Britain | Giving Luddites a bad name

What fax machines and floppy disks reveal about Britain’s productivity problem

A third of British companies have seen no rise at all in productivity this century

Stay on the scene, like a fax machine

PERHAPS the greatest problem facing the British economy—bigger, even, than Brexit—is weak productivity growth. During the 20th century the output per hour of British workers steadily increased. In the past decade, however, it has barely budged (see chart). That in turn has kept wage growth in check. The government says it will offer bold solutions to Britain’s productivity problem in its long-awaited “industrial strategy”, on which it is expected to publish a paper shortly. Yet take a look at the technology that British firms use, and it becomes clear that politicians have a huge task on their hands.

The technology at a firm’s disposal influences how productive it is. Some British companies use the whizziest stuff available. Funding Circle, a peer-to-peer lender based in London, uses machine-learning programs alongside more conventional methods to assess the creditworthiness of potential borrowers. In such firms, productivity growth tends to be high. Research by Andrew Haldane, the chief economist of the Bank of England, suggests that lately, around 1% of British companies have seen average productivity growth of a healthy 6% a year.

Yet many firms use far less impressive technology. A report commissioned by Amazon, an online retailing giant, and Enterprise Nation, a small-business group, hints at the scale of the problem. It suggests that over a fifth of British small and medium enterprises use or expect to use faxes to sell their goods and services. (A slightly lower share use or expect to use third-party websites or apps, such as Amazon itself, for that purpose.) Since 2012 Britain has imported roughly £10m-worth ($13m) of fax machines, according to our analysis of trade data. Only recently have football clubs in the Premier League stopped using them to complete transfer deals.

Businesses using such technology are surely part of Britain’s “long tail” of relatively unproductive companies, which hold back the economy’s overall productivity growth. In all countries there are high-flying firms and laggards, but in Britain the difference in productivity between them is unusually wide and in recent years has widened further. Roughly a third of British companies have seen no rise at all in their productivity this century, according to Mr Haldane’s research.

Fax machines are not the only old-school technology that these businesses use. In the commodity classification that includes blank floppy disks, MiniDiscs and cassettes, over £60m-worth of goods were imported last year, according to our analysis. And it is not just private companies that are behind the technological curve. The National Health Service uses more than a tenth of the global stock of pagers, suggests a recent report from CommonTime, a firm of consultants.

Even the most out-of-date technologies seem to be surprisingly enduring. George Blackman, one of the owners of a typewriter shop in East Sussex, says that business is good. Much of the trade comes from individuals with a taste for vintage goods. But not all of it. The shop also fixes up electronic typewriters for the odd company, including a packaging firm in the west of England. Last year across Britain, nearly 6m typewriter ribbons were sold, according to official data.

Everyone has an idea about how to get productivity growth back on track. Increasing the economy’s exposure to foreign trade would heighten the competition faced by firms, forcing the Luddites to shape up. Greater public investment in infrastructure and skills might make it easier for them to embrace new technologies. The government’s industrial strategy is likely to mention many such proposals. In the absence of a big cultural shift, however, Britain’s low rate of productivity growth may prove as long-lasting as the humble fax machine.

This article appeared in the Britain section of the print edition under the headline "Giving Luddites a bad name"

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