There are two truths that sit at the centre of Wales’ productivity challenge. First, we are underperforming. And second, we do not have a shared understanding of what productivity actually means.
That combination is holding us back.
Productivity is often treated as a technical concept, something reserved for economists and analysts. In reality, it is far more fundamental than that. It is simply about how much value we create from the work we do. It is what ultimately determines wages, living standards and the sustainability of public services.
And yet, even among leaders, there is no consistent language around it. That matters, because if we are not aligned on what productivity is, we cannot be aligned on how to improve it.
At a national level, we measure productivity. We have data, indicators and analysis that show clearly where Wales sits. The picture is not a positive one. We lag behind the UK average and even behind other regions that face similar structural challenges. This is not a new issue. It is persistent, and it is deeply embedded.
But where the problem becomes more difficult is when we move from that national picture to the firm level. For most businesses, productivity is not a meaningful concept. Owners are typically not interested in abstract measures such as output per hour worked. They are focused on turnover, costs and survival. That is entirely rational, but it means that productivity is not driving behaviour in the way it should.
The challenge, therefore, is not just measurement, but translation.
We need to make productivity relevant and this is what we have tried to do using the Wales Productivity Forum Business Toolkit. This helps businesses understand what it means for them, how they compare to others in their sector and what they can do to improve. When firms can see that clearly, productivity stops being an academic concept and can become an objective.
There is also a tendency in this debate to frame productivity as being in tension with other priorities. We hear arguments that we must choose between higher productivity and higher employment, or between economic growth and social inclusion. That is a false choice.
It is entirely possible to have both high employment and high productivity. In fact, the most successful economies do exactly that. They invest in their workforce, they improve the quality of jobs and they create conditions where businesses can grow and compete.
The same applies to regional inequality. Improving productivity does not mean concentrating opportunity in a few high-performing areas while others are left behind. It can be achieved by raising the performance of individuals and businesses across the entire economy. Investment in education, particularly in more deprived areas, is one potential way of doing that.
This brings us to the role of the public sector. In Wales, the public sector is not just a backdrop to the economy; it is a central player. It employs a significant proportion of the workforce and is responsible for many of the foundational drivers of productivity, including health, education and infrastructure.
Too often, public sector productivity is framed narrowly as efficiency or cost reduction. That misses the point. The real question is whether we are delivering the best outcomes for society. Public sector productivity itself can support a more productive economy. Are we improving health in a way that enables people to work and contribute? Are we providing education and skills that meet the needs of employers? Are we investing in infrastructure that allows businesses to operate effectively?
These are long-term questions, and they require long-term thinking.
One of the challenges we face is that our policy environment is not well suited to that. Short political cycles, changing priorities and a lack of continuity make it difficult to sustain focus over time. Productivity improvement is not something that can be achieved in a single term of government. It requires consistency, commitment and coordination.
That is why we need stronger institutional support for this agenda. Independent bodies that can provide advice, set direction and hold government to account over the long term have a role to play. We also need clearer targets. Not just measuring where we are, but setting out where we want to be and how we will get there.
Ultimately, productivity is not an isolated issue. It sits at the heart of economic wellbeing.
If we improve productivity, we increase wages, strengthen public finances and create opportunities for individuals and communities. The benefits are cumulative and, importantly, they are intergenerational.
But none of that will happen if we continue as we are. We need a clearer understanding, a stronger focus and a willingness to act. Productivity should not be an afterthought in our economic strategy. It should be the foundation. Until we treat it that way, we will continue to fall short of our potential.
