The Island’s would-be politicians were too busy with the recent election to hear a speech by the chief economist of RBS, Sebastian Burnside, neatly setting out the major problems and opportunities facing Jersey’s economy.
His audience of Chamber of Commerce members were left in no doubt that the ten years of growth since the financial collapse has been mediocre and not even as strong as usually expected catching up after a recession. In fact, Mr Burnside said, that the last time there was such slow growth following recession was probably the mid-14th century recovery following the Black Death.
‘Growth has not been too bad on an international comparison, but from an historical perspective, the performance has really been pretty ugly,’ Mr Burnside said, and produced a graph that showed growth in Jersey’s GDP consistently lagging the UK’s since the middle of 2010.
The real problem, however, was the way growth had been achieved, he said, and that would be significant for how we grow in the future.
The greater output in the past ten years had only been achieved by increasing the population and creating more jobs.
‘We’ve grown, but we’ve grown largely by getting more people producing, rather than getting people producing more,’ he said.
Productivity was what mattered in the long run, but in Jersey’s case the economy (in 2016) might have got bigger by 4 per cent, but output per head was about 6% lower. There is a gap of roughly 8 – 10 per cent between growth in the economy and growth in output per head.
‘The fact that we’ve been growing in a low-productivity way has meant that we have generated far more jobs despite the lacklustre pace of the economy,’ the RBS said.
‘That meant we avoided some of the very negative implications for society, but we are not a high-employment economy any more and business is now struggling to find the people they need to meet expansion plans. If we want to get back to the growth rates that we have been enjoying even in the relatively lacklustre recovery, then we’re going to need to switch gears.’
The two phenomena pointing the way, Mr Burnside said were the growth of the knowledge economy which is up nearly 40 per cent in ten years, and what he called the experiential economy, where consumers buy more services and experiences than products. This trend has increased 70 per cent in ten years, so that taking a photograph of a new car and putting it on Facebook is no longer as popular as using a photograph of having a good time skiing in the Alps. Older households are also spending more now as they have more retirement income.
However, growth in these areas will not happen evenly and Mr Burnside’s team at RBS has compared the likely impact on different regions of the country.
Jersey, with its tourism industry and concentration on providing high value-added services, came out very well in the research. In terms of the experiential economy, the Channel Islands came out third after Cornwall and Cumbria, but in the knowledge economy it ‘blew the top off the charts’ because of the very high concentration of financial services in the islands. However, if finance is excluded from the knowledge economy then the Island faces the curse of having a successful industry that has sucked in a lot of people who would otherwise be doing other things.
‘The astonishing outsized exposure to finance means that you are extraordinarily vulnerable to a climate that turns against finance,’ Mr Burnside warned Chamber members.
‘If that was the case, then it would be more difficult to be able to fall back on other sectors to take up the slack.’
The chart showing the knowledge economy without finance, put the Channel Islands near the bottom of all regions in the country, but Mr Burnside said that many were working hard to ensure the finance industry grows as part of the knowledge economy. Artificial intelligence will have a large part to play in this, he said, and he urged Chamber members to start looking at how this can help achieve real productivity growth.
