.4% above the 2007 Q4 level. This represents an average annual growth rate over the period of just 0.28%. By contrast, the average annual growth rate of productivity for the 35 years prior to 2007 was 2.30%.
The chart illustrates this and shows the productivity gap, which is the amount by which output per hour is below trend output per hour from 1971 to 2007. By 2019 Q3 this gap was 27.5%. (Click here for a PowerPoint of the chart.) Clearly, this lack of growth in productivity over the past 12 years has severe implications for living standards. Labour productivity is a key determinant of potential GDP, which, in turn, is the major limiter of actual GDP.
Crafts and Mills explore the reasons for this dramatic slowdown in productivity. They identify three primary reasons.
The first is a slowdown in the impact of developments in ICT on productivity. The office and production revolutions that developments in computing and its uses had brought about have now become universal. New developments in ICT are now largely in terms of greater speed of computing and greater sophistication of software. Perhaps with an acceleration in the development of artificial intelligence and robotics, productivity growth may well increase in the relatively near future (see third article below).
The second cause is the prolonged impact of the banking crisis, with banks more cautious about lending and firms more cautious about borrowing for investment. What is more, the decline in investment directly impacts on potential output, and layoffs or restructuring can leave people with redundant skills. There is a hysteresis effect.
The third cause identified by Crafts and Mills is Brexit. Brexit and the uncertainty surrounding it has resulted in a decline in investment and ‘a diversion of top-management time towards Brexit planning and a relative shrinking of highly-productive exporters compared with less productive domestically orientated firms’.
- How suitable is output (GDP) per hour as a measure of labour productivity?
- Compare this measure of productivity with other measures.
- According to Crafts and Mills, what is the size of the impact of each of their three explanations of the productivity slowdown?
- Would you expect the growth in productivity to return to pre-2007 levels over the coming years? Explain.
- Explain the underlying model for obtaining trend productivity growth rates used by Crafts and Mills.
- Explain and comment on each of the six figures in the Crafts and Mills paper.
- What policies should the government adopt to increase productivity growth?
A lack of productivity growth has been a major problem for the UK economy over the past decade (click here for a PowerPoint of the chart). Is it possible that the new decade may see a pick-up in the growth in output per hour worked?
One possible solution to low productivity growth is to reduce working hours and even to move to a four-day week, but not to reduce total pay. If people work fewer hours, they may well be more productive in the hours they do work. In fact, not only may output per hour increase, but so too may output per worker, despite fewer hours being worked. What is more, the quality of output may increase with people being less tired and more motivated.
Several companies have experimented with a four-day week, including Microsoft in Japan, which employees 2300 workers. It found that, despite a 20% reduction in hours worked, output per hour worked increased by 40%, with total output thereby increasing. Workers were generally happier and more motivated and asked for fewer days off.
And it is not just a question of output: fewer hours can result in lower costs. The effect on costs will depend on the nature of new work patterns, including whether everyone has the same extra day off.
But a four-day week is only one way of cutting working hours for full-time employees. Another is to reduce the length of the working day. The argument is that people may work more efficiently if the standard working day is cut from eight to, say, five hours. As the first Thrive Global article article (linked below) states:
Just because you’re at your desk for eight hours doesn’t mean you’re being productive. Even the best employees probably only accomplish two to three hours of actual work. The five-hour day is about managing human energy more efficiently by working in bursts over a shorter period.
If people have more leisure time, this could provide a boost to the leisure and other industries. According to a Henley Business School study:
An extra day off could have a knock-on effect for the wider society. We found 54% of employees said they would spend their day shopping, meaning a potential boost for the high street, 43% would go to the cinema or theatre and 39% would eat out at restaurants.
What is more, many people would be likely to use the extra time productively, undertaking training, volunteering or other socially useful activities. Also family life is likely to improve, with people spending less time at work and commuting and having more time for their partners, children, other relatives and friends. In addition, people’s physical and mental health is likely to improve as they achieve a better work-life balance.
So, should firms be encouraged to reduce hours for full-time workers with no loss of pay? Many firms may need no encouragement at all if they can see from the example of others that it is in their interests. But many firms may find it difficult, especially if their suppliers and/or customers are sticking with ‘normal’ working hours and want to do business during those hours. But, over time, as more firms move in this direction, so it will become increasingly in the interests of others to follow suit.
In the meantime, should the government introduce incentives (such as tax breaks) or regulations to limit the working week? Indeed, it was part of the Labour manifesto for the December 2019 election that the country should, over time, move to a four-day week. Although this was a long-term goal, it would probably have involved the use of some incentives to encourage employers to move in that direction or the gradual introduction of limits on the number of hours or days per week that people could work in a particular job. It is unlikely that the new Conservative government will introduce any specific measures, but would probably not want to discourage firms from reducing working hours, especially if it is accompanied by increased output per worker.
But despite the gains, there are some problems with reduced working hours. Many small businesses, such as shops, restaurants and firms offering technical support, may not have the flexibility to offer reduced hours, or may find it hard to increase productivity when there is a specific amount of work that needs doing, such as serving customers.
Another problem concerns businesses where the output of individuals is not easy to measure because they are part of a team. Reducing hours or the working week may not make such people work harder if they can ‘get way with it’. Not everyone is likely to be motivated by fewer hours to work harder.
Then there is the problem if reduced hours don’t work in boosting productivity. It may then be very difficult to reintroduce longer hours.
But, despite these problems, there are many firms where substantial gains in productivity could be made by restructuring work in a way that reduces hours worked. We may see more and more examples as the decade progresses.
- Economics of a four-day working week: research shows it can save businesses mone
The Conversation, Miriam Marra (11/11/19)
- Less hours for work, more time on Earth: Why a four-day working week is good for you
Independent, Steve Taylor (16/12/19)
- Microsoft Japan Launched A Four-Day Workweek To Much Success: Is This The Key To Attracting Talent In The Tight U.S. Job Market?
Forbes, Jack Kelly (5/11/19)
- Will The Five-Hour Work Day Catch On In America?
Forbes, Jack Kelly (28/10/19)
- My Company Implemented a 5-Hour Workday — and the Results Have Been Astounding
Thrive Global, Stephan Aarstol (3/10/19)
- Why Does a Four-Day Work Week Achieve Better Results?
Thrive Global, Stephanie Lin (16/12/19)
- Four-Day Working Week Improves Staff’s Mental Health By 87%, Company Finds
Unilad, Niamh Shackleton (10/12/19)
- Hull business launches four-day working week as well as your birthday off and ‘Beer Fridays’
Hull Live, Phil Winter (5/12/19)
- A four-day work week? Sounds nice, but here’s the real deal
Sydney Morning Herald, Tony Featherstone (21/11/19)
- The four-day debate: Fantasy or feasible?
The Hindu, Business Live, Kamal Karanth (20/11/19)
- Finland’s ministry of transport floats tech-enabled four-day week
Computer Weekly, Gerard O’Dwyer (20/11/19)
- Should You Consider a 4 Day Work Week?
Small Business Trends, Rob Starr (5/12/19)
- Distinguish between different ways of measuring labour productivity.
- Give some examples (from the linked references) of employers which have tried introducing a four-day week or reduced hours for full-time workers. What has been the outcome in each case?
- In what ways may reducing working hours reduce a firm’s total costs?
- What are the advantages and disadvantages of the government imposing (at some point in the future) a maximum working week or a four-day week?
- What types of firm might struggle in introducing a four-day week or a substantially reduced number of hours for full-time employees?
- What external benefits and costs might arise from a shorter working week?