A report from the London School of Economics’ Centre for Economic Performance highlights one of the biggest macroeconomic issues few are talking about in the run up to the election – productivity.
The report says:
- GDP per capita has experienced weak growth over the past 14 years. Its level today is lower than it was at the time of the last election in 2019.
- The cause of low GDP per capita growth is the collapse in the rate of productivity growth, which is the basic cause of many UK problems.
- The UK’s relatively poor productivity performance is mainly due to low capital accumulation. Both public and private capital investment as shares of GDP are low in the UK compared with other countries.
- One of the reasons for this is policy uncertainty. There has been huge instability in recent years, with frequent changes in prime ministers, chancellors and business secretaries as well as policy changes and reversals in key areas of business policy. Having greater stability with a proper long-term growth plan will be crucial.
- The UK’s level of productivity has been lower than that of its peers for many years. In addition to increasing capital investment, improving skills (particularly of non-graduates) and raising innovation are critical.
Consider the UK as a sausage machine. Fourteen years ago, it made some of the best sausages in the world. Everyone knew they could bank on the UK for a good sausage.
Now wind forward.
Those in charge of said sausage machine have not only restricted the ingredients and the suppliers, but repeatedly changed the parts, the purpose, design and handle crankers while increasing prices.
To make things harder, competing sausage machine owners have made it comparatively easier to collaborate, make, sell, trade and eat sausages.
It would be no surprise that people have stopped seeing the UK as a quality sausage maker. And it should be no surprise that UK productivity is as bad as it is.
A strategy should deliver the outcome promised. If we keep changing the strategy – or there isn’t one – reactivity and luck will deliver some outcomes, but nothing to inspire stability.
The point is not about Labour, Conservatives, Reform, Lib Dems, Greens or even Count Bin Face. It is that the size of the task ahead for the next government is enormous.
Our economy, reputation and society rely on the idea of stability. That will not be easy to achieve with uncertainty running rampant. With no growth strategy and a continued lack of focus on international trade, headlines about no money in the tank, war, high prices and interest rates will continue to feed the knee jerkers.
We should feed them sausages instead…
Dan
PS – I had sausages for breakfast