How Scandinavia cracked the productivity puzzle

This is an audio transcript of the Working It podcast episode: ‘How Scandinavia cracked the productivity puzzle’

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Richard Milne
You know, if you look at the Nordics, it is expected that everybody can collect their kids from school, from kindergarten, and therefore the work day is compressed. And therefore, you know, you have to be productive. Everything, in a way, revolves around that productivity.

Isabel Berwick
Hello and welcome to Working It from the Financial Times. I’m Isabel Berwick.

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Britain has a well-established productivity problem, and that’s a real issue. Productivity, often measured in terms of output per hour worked, boosts economic growth and it raises standards of living. So the more productive we are, the better off we’ll be. Why does the UK perform worse than most of its peers? Are there cultural factors that mean we get left in the dust?

Andrew Hill, the FT’s senior business writer, has written extensively about the UK’s productivity puzzle. One of the problems he’s covered is that many corporate leaders are reluctant to accept outside help. With that in mind, we’re casting our net wide and getting some far-flung perspectives on what the UK gets wrong and how it could improve. Richard Milne, whose voice you heard at the top of the show, covers productivity powerhouses like Norway, Sweden and Denmark for the FT. I’m going to speak to him about what makes them work so well. I’m also going to speak to Leo Lewis, an FT editor based in Tokyo, to find out why Japan is even less productive than the UK. Let’s start with Andrew Hill. I began by asking him just how bad the situation is.

Andrew Hill
Well, yes, it’s well known that UK productivity lags that of our peers in the European space and also more widely. But I must admit, before I started looking into this, as a non-economist, I hadn’t realised exactly how poor it was. I mean, certainly we were ahead of our peers for many years and the lag has just got worse since the financial crisis essentially. If you picture a chart with an upward line of improving productivity, when the financial crisis hit, the angle of the UK’s upward line dropped quite sharply. It’s still rising, but not as fast as many of the other countries against which we compare ourselves. Famously, the French can work four days and achieve as much in those four days as the British do in five.

Isabel Berwick
And they have lovely lunches while we have to sit al desko with our salads.

Andrew Hill
Exactly.

Isabel Berwick
I suppose part of the problem is productivity is such a massive topic. When you talk to companies, how are they measuring it internally? Or is it something that they think about particularly?

Andrew Hill
Well, what’s interesting is when you talk to individual entrepreneurs, they don’t really talk about the P word. And one of the issues is that the narrative of productivity is not properly told within companies because each function might have a different way of thinking about productivity. If you’re in HR, you might be thinking it’s to do with who’s where doing hybrid work and what’s the kind of way in which we’re producing outcomes there. If you’re in marketing, you’re thinking about productivity in a different way. If you’re in finance, inevitably you’re thinking about it as a cost efficiency. There’s some research evidence I looked at that suggests that even just asking the question about how do we become more productive starts to make you more efficient because you start to organise the challenge in your own mind. So there is an issue here that a lot of businesses don’t think of it in those terms.

Isabel Berwick
I think you wrote that some businesses are reluctant to accept outside help or look for it. Is that something particularly British or is that just a sort of human nature thing?

Andrew Hill
The new research that I looked at for that article was based on a sort of review of the G7, and it demonstrated that the UK was very confident but not particularly capable at introducing some of these areas. And one of the areas in which the UK lagged almost everybody except Japan, these are smaller businesses, was in taking on advice from outside sources. And the further consequence of that is that businesses that don’t take this outside advice then don’t know sufficiently well how their business is gonna perform in future. So they underperform in predicting their own future performance and even in predicting what GDP is going to be doing in the UK in future, according to the research.

Isabel Berwick
So Andrew, one stereotype about the Brits is that we’re quite an unexpressive people, you know. Do you think firms are bad at communicating relative to counterparts in other countries? Is that part of the problem — the British reserve?

Andrew Hill
It is seen as an aloofness about communicating what the issues are. I’m not sure you could go that far, but I think there’s clearly a risk that if you don’t communicate what you want and you don’t have an open line of feedback — probably a two-way feedback — things get misunderstood. A lot of what improves productivity is better training and a lot of training is about communicating things that you want done in future.

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Isabel Berwick
There are structural reasons for the UK’s poor productivity, like chronic under-investment. But like Andrew, I’m more interested in the human issues here. We Brits don’t tend to talk about productivity in a very clear way. In some cases we don’t even really know what it means, nor are we likely to seek help from experts and outside sources. I think I’m starting to get a handle on the great British productivity mystery.

So what can we learn from other countries? I asked Richard in Oslo and Leo in Tokyo for their thoughts. I started by asking Leo if the image some of us have of Japanese working culture as being long hours and strict hierarchies is actually fair.

