Post-2008 UK productivity stagnation reflects failed reallocation, not failed competition per se

Between 2010 and 2019, British worker productivity grew only 5.8% versus 8% in the US and 9.6% in France. The Olley-Pakes decomposition suggests the reallocation engine stalled: unproductive firms survived at roughly half the death rate previous recessions would predict. But the causes — bank forbearance, low interest rates, housing policy preventing labour mobility — point toward structural policy failures, not competition failures in the narrow sense.

Explanandum

Why did British productivity stagnate so severely after 2008, and why do conventional competition metrics fail to detect the problem?

Substance

Albrecht’s strongest case for the Olley-Pakes decomposition is the UK post-2008 period. Concentration metrics and markups show nothing unusual. But the decomposition reveals that the covariance between firm productivity and market share — the reallocation engine — stalled. Firms that should have exited instead persisted as “zombies,” tying up workers and capital.

The candidate causes Albrecht identifies — bank forbearance keeping insolvent firms alive, low interest rates enabling refinancing, housing policies preventing workers from moving to more productive regions — are interesting because they’re not competition problems in the traditional sense. They’re structural policy failures that a competition authority using concentration ratios wouldn’t detect or address.

The housing dimension connects directly to the cities piece: Britain’s planning system constrains housing supply in productive regions, making it unaffordable for workers to relocate. This is a land coordination failure of exactly the type Japan solved with land readjustment. If British cities could reorganise land at scale, labour mobility might improve, the reallocation engine might restart, and the productivity stagnation Albrecht diagnoses might ease.

Supports

• The 5.8% UK productivity growth figure (2010-2019) is strikingly low compared to peers
• Firm death rates roughly halving relative to previous recessions is a clear anomaly
• The connection between housing unaffordability and labour immobility is well-established in the UK economic literature

Challenges

• The zombie firm story is one of several competing explanations (sectoral composition, financial sector measurement artefacts, Brexit uncertainty)
• Olley-Pakes falling covariance is consistent with multiple causal stories — the diagnostic identifies a symptom, not a cause
• Other countries with similar monetary policy (US, Eurozone) didn’t experience identical stagnation patterns

Open Questions

• Would land readjustment in British cities meaningfully improve labour mobility and productivity?
• Is the post-2008 stagnation a one-off crisis response or a structural feature of the UK economy?

Source Context

Albrecht’s UK case study, connected in discussion to the housing/land readjustment thesis and the observation that competition policy and urban planning are more interlinked than either field typically recognises.