For too many in the UK, the recovery from the financial crisis still feels like nothing of the sort. Stagnating pay, flatlining productivity, rising debt and unaffordable housing are exacerbating a widespread feeling of economic insecurity. Last month, the Institute for Fiscal Studies predicted that we now face two decades of lost wage growth, with real wages in 2021 still below their 2007 level.
Our children’s generation may be the first in many decades that is poorer than its parents’. Consequently, people are reacting against the system and making their voices heard. The unexpected outcome of the last election, the Brexit vote and the election of Donald Trump are all evidence of this.
Now, technology adds a fresh complication. For while it offers significant opportunities – jobs in digital technology pay on average 36% more than the national average – society faces significant upheaval. In my own industry of financial services, bank branches are closing at an unprecedented rate as more people bank via smartphone. Writ large, some forecasts suggest as many as ten million jobs – 35 per cent of the UK workforce – could be lost due to automation by 2035.
It’s now up to business itself to step up, because government can’t do everything. While I welcome the Budget’s announcement of a national productivity investment fund, for example, we won’t truly solve the productivity crisis preventing a full economic recovery until business steps up. Where companies invest in technology and equipment, so significant productivity gains can follow. There are three areas where I want to see progress:
1) Education and skills
Every industry body or company I’ve spoken to complains that they have a skills shortage: older skilled workers are due to retire; businesses don’t see the skills they need in school and university leavers; and digital transformation requires entirely new skillsets. Indeed, CBI research recently argued that disparities in education and skills are the biggest cause of regional variations in productivity in the UK.
I welcome the government’s industrial strategy whitepaper as a step in the right direction, and the Institute for Apprenticeships, which I chair, is doing valuable work raising standards in vocational education. Sadly, UK businesses, who know better than anyone what skills they need to remain competitive, rank 23rd out of 26 EU countries on investment in employee training – hardly a recipe for success in the knowledge economy.
I now want to see business deliver its side of the bargain. If they are to thrive, these businesses must take a long-term view of their skills requirements and invest much more in their own future.
2) An end to short-termism
There’s a wider problem of mindset here. Too many companies are chasing short-term profit to the detriment of their long-term sustainability, leaving them unable to move beyond static business models to seek new opportunities.
Many banks, for example, continue to rely too much on overdraft charges for their revenue – a practice the charity StepChange last week called on banks to use much more responsibly. Instead of differentiating themselves on the quality of their products and services, many banks rely on inertia and cost-cutting. This is never a sustainable strategy for long-term growth.
3) Community obligations
Thriving towns and cities are the lifeblood of our economy, but there are too many communities that business has simply forgotten. In today’s populist climate, a company’s long-term future now depends on ensuring their actions are net-positive for wider society, to reconcile their purpose of making money with their obligations to customers and communities.
This week, my tenure as Chair of the charity Business in the Community, the Prince of Wales’ Responsible Business Network, came to an end. BITC was established in a period of similar social pressures – the riots of the early 1980s – so our founders knew all too well that the private sector had to play a far larger role in revitalising communities. BITC’s work is beginning to make a major difference in communities like Blackpool and Redcar, but too many businesses in this country still only pay lip service to their own community responsibilities.
This time, after Brexit and Trump, the circumstances are different. Business leaders can simply no longer ignore their obligations – how they invest in their workforce, how they do business, what products and services they sell, and how they respond to the ways digital technology is transforming the economy. Unless business navigates this period of change responsibly and helps communities overcome their economic challenges, it could face a significant public backlash.
We’re currently at a crossroads. We could take a path towards a more balanced, more productive and happier economy, or we can continue down the current road that’s leaving many individuals and communities neglected, contributing to widening inequality, sluggish revenue growth and stagnating productivity.
The choice is business’s to make.