Leo Lewis
I think that perception has got a lot of truth to it. You know, the concept of death by overwork is a legal Japanese concept, and it’s there for a reason, which is that because corporate Japan wasn’t terribly good at sort of measuring work, it all just came down to how long you would work for. And so in order to sort of demonstrate that people were working hard, they just worked long. And the companies kind of rode with it, and it did form the culture. The one thing I would say now is that I think we’re starting to see real change as people who weren’t working in that period of very high growth are coming through as the senior managers of corporate Japan and realising that the way that the previous generations did it wasn’t necessarily the most productive or even the most healthy.

Isabel Berwick
Richard, the Nordics are famously productive. What’s their secret?

Richard Milne
Yeah, well, just what Leo was saying about death at work. I don’t think there’s any danger of that in the Nordics, really. (Leo laughs) It’s, you know, expected that everybody can collect their kids from school or from kindergarten, and therefore the workday is compressed. And therefore, you know, you have to be productive. Everything, in a way, revolves around that productivity.

Isabel Berwick
That’s really interesting. Leo, Japan has a reputation as a very high-tech place, and it would make sense that a really high-tech economy would be productive. So why isn’t that the case in Japan?

Leo Lewis
Funnily enough, Japan was very slow to introduce the internet, and then subsequent to that, sort of digitisation into the workplace. And so a lot of it really was to do with just this sort of quite fuddy-duddy segment of corporate Japan that just didn’t jump on to the internet as quickly as those equivalent generations did it in other countries and paid the price for it.

Isabel Berwick
So there’s an issue with efficiency, maybe, but I would think there’s also a lot of obligatory time spent at your desk or with colleagues even if you’re not working. Is that right, Leo?

Leo Lewis
The idea of kind of post-work drinking and post-work eating was sort of again very embedded for a very, very long time. And it just sort of stretches the day and stretches time. And in the end, it wasn’t until, funnily enough, the global financial crisis when entertainment budgets got slashed and those post-work drinks with the boss just sort of stopped and it started to have an impact on the length of people’s days. At the very least, people are going home earlier.

The government installed a plan, it’s called Premium Friday. Once a month everyone would knock off early and go out drinking or do whatever they want. But the point was the day ended early. And the first month, it was sort of a success. A second month, everyone forgot about it and by the third everything was completely back to normal. The whole plan was abandoned. So literally we got three months of this brilliant idea and then it’s all back to normal. So yeah, even if you say Premium Friday now, it’s basically the punchline of a joke in Japan. (Isabel laughs)

Richard Milne
Premium Friday sounds like every Friday here, to be honest. (Leo laughs) I mean, plenty of people now go on a Thursday afternoon to their hytte, their cabin in the mountain or by the sea and work, you know, four-day week. So, not called Premium Friday, but could be.

Isabel Berwick
Where’s your cabin, Richard?

Richard Milne
(Laughter) We don’t have one. No, my cabin is here in my house so . . . 

Leo Lewis
Does the FT not have a cabin?

Richard Milne
No, sadly. A previous, previous, previous Nordic bureau chief who had his own island in the Stockholm archipelago. Sadly, productivity has increased so much that I’m just in a city centre flat.

Leo Lewis
There’s a lovely story doing the rounds I suppose about three, four months into the pandemic sort of demonstrating this kind of generational difference in the approach to work and corporate Japan and heavily resisted letting people work from home because there is a great thing about sort of presenteeism. So everyone had come in and taken their laptops back to their homes. The idea was that there was this senior middle management guy who had left the charging cord in the office and his absence from meetings hadn’t been noticed for months.

And this kind of story, whether apocryphal or not, it didn’t matter because so many young people in Japan instantly thought, well, that could happen at my company. There’s definitely a guy who’s sort of middle management, doesn’t know how to use a computer, isn’t engaged, and he could easily have left his cord in the office and nobody would care or notice his absence. And it’s this sort idea that productivity is dragged down by that kind of person whereas, you know, everyone’s sort of in their sort of twenties and thirties instances working incredibly hard. But then there’s this sort of lazy generation dragging the average down.

Isabel Berwick
Another actual visualisation of the productivity lag. (Laughter) And I wanted to talk to you both something Andrew Hill talked about is that British managers are particularly reluctant to ask for outside help in improving their businesses. Is that the same where you both are? What about in Japan, Leo?

Leo Lewis
Yeah, certainly still a rarity. There isn’t actually very much in the way of a lot of labour market liquidity, so you’ve not got a huge volume of mid-career hires, so you haven’t even got what you’ve got in the UK, which is, you know, expertise coming in because there is liquidity between companies and therefore sort of experience coming in that way. I mean, Japanese companies are quite insular in their hiring and you know, they hire graduates, they let those graduates sort of work their way up through the company. And so it’s still a real gap, I think, in terms of asking for outside assistance. I don’t think that has evolved yet as a serious factor.

