Sorry: Tech didn't drive Britain's recovery
I was perplexed to hear Joanna Shields, lately chief executive of Tech City, say the following this morning: “The latest recovery was really fuelled by Technology entrepreneur-led businesses. They have actually contributed whilst government and big business have either reduced jobs or limited the number of hirings. Entrepreneur-led businesses have literally contributed all of the net jobs.”
In most instances when someone prefaces a dubious claim with the word “literally”, they are literally wrong, or, to put it figuratively: spouting hogwash. And so it is in this case. There is no doubting the extremely important contribution the technology sector is making to the UK economy. But anyone trying to claim that it was largely, or even solely, responsible for the recovery is bananas (again, not literally).
There are a couple of ways one can measure this, so let’s start with the yardstick Shields refers to: jobs. Tech City has produced some work claiming that 83,000 or 27% of the net new jobs created in London from 2009 to 2012 were down to the tech/digital sector. It puts the total number of these jobs at 438,000.
This is rather compelling, until one examines what’s included in that number: alongside the obvious tech jobs (computer programming, web portals), there are rather a few which don’t look much like tech jobs at all: public relations, news agency activities, architecture, advertising. It doesn’t end there – this stat also includes a chunk of jobs from the finance sector, and such stuff as fund management, trusts and that least IT-friendly of all sectors, central banking.
Now, in Tech City’s defence, the real problem here is that the Office for National Statistics’ jobs figures don’t have a separate category for “tech” – so many jobs in the sector fall between several of the different sub-sectors it divides the jobs market into. The methodology was always going to be a bit tricky.
That hasn’t stopped others having a go: today we have another report just out from Mike Bloomberg which finds that the number of workers in London’s tech/info sector has increased by 11% since 2009, taking the total to 382,000.
As you might have noticed, the numbers are way out of kilter with those from Tech City. However the conclusion is the same: that no other sector can match the rise of Tech.
But the Bloomberg report suffers from a similar issue to the Tech City one: its definition of IT jobs includes a whole load of sectors which few would ever categorise as “tech”, such as management consultancy and office admin. It calls this catch-all definition the “expanded tech/info sector”, consisting of two sub-classifications – “Information and Communications” (SIC J) and “Professional, scientific and technical activities” (SIC M) (a SIC is a “standard industrial classification”).
But look beneath the numbers and you see that the main reason SIC M has risen so sharply in the past four years is because of an increase of jobs in the SIC 70 category – “Activities of head offices; management consultancy”, where employment numbers have increased by a whopping 42% since 2009.
Ignore such data issues and look purely at the simplest ONS tech-related sector – “Information and Communication” – and you’ll see that the increases in London since the end of 2008 are slightly more modest – a mere 38,000 up to the end of this year. That is actually a smaller number of jobs than were created by the real estate sector in London during the same period (40,000).*
However, jobs are not the only yardstick of economic success. If tech really was more responsible for economic growth than any other sector, one might reasonably expect that to be reflected in pure economic output numbers (eg the stuff that makes up GDP). And indeed, economic output in the “IT and other information service” sector has risen very sharply, by 25%, since the trough of the recession in March 2009 (compared with a 6% increase in Britain’s overall gross value added). However, it is not the best-performing sector. Advertising put in a 33% increase; administrative and support services expanded 43%; rental and leasing activities rose 39%; employment activities by a staggering 83%.
Indeed, if tech really had driven the recovery, one might have expected the tech-related sectors to have become a more important part of the overall economic “pie” (in terms of their contribution to national income) in the past four or five years. In fact, between 2009 and the end of 2013, the IT sector’s contribution to overall annual GDP actually dropped from 2.9% to 2.8%. Real estate, on the other hand, rose from 8.4% of GDP to 9.7% – among the biggest of all sectoral changes.
So champion the tech sector by all means; laud its contribution to the economy. But please let’s not pretend there wouldn’t have been a rebound without it.
* This is based on the spreadsheets you’ll find here. Note that in the first quarter of 2014 real estate jobs fell and tech rose – though the Bloomberg analysis only goes up to 2013.