Cracking the UK Productivity Puzzle

My family and I just got back from a week in Greece. It’s a beautiful country with wonderful people. But more importantly, almost all that we have today sprang from that vibrant, innovative, intellectually brilliant culture – Democracy, Mathematics, the Sciences, Philosophy, the arts. Sure there are other cultures that have influenced the word a great deal from the romans, to ancient india, china, then later the dutch and the British.

But the Greek culture has had a disproportionate impact on the world we live in today. My American wife, Catherine, often has quite a ‘new world take on issues’ – On Greece, she also had a great insight ‘it’s amazing that this country was the birthplace of so much that is exceptional in the modern world. Yet look at it today, mired in unemployment, poverty, and with a failing political and economic system.

And I got thinking – what caused that decline? And I came to the conclusion that it was declining innovation, and productivity growth.

Countries need to keep innovating, and improving, to maintain their economic strength. And without economic strength, no other can really persist. No country can afford to rest on its laurels, otherwise they risk going from being the Greece of the ancient world to the Greece of today.

Then I started to think about three countries that I am most intimately acquainted with – I have lived and worked extensively in all three countries. The Netherlands, where I was born, and the home of my mother. The UK where I was raised for much of my life, and where I went to university. And finally, the USA, the country I moved to by choice – first, to study for an MBA, and then raising a family and working there.

But my experiences are one part of the story only. I will rely on data to inform me as to my thesis on falling productivity. But there are other, rather wonderful reasons why comparing the UK to the Netherlands, and the USA can provide such powerful insights.

The USA has the most free market Economy – the lowest taxes, the highest inequality (though the UK is getting closer), and the least protective legislation (it varies from state to state though – Massachusetts, is almost akin to the UK in workers protection, whilst States like Florida, or Texas are truly the ‘wild west’ with very little in the way of workers rights).

The Netherlands is at the other end of the spectrum. It is very hard to fire someone (as in France, or Germany). Workers are far more protected than in the UK, and Dutch workers. 27 hours a week in the Netherlands versus 36 in the USA and 31 in the UK.  https://worldpopulationreview.com/country-rankings/average-work-week-by-country

It’s hard to talk about large macro economic issues like productivity, without veering into politics. When you start to talk about solutions to issues like low productivity growth, it’s almost impossible to do so without talking politics.

However, I am aiming to, as far as possible, avoid taking a political position. I am far more interested in finding out what your views are on how to solve this problem.

 

The Problem – low productivity growth in the UK over the last twenty years, which has been exacerbated by each crisis – from the 2008 financial crash, to Brexit, to the Covid pandemic. UK productivity, already struggling, has been hit by each crisis, and not recovered from them (in the way that the USA, has, for example). Why is that?

So I have two theories backed with extensive evidence, why the UK is underperforming both a more free market economy like the USA, as well as a more planned economy like the Netherlands. And one that is more of a conjecture, based on my personal experience and observations. However, I have tried to provide good data to support that theory as well. 

Lack of investment

My experience of working in the US and the Netherlands bears out the hard evidence, that business investment in the UK is very low and falling, and that this is a major factor in our poor productivity growth. I’m not just talking about investment in hardware, software or other work tools. There is very little on the job training in the UK, versus in the US, or the Netherlands.

The numbers behind that observation are stark. Whole-economy investment in the UK was just 18.9% of GDP in 2025 — the lowest in the G7. The US sits at 21.6%. The Netherlands at 19.7%. A three-percentage-point gap against the US doesn’t sound like much. But sustained year after year for two decades, it compounds into a yawning chasm.

 

 

The Institute for Public Policy Research went further in their April 2026 analysis. They calculated a “capital gap” — how much less capital British workers have to work with compared to peer countries. The answer: British workers have 38% less capital per hour worked than the average of comparable economies. In manufacturing specifically, the gap rises to 47% — versus a peer set of the USA, Germany, France and the Netherlands. 

British factory workers are working with roughly half the machinery, equipment, robots and IT systems that their American, German, French and Dutch counterparts have. Of course they produce less per hour. They’re working with one hand tied behind their back. (IPPR press release, April 2026)

And it gets worse on intangibles. The US invests 6.7% of GDP per year in software, IP, data and organisational know-how. The UK invests just 4.2%. That gap is hugely significant because intangibles — software, design, brand value, training, R&D — are increasingly what drives productivity in a modern economy. 

The US has been quietly out-investing us in the very things that compound the fastest, and the gap is widening, not closing.

