A new decade means it is time to be more productive
W
hether or not Jersey’s economy suffers from government neglect, it is losing the reputation it once had as one of the economic ‘tigers’ of the global economy. Former economic development minister,
Philip Ozouf, proudly used the tiger description a decade ago to describe the strong growth in the number of jobs being created in the Island. It had reached a workforce of 53,040 by December 2007, and although the recession then hit hard, Jersey soon resumed its growth and more jobs continued to be created until it reached a record 62,440 in June last year. The problem is that the number of jobs may have grown but the economic output has not. Indeed, growth has been anaemic and cynics might ask what all of those new workers are actually doing.
That hasn’t stopped government ministers proclaiming that Jersey is growing again after the recession, but then perhaps they don’t believe that what the Island needs is economic growth that is productivity-led rather than population-led.
As a result, Jersey no longer features at or near the top of the economic performance tables as measured by GDP per capita. The Island used to rub shoulders with such countries as Luxembourg, even though the Grand Duchy has the advantage of importing much of its labour on a daily basis from across the border, and this is not included in the per capita figures. Jersey was even up there with the oil-exporting states, which sit on most of their assets. The Island was not that lucky either but still kept up in the growth stakes.
Now Jersey is slipping behind because there may be more workers but on the whole they are producing less per capita. The Island is by no means the only country with a productivity problem, but it has been obvious in Jersey for a very long time, and it is particularly serious for a community that wants to keep its population down.
The most telling yardstick of Jersey’s relative decline is the historic comparison with the Isle of Man. This Crown Dependency in the Irish Sea used to languish behind Jersey, to the extent that we made jokes about Manxmen not being able to keep up with Jersey’s sophisticated economy and businesses. That is no longer the case. The latest World Factbook from the CIA for 2018, which includes GDP per capita around the world, places Jersey in 21st place out of 228 countries, well down on previous years. That is still a creditable performance for a small island and well ahead of the UK’s ranking at number 37; but it is a bit galling to see the Isle of Man forging ahead to register the eighth highest GDP per head in the world. Jersey produced $56,600 in goods and services per head in 2018, according to the CIA, but the Isle of Man managed $84,600, and that estimate was two years older than Jersey’s. Even Gibraltar and Bermuda produced more GDP per capita than Jersey in 2018.
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GDP is not the only, or even the best, yardstick of progress but it is used around the world to make international comparisons. Jersey’s Fiscal Policy Panel of economists who advise the States uses the slightly different measure of Gross Value Added per full time equivalent, but the result is very similar. Their latest report on GVA shows that the Island’s economy managed to grow in real terms by 1.4% in 2018, while the increase in jobs was 1.8%. That was the fifth consecutive year of economic growth following six years of contraction and so was in the right direction and is now expected to register a predicted 1.0% real increase this year. But that is still way below what it was just before the last recession and even worse than it was at the beginning of the century. Productivity growth measured in 2017 was therefore 24% below the figure in 2007 and 28% below that in 2000. Compare that with the Isle of Man where GDP grew another 3.6% in real terms in 2017/18, and where the economy has contracted only once in the past 27 years when measured by GDP.
The implications are obvious for Jersey, even if they are little discussed. As the Fiscal Policy Panel pointed out recently, the whole economy relies on services with most of the tax revenues generated by employees. The panel said: ‘With a tax base heavily skewed towards employment income, falling productivity growth, and thus slower growth in employee compensation, means slower growth in tax revenue and therefore makes it more difficult to deal with spending pressures such as those from the ageing society.’
This is likely to get worse before it gets better, as the Island gets to grips with the demographic time bomb. An ageing population makes it more difficult as more labour has to be dedicated to lower productivity industries such as care work. That will take a larger share of the economy, without any offsetting increase in the number of working-age taxpayers. Already the Island’s dependency ratio looks worse than many of its competitors and the calculations have only been based on two scenarios for immigration – allowing the Island to accommodate a net increase of 325 people or else 700 people a year. The experts don’t apparently even bother to consider the possibility of there being no net immigration.
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