Simon English: Efficiency drives can go the wrong way

Outlook: Joseph Stiglitz argues that the incentive to work falls when people feel life is unfair

In the name of efficiency, Royal Bank of Scotland has fired 30,000 staff in the past four years. Doubtless some of them were surplus to requirements and ATMs plainly need less attention to operate than do bank branches. But since lots of the staff still lucky enough to be employed by RBS-owned NatWest have been working day and night trying to correct the bank's horrendous computer meltdown, it seems fair to suggest that what it really needed was more people rather than fewer.

Trade union Unite's contention that's there's a definite link between the job cuts and the chaos of the past few days is hard to verify for sure.

But it must be the case that any organisation suddenly trying to do the same things with fewer hands is going to come unstuck somewhere. The quality of work will decline. And customers will notice.

When the corporate world talks about efficiencies it assumes they are a one-way street, an improvement that will also lower costs.

In reality there is nearly always a debit on the other side of the balance sheet. It might be hard to detect at first, perhaps coming in the form of a rise in workplace stress that leads to more sick days (sick days are efficient ways for employees to rest up, but not for employers). But it will be there.

Every time a company or government department unveils an efficiency drive, assume it means you're going to spend longer in queues. For whom is this efficient, we should always ask. Sometimes the answer turns out to be: absolutely no one.

Those self-service tills supermarkets have lately introduced are theoretically efficient for the supermarkets, since they are getting their own customers to do something that previously required a checkout operator.

But it makes the customer experience worse and some may defect to stores that still employ humans to put groceries into plastic bags and give change.

Cost cuts are not necessarily, perhaps not usually, good for economies or companies.

Just ask NatWest customers.

The price we'll be paying for social inequality

Joseph Stiglitz is in the band of economists that talk in something close to English. Endogenous growth theory is not for him, at least not when he's talking to a wider audience than academics.

Mr Stiglitz has also seldom shied away from a fight: indeed, he likes to start them.

Past recipients of his fire have included the IMF, the World Bank, President George Bush and the entire global financial system (even if he's wrong, you've got to like his targets).

He's also lately concerned about efficiency, like NatWest.

Unlike NatWest he doesn't think that making life worse for large numbers of people is a good way to increase it.

His new book is called The Price of Inequality. He thinks the coming bill is much higher than anyone yet realises and that unless economic policies that favour a tiny minority are reversed you're looking at societal breakdown.

His point is that once inequality reaches a certain level, it become inefficient for the economy.

He puts it like this: "Growing inequality is the flip side of something else: shrinking opportunity.

"Whenever we diminish equality of opportunity, it means that we are not using some of our most valuable assets – our people – in the most productive way possible." When people think they are part of an unfair system – whether they really are or not doesn't matter – their incentive to work falls.

People who feel that they did the right thing, played by the rules, and still can't get ahead, become seriously unproductive. Criminal even.

"An economy in which most citizens are doing worse year after year – an economy like America's – is not likely to do well over the long haul," he says.

Defenders of the status quo who think inequality doesn't matter can be relied upon with tedious certainty to note that a rising tide lifts all boats.

One of the many problems with this cliché is that it assumes everyone owns a boat.

Mr Stiglitz wrote in Vanity Fair last month: "The top 1 per cent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn't seem to have bought: an understanding that their fate is bound up with how the other 99 per cent live.

"Throughout history, this is something that the top 1 per cent eventually do learn. Too late."

Panmure Gordon bucks the trend in broking

Here comes that lesser-spotted animal, a piece of (relatively) good news from the City.

Panmure Gordon – that's David Cameron's dad's old firm, but don't hold that against it – says it has been profitable every month this year.

The stockbroking trade is having such a rough time lately that this seems only barely plausible.

A few weeks ago one old timer put it this bluntly: anyone who says they are making money in this market is lying.

But Panmure's chairman, Ed Warner, is a upright fellow, so we'll take him at his word.

Of more than passing interest is what Mr Warner has to say about jobs; there is a widespread feeling in the City that there is going to be something close to a bloodbath before long, given that levels of business are so supine.

He says, heartily, that although Panmure fired 30 at the end of last year, this year he expects to hire a few.

He won't be short of applicants.

s.english@independent.co.uk

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