Why we underestimate the economic value of design

The design economy has a key role to play in improving the prosperity of the UK.  Yet a recent review of official statistics suggests we may be underestimating the productivity of the design economy. Stephen Miller discusses the challenges of calculating the true value that design contributes to the economy.

In the UK, our economic productivity has been stagnating since the 2008 recession. That means that since then we’ve been working harder than we were before the recession to produce the same amount of goods and services. This comparatively poorer productivity has resulted in further stagnation in our wages and living standards (but that bit you probably didn’t need telling).

Solving the UK’s productivity issues is one of the biggest challenges facing economists today, and there is no one miracle answer. At Design Council we’re confident that design plays a key role in improving the prosperity of the UK. However, one thing we do know is that current economic statistics aren’t necessarily capturing output and productivity accurately in a modern, dynamic economy. 

Our research suggests that the average output per employee is greater in firms which are recognised as 'design-active'

Last week Professor Sir Charles Bean published the final report of his independent review of UK economic statistics, which confirmed suspicions that current national statistics may underestimate the productivity of certain parts of the economy, such as that of design workers. There are a few reasons as to why design presents such a challenge to statisticians. 

Design is not a single industry

Our Design Economy research was the first to consider design as a discipline that cuts across the whole UK economy, rather than as a single industry, valuing the full spectrum of design, from human-centred design through to technical design.

One thing we do know is that current economic statistics aren’t necessarily capturing output and productivity accurately in a modern, dynamic economy.

This means we are able to calculate the scope of and value created by those employed in design roles, regardless of the industry in which they work. This is in combination with all of those working in industries sufficiently design-led as to be considered 'design industries'. As such we recognise three types of worker within the design economy:

1. Designers in design industries (e.g., digital design, architecture and built environment).
2. Other roles in design industries (e.g., support functions such as administration, finance, distribution).
3. Designers in other sectors across the economy (e.g., aerospace, finance, retail, etc).   

When we look across the board at the value produced by all of these workers together, our research shows the average design worker is 41% more productive than the average UK worker, delivering £47,400 in output (GVA per worker) compared to £33,600 across the rest of the UK economy.

Our research shows the average design worker is 41% more productive than the average UK worker

Furthermore, our research suggests that the average output per employee is greater in firms which are recognised as 'design-active' (those that invest in and use design strategically, though don’t necessarily have a large proportion of designers in their workforce).

For the Design Economy we calculated productivity using the same methodology the Department of Culture, Media and Sports (DCMS) use for their Creative Industries Economic Estimates. This simply involved dividing Gross Value Added (GVA) estimates by the number of jobs. Yet we realise this methodology may not accurately reflect the actual time worked by people in the design economy.

Designers aren’t always 9 to 5

Our data shows that the majority of design workers are employed in full-time roles (86%), whilst 27% are self-employed. This presents a challenge when calculating productivity on the basis of the total number of jobs. While this is a much easier calculation to make, it is not necessarily the best for enabling comparisons between sectors or over time.

For instance, 14% of all the people employed in the design economy work part-time (equivalent to 183,600 people). But when it comes to measuring their productivity, we’ve treated all jobs as the same, despite the fact people work different hours. This approach runs the risk of making sectors with higher levels of part-time workers appear less productive relative to others.

So while they work less hours, this doesn’t necessarily mean they produce any less in terms of actual output - working 9 to 5 is not the only way to make a living!

Design is often intangible

Amongst the many challenges the Bean review explores, the most pertinent for the design economy is that of measuring intangible investment, and in particular measuring the quality changes in goods and services being driven by continual innovation.

There is reason to be hopeful that updating economic statistics to better capture intangible investments and measure quality will be positive for the design economy

He defines intangible investment as encompassing "assets contributing to the long-term accumulation of knowledge", such as human capital (think branding, training or organisational structures), information stored in computer programmes and research and development assets, including design. This type of investment is often overlooked by the national accounts (typically it’s counted as consumption rather than investment), but given that the economy is moving from being capital-intensive to knowledge-intensive, he argues for more to be done to recognise the value of such investments.

The Bean review also highlights that we are failing to adequately control for improving the quality of goods and services when measuring economic activity. To provide a historical example of what this means, cast your mind back to the 1990's and how rapidly video game consoles developed – from the 8-bit Sega Master System II in 1991, to the 16-bit Mega Drive and SNES through to the Nintendo 64 in 1997.

This rapid improvement in processing capabilities saw a corresponding increase in the value and quality of the services these systems could support (i.e. games), yet despite this, the price of these consoles and their games remained broadly constant relative to that of other goods and services.

Bean highlights a similar issue today with the price of the standard desktop computer in relation to the increasing value it provides.

As such this approach to just measuring price does not fully capture productivity gains from new technologies and innovative processes. As such processes undoubtedly play a key role within the design economy, its value in terms of productivity is at risk of being undervalued.

What next?

The Bean review has recommended that the Office for National Statistics starts properly measuring changes in quality as well as quantity if it is to keep a pace with, and accurately reflect, the modern economy. However he also warns that adjusting for quality may not only result in increases in output, highlighting that some goods and services may also deteriorate in quality over time.

Design Council will be submitting a formal response to the consultation in early April, and as part of that process would be interested in your views.

Yet there is reason to be hopeful that updating economic statistics to better capture intangible investments and measure quality will be positive for the design economy, further highlighting its contribution to the UK.

Likewise DCMS are currently consulting on the methodology used for estimating the economic contribution of the Creative Industries (which includes design), and are advocating a move towards calculating productivity on an ‘hours worked’ basis. Design Council will be submitting a formal response to the consultation in early April, and as part of that process would be interested in your views.

What do you think is the best approach and what are the best data sources to measure productivity for the Creative Industries?