Friday, May 12, 2006

A fascinating and very instructive new article by Nicholas Bloom and John van Reenen compares productivity and managerial competence across four countries. They find that managerial competence is a key determinant of productivity (and of other key performance indicators for firms). Managerial competence in the UK lags behind that in Germany and the US.

The authors argue that a major reason underpinning this is the system of primo geniture, under which family firms are passed down generation to generation, with management of the firms being carried out by people who are chosen for who they are rather than what they can do.

If the authors are right - and their study is indeed a very careful one - then there are obvious implications for policy, ranging from inheritance tax, through support for business schools, to a requirement that senior appointments in privately owned businesses should be advertised and demonstrably made on the basis of merit.

Thursday, May 04, 2006

Which way now for UK interest rates? Interest rates have risen of late in other major markets, including the Eurozone and the US. Oil prices have risen dramatically, and the fear is that this reflects a rise in fundamentals, not just a blip. This leads some observers to worry about a rise in inflation; although the oil price hike will surely affect prices in a one-off manner, if people start to build price rises into their expectations of inflation this could lead to a prolonged inflationary episode similar to the experience of the 1970s. So that makes a case for a hike in interest rates in order to defuse inflationary pressure.

Other observers are more cautious, citing levels of business confidence that are still low. Indeed some are calling for a cut in interest rates.

The clever betting has to be on interest rates remaining constant when the Monetary Policy Committee makes its decision later today. But, given the signs of economic renaissence in the UK's trading partners, I would suspect that the next move in interest rates - if there is to be one anytime over the next six months - is more likely to be up than down.