11  th  In the second half of the 18 century in the UK, ideas began sprouting like morning mushrooms. These ideas emerged seemingly spontaneously and roughly contemporaneously. They were also relatively closely clustered geographically. They included James Hargreaves’ spinning jenny in 1764, Richard Arkwright’s water frame in 1769 and James Watt’s steam engine in 1775. In the fullness of time, these ideas began to revolutionise both industry and work. After a lengthy adoption lag, they spread across sectors and across regions. They migrated from being mere ideas to becoming “GPTs” or General Purpose Technologies. 12  In the process, they generated waves of investment in new  factories, machines, processes and infrastructures. There was, in the jargon, capital-deepening. Neo-Classical theories of economic growth are very clear what would be expected to happen next. 13  When  an outward shift in the economy’s technological frontier is combined with higher levels of physical capital, the fuse is lit on higher productivity among companies, higher wages among workers and, ultimately, higher living standards among societies. So it was during the Golden Era. Chart 2 plots productivity, wages and GDP per head in the UK since the Industrial Revolution. All three plateaued prior to 1750. Since then, all three have moved up in lockstep. Ideas and innovation have borne continuous fruit in higher productivity, pay and living standards. This fruit has been shared roughly equally between owners of companies (profits) and workers in companies (wages).
The dispersion of services sector productivity is more than 50% higher in the UK than in other advanced economies (Chart 20a). It has also widened by materially more in the UK. Even in a world of long and lengthening tails of low-productivity companies, the UK is a striking outlier. One potential explanation for this longer tail of UK companies than elsewhere is poor management practices. Using the database developed by Bloom and Van Reenen (2007), we can plot a normalised distribution of management skills for a subset of UK firms. 51  This suggests (a lack of) management quality is a plausible  candidate explanation for the UK’s long tail of companies, as Bloom and Van Reenen find (Chart 21). Looked at quantitatively, there is a statistically significant link between the quality of firms’ management processes and practices and their productivity. And the effect is large. A one standard deviation improvement in the quality of management raises productivity by, on average, around 10%. This suggests potentially high returns to policies which improve the quality of management within companies. Decomposing the Distribution  We can go further in uncovering some of the characteristics of the companies in the upper and lower tails. Might they simply reflect sharp regional differences in productivity, with frontier companies clustered in some regions and laggards in others? Might it simply reflect some sectors, such as manufacturing, generating higher levels of productivity and sitting in the frontier while others, such as services, occupy the lower tail?