Public Enterprise Revisited: A Closer Look at the 1954-79 UK Labour Productivity Record

Published by EH.NET (May 2002)

Chrisafis H. Iordanoglou, Public Enterprise Revisited: A Closer Look at the

1954-79 UK Labour Productivity Record. Cheltenham, UK and Northampton, MA:

Edward Elgar, 2001. xi + 659 pp. $115 (hardback), ISBN: 1-84064-456-7.

Reviewed for EH.NET by Stephen N. Broadberry, Department of Economics,

University of Warwick.

The historiography of British economic performance in the twentieth century

has undoubtedly undergone a dramatic shift in the last decade or so. During the

1970s and the early 1980s, in particular, assessments were extremely critical,

giving the impression that the British economy would soon be sinking to the

ranks of the Third World. The move to a less critical judgment seems to have

come with the shift of attention towards levels of productivity rather than

simply growth rates. Following important papers in 1986 by Moses Abramovitz in

the Journal of Economic History and by William Baumol in the American

Economic Review, economic historians and economists have increasingly

recognized the inverse relationship between initial levels of productivity and

subsequent growth rates. Slow growth during the post-World War II period in

countries such as Britain and the United States, can now be understood in terms

of the relatively high starting levels of productivity. But there is a danger

in the British case of Panglossian overstatement. For whereas the United States

has remained the world productivity leader, Britain has not only been caught up

by most West European countries, but has also fallen behind. The lag may not be

as great as was once feared, but it should not be ignored. One way of guarding

against the Panglossian view is to take account of the variation in performance

across sectors, and to identify the poor performers that can be seen as holding

back Britain’s aggregate productivity growth. Since this book aims to refute

the commonly held view that public enterprise performed badly in postwar

Britain, there is a danger that it could be seen as contributing to the

Panglossian view.

Iordanoglou attempts to defend Britain’s public enterprise by comparing labor

productivity growth between 1954 and 1979 in a sample of five public industries

with labor productivity growth in a sample of twenty-nine private industries

over the same period. The sample is selected on the basis of (1) market

expansion, as measured by the increase in the nominal value of sales, (2) plant

size and, (3) investment expenditure per employee measured over ten years in

current prices. The effect of this is to produce a much narrower study than

might be expected from the introduction. It must be emphasized that (1) since

the study is limited to expanding industries, there is no attempt to defend the

performance of declining public industries such as coal or the railways, (2)

the analysis is limited to labor productivity, with no assessment of total

factor productivity, (3) the analysis stops in 1979 before the privatization

program and productivity improvements of the 1980s and, (4) the large-scale,

capital-intensive, heavy industry that public enterprise is compared with has

traditionally been seen as an under-performing part of British private

industry. This is a fairly limited defense, then, but even this is not really

convincing if we take account of the catching-up perspective. For although

labor productivity growth was a bit faster in the public industries than in the

private industries, the initial labor productivity difference between Britain

and the United States was much greater in the public industries. This means

that the opportunity for catching-up growth was greater in the public

industries.

Iordanoglou’s defense of Britain’s public enterprise is unconvincing, then, but

there is another potential use for the book — as a source of data. Here,

however, it is unfortunate that the data are presented in a less than ideal

way. The first problem is that the use of a sample means that the data

appendices that make up nearly half of the book are a seriously incomplete

reference source. The manufacturing data are anyway available for the full

sample of industries and including capital and TFP growth as well as labor

productivity growth for a longer period in Nicholas Oulton and Mary O’Mahony’s,

Productivity and Growth: A Study of British Industry, 1954-1986

(Cambridge University Press, 1994). The second problem is that, as already

noted, the sample stops in 1979. This is not only a long time ago, but is also

just before the privatization program that has been accompanied by dramatic

changes in productivity performance. It is hard to see many economists or

historians being content with a data set that stops at this crucial point in

time.

Among Stephen Broadberry’s recent articles is “How Did the United States and

Germany Overtake Britain? A Sectoral Analysis of Comparative Productivity

Levels, 1870-1990,” Journal of Economic History 58(2), June 1998, pages

375-407.