Isabel Berwick
Is there a sort of culture of consultants and constant reflection and improvement in Nordic business?

Richard Milne
I think certainly more than it might be in other countries. There’s a recognition that productivity is at the heart of things. And for sure you’ve got consultants, businesspeople, MBAs able to help you out.

Isabel Berwick
So productivity is conceptualised and it’s at the heart of business. Whereas I think here in the UK, a lot of companies really don’t think about productivity. Leo, do people talk about productivity in Japan?

Leo Lewis
White collar productivity, it really is just one of those things that gets talked about in the negative. So people just go, well, look how badly we’re doing at this. But then, it doesn’t sort of become a series of changes or obligations to do anything about it. It’s just a kind of hand-wringing. And I think there’s just a real disjoint there that people find it very difficult to just span that gap.

Isabel Berwick
No, I see that. And I wanted to ask you about what stands out in terms of the countries where you both live and have lived for a long time compared to how we do things in the UK.

Richard Milne
There is the Nordic sense of consensus. You know, there’s a much less sort of leader-led culture here. The boss can’t just say something and the whole organisation jumps to it. Everybody needs to be on board. But at the same time, once that’s the case, everybody pulls in the same direction.

Isabel Berwick
And in Japan, Leo?

Leo Lewis
Japan essentially didn’t raise wages in a significant way in any part of the economy for the better part of 20 years. And so I think once that idea bedded in, that, look, it doesn’t really matter what you do. You’re not gonna get paid more. You do get this kind of slight shoulder slump of there presumably are ways we could raise productivity. But given that nothing seems to make any difference to our wages across the board, you know, what’s the point?

Isabel Berwick
That’s a very good point. And finally, I just wanted to talk about communication, because it’s a huge part of productivity, because you need to be able to speak clearly about what needs to be done. Is that something the Nordics do well, Richard?

Richard Milne
Yes, I think so. I mean, they tend to be flatter organisations, less hierarchical than in many countries. And as I said, everybody needs to kind of have their say even if they end up supporting the decision. So I think for foreign managers often, it can be quite a tiring process. They’re much more used to their word goes. But at the end of the day, I think you get something different when everybody is engaged as well.

Isabel Berwick
Is this generational thing coming to pass with communication as well in Japan? Is it improving?

Leo Lewis
Well, I suppose, you know, Richard, talking about flatter organisations, the classic Japanese set-up is still very much the opposite of that. It is quite hierarchical. And again, it was fascinating to see what happened in that period during the pandemic when you had multiple faces across the screen at these meetings, often with quite senior managers who wouldn’t normally have attended a physical meeting. It sort of flattens everything in a way that a lot of Japanese companies weren’t used to. You know, this much more senior person would talk to a junior person across the screen in Zoom and it was like, oh, hang on a minute. We can genuinely communicate very well between that level and that level without having to go through that middle level. And there was kind of little glimpses that we got when things turned abnormal, little glimpses of clear ways through some of these hierarchies that still hold sway at Japanese companies. And so those hierarchies are still in place. But there was this fascinating glimpse of a world where they might not do so. And I think enough people saw that to realise that actually, there is an alternative around the corner. Yeah.

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Isabel Berwick
I can’t wait to see how that plays out. Richard and Leo, thank you so much for coming on. I really appreciate it.

Leo Lewis
Thanks a lot.

Richard Milne
Absolute pleasure.

Isabel Berwick
Productivity is such a puzzle. There are loads of different moving parts, but some things have come out really clearly from the discussions in this episode: using tech efficiently, and that’s only going to get better; investment in businesses; but also, high wages and respect for workers as people. I think we all work better when we feel that we’re working for something, you know, for a purpose and just being at your desk for long hours in a strict hierarchy. I mean, that’s not gonna make you work harder or better. So maybe we should take a leaf out of the Nordics book, work shorter hours but make them smarter and just give ourselves a bit more room in our lives for actual living.

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Thanks to Andrew Hill, Leo Lewis and Richard Milne for this episode. If you are an FT subscriber, please sign up for the Working It newsletter. We’ve got the best workplace and management stories from across the FT, plus the Office Therapy advice column. Sign up at FT.com/newsletters. I’ve put a link in the show notes.

This episode of Working At was produced by Mischa Frankl-Duval and mixed by Simon Panayi. Manuela Saragosa is the executive producer and Cheryl Brumley is the FT’s global head of audio. Thanks for listening.

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