The zombie company concept was developed in Japan, to suggest that persistent low interest rates allowed heavily indebted companies (who might, at more normal rates of interest, have been liquidated) to stay in business, thus preventing the Schumpeterian creative destruction that allows the business sector to innovate and improve. It has since been applied to the UK as a possible explanation of low productivity, most recently by Liam Halligan in the Sunday Telegraph.

 

There are three problems with the claim. The first is that in the UK stagnant low productivity companies tend not to be heavily indebted but instead sit on cash. So low interest rates hinder, not help, them.

 

The second is that, according to the ONS, the UK productivity problem has been concentrated in five sectors: banking, telecoms, management consulting, gas and electricity supply and legal services. As Chris Giles and Emma Tetlow of the Financial Times point out ‘these are among the UK’s most prestigious and go-getting sectors, suggesting that mediocre companies just bumbling along are not the root of the problem’.

 

The third problem is that the UK’s recent economic history has in fact, far from being one of stagnation, been one of amazing innovation, with the blend of the creative and tech sectors which I have named the ‘Flat White Economy’ growing from nothing in 1998 to 10 per cent of GDP in 2016. Last year, this sector accounted for half of the UK’s GDP growth.

 

So if zombie companies are not the problem, why has productivity growth been so subdued? There is a mix of explanations. One is statistical. Difficulty with measurement in the tech sector and outdated accounting conventions for the financial sector explain just under half the measured productivity shortfall.

 

Then there are the conventional explanations like lack of infrastructure and lack of training, both of which look plausible. There is also the explanation that the high availability of labour from immigrant labour depresses investment in productivity. This is probably true in some sectors, though in the ‘Flat White Economy’ immigration boosts creativity which is the sector’s raw material and leads ultimately to higher productivity.

 

But there is another explanation which seems particularly consistent with the latest data. This is that people are increasingly taking on jobs that offer a more attractive lifestyle or more opportunities for helping others than those that their predecessors might have accepted a decade or so ago, but at the cost of lower pay.

 

Cebr’s preliminary estimate is that this change in job preferences, which we have called ‘the lifestyle economy’, has reduced GDP growth since 2008 by an amount adding up to at least four per cent of GDP or £80 billion this year and that this could explain about a quarter of the measured productivity shortfall. Cebr’s calculations suggest that the rise in the share of ‘lifestyle jobs’ in just this 9 year period has been as much as 8.3 per cent of all jobs. Now, a third of jobs in the UK could be described as essentially lifestyle based.

The growth in lifestyle jobs is supported by the data from the British Social Attitudes Survey showing that the proportion who think that they have a ‘good’ job has risen sharply, especially in the period from 2005-15. The latest report claims: ‘71 per cent of workers [in 2015] have a ‘good’ job (one with at least 4 positive attributes such as being interesting, helping others and/or society, and offering chances for advancement), compared with 62 per cent in 2005 and 57 per cent in 1989’.

 

It is also backed up by the occupation data. Since 2008, there has been a dramatic fall in the numbers employed as managers – down from 3.9 million in 2008 to 2.6 million in 2017, while the number working as ‘professionals’ has jumped from 3.7 million to 6.4 million; and in ‘Care and Leisure’ from 2.4 million to 3.0 million.

 

Meanwhile, looking at more detailed categories, most striking is that the numbers working in ‘artistic and literary occupations’ has more than doubled from 190,000 to 416,000. Also interesting is that the number working as ‘scientific professionals’ is up from 141,000 to 195,000. While the number in ‘sports and fitness’ is up from 120,000 to 188,000.

 

Rather less surprising is the huge jump from 444,000 to 922,000 in the number of ‘information technology and telecommunications professionals’ who of course are part of the booming ‘Flat White Economy’, while the number of business and statistics professionals (which includes economists) is up from 377,000 to 729,000. And given the claims of government spending austerity over the period, it is quite striking that the numbers working in health and education have also risen fairly sharply: teaching professionals up from 1,298,000 to 1,556,000; and health professionals up from 334,000 to 563,000.

 

I should make it clear that this change in attitudes to work is essentially benign. It is much better for people to be doing what they want to do, if the opportunities are available, than doing jobs they don’t like even if those jobs might have been better remunerated. But it is not all gain. There are implications for public finances, because income and earnings are taxed while lifestyle and caring cannot be. The Cebr estimate is that tax receipts are down about £35 billion since 2008. If these changes in work preferences continue, there will be implications for tax, borrowing and public services.

 

Douglas McWilliams is deputy chairman of the Centre for Economic and Business Research

 

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