Then there’s the on-the-job training I mentioned. The hard numbers: British businesses spend roughly half the EU average per worker on training and development. The Chartered Management Institute reports that around 82% of UK training spend is funded by employers themselves — and naturally, employers prioritise senior and professional roles, not the middle managers and frontline workers who actually run day-to-day operations. 

The result is a workforce that doesn’t get developed beyond what each individual chooses to invest in themselves.

In the States, every employer I worked for had a real training budget — actual money set aside to develop me. The Netherlands was the same. In the UK, not so much.

Poor management

If I’m honest, this is the one that surprised me most when I started digging. I’d always vaguely assumed British management was a bit stuffy but basically fine. It turns out, it isn’t.

There’s a serious field of academic work measuring management quality across countries, called the World Management Survey. It’s been running since 2002, led by Nick Bloom (Stanford), John Van Reenen (LSE/MIT), and Raffaella Sadun (Harvard). They’ve trained interviewers to score firms across 18 management practices — things like target-setting, monitoring, talent development, and how firms deal with poor performers — using structured interviews with middle managers. They’ve now covered around 13,000 firms in 35 countries.

The results aren’t kind to us.

The US comes in first. Then Japan, Germany, Sweden and Canada. The Netherlands ranks sixth, at 3.04 out of 5. The UK ranks seventh, at 2.95. The gap to the Netherlands is small. The gap to the US is roughly half a standard deviation — which sounds technical, but Andy Haldane (then chief economist at the Bank of England) translated it in a memorable 2018 speech, “The UK’s Productivity Problem: Hub No Spokes.” 

UK management practices, he said, are about half a standard deviation lower than comparator countries, and these management skills are statistically significant determinants of productivity.

But here’s what really matters: the headline average understates the problem. Haldane showed that the UK has TWICE the share of firms with low management scores compared to the US and Germany. We have plenty of world-class firms at the frontier — but a long, fat tail of badly-managed companies that other countries simply don’t have to anything like the same extent. And that tail has been growing. Between 1997 and 2023, the number of UK firms below the 25th productivity percentile nearly doubled, from around 444,500 to 873,000.

Why? My theory — and this is where it gets uncomfortable — is that we’ve created a class of “accidental managers.” The Chartered Management Institute estimated in 2023 that 82% of UK managers had no formal training before being put in charge of people. In 2019 the figure was 68%. So it’s getting worse, not better. We promote good individual contributors into management roles and just expect them to figure it out.

The downstream economic effects are brutal. A UK SME generates roughly £147,000 of output per worker per year. A German SME generates £335,000. That’s more than double. A UK business with ten employees could theoretically add £1.9 million in annual turnover if it operated at German productivity levels. Now think about how many small British firms are scraping by, when with better management they’d be thriving.

How much of the international productivity gap does management actually explain? Bloom and colleagues estimated in 2016 that management practices account for roughly a third of the productivity gap between the US and other countries — and up to half for countries like Italy and Portugal. Management isn’t a soft factor. It’s a major component of why the UK is falling behind.

When I worked in the US, most of my managers had been trained — through MBAs, or rotational programmes, or formal leadership development. 

Lack of cognitive diversity

Scott Page (Michigan, complex systems) published the foundational paper with Lu Hong in PNAS in 2004 showing, with proofs, that a randomly-selected group of diverse problem-solvers outperforms a group composed of the highest-ability individual solvers, on sufficiently complex tasks. Page shows that various types of cognitive diversity — differences in how people perceive, encode, analyze, and organize the same information and experiences — are linked to better outcomes. https://www.pnas.org/doi/10.1073/pnas.0403723101

My experience of working in both the USA and the Netherlands, is that both countries actively encourage looking at problems from different angles. The USA has a culture of radical individualism. The idea of one person with a brilliant new idea, breaking out of the tired status quo is at the heart of this culture – from the American people rebelling against King George’s taxes without representation, which lead to the war of independence, to Money Ball, where a gifted economist shakes up the then tired game of Baseball.

Funnily enough, the Netherlands, though very different in other ways, is quite similar to the USA in that regard. When you have a work meeting, everyone puts in an opinion – no one feels that their view is somehow less important due to their status, or position in the company. It can make meetings quite hard to handle! But you will never lack for good ideas.

I feel that this is partially deeply rooted in our culture of elitism in the UK, compounded by Britain's sometimes fatal reliance on conventional wisdom – which great minds, from Napoleon, to most recently, Elon Musk, have commented on.