A bonus of getting a long-running weblog like this one, which is now twenty years previous, is that it offers me a simple method of testing among the subjects that had been most exercising me at numerous factors up to now. However it’s nonetheless a little bit of a shock to understand that it’s been 10 years since I began banging on concerning the dramatic fall within the UK’s productiveness development price. My plot emphasises that nothing has occurred within the final ten years to alter that dismal pattern.
UK labour productiveness, index 2022=100. Knowledge: ONS, 15/11/2024 launch. Line: non-linear least squares match to 2 exponential capabilities, steady on the break level, which happens at 2005 for the perfect match. See When did the UK’s productiveness slowdown start? for extra particulars of the becoming strategy.
The consensus on the time was that the issue was more likely to be self-correcting, and that one might count on a resumption of the sooner pattern of productiveness development (if not a restoration of misplaced floor). Nothing illustrates this higher than the successive predictions of the Workplace of Budgetary Duty, which took till 2017 to understand {that a} new daybreak for productiveness development won’t be instantly across the nook.
Successive estimates, made between 2010 and 2017 by the Workplace of Budgetary Duty, of future productiveness development, as reported within the November 2017 Financial and Fiscal Outlook
In discussing productiveness, my preliminary focus was on analysis and growth. I’d already drawn consideration to the lengthy fall within the UK’s enterprise R&D depth, and in my June 2014 piece Enterprise R&D is the weak hyperlink within the UK’s innovation system I related this with two of the UK’s issues – its droop in productiveness development, and its persistent present account deficit.
In a follow-up piece, Rebuilding the UK’s innovation economic systemI linked low enterprise R&D to the broader downside of short-termism, as recognized within the 2012 Kay Assessment of UK Fairness Markets and Lengthy-Time period Resolution Making, writing that “our shrinking R&D base is a part of a much bigger downside of short-termism, wherein the constructions of our capital markets and the reward constructions for firm managers excessively reward good monetary efficiency within the current on the expense of long run prospects for development”.
What did I believe must be completed about it? What I used to be clear wouldn’t work by itself is what I name “provide facet innovation coverage” – the concept if one helps fundamental science in universities and offers a provide of expert individuals, that may mechanically result in economically vital non-public sector innovation: “However there’s no level driving (college based mostly) scientists to be extra collaborative with utilized researchers within the non-public sector, if the non-public sector doesn’t have the R&D capability to collaborate with”.
As an alternative, I argued that we would have liked to construct that capability, in key areas like well being associated analysis and power: To be clear, right here I’m not primarily speaking about tutorial science; what is required is directed R&D centered on delivering merchandise. For a few of these merchandise – for pharmaceutical and medical improvements – the federal government would be the foremost buyer, in addition to being the direct monetary beneficiary of financial savings in areas just like the social care price range.
For power, I argued that the emphasis needs to be on driving prices down for low carbon power, together with nuclear: “Within the case of power, the prices might be imposed on future prospects by way of long-term assured costs. For instance, the Hinckley Level deal, for only one nuclear energy station, will consequence within the switch of a number of tens of billions of kilos from home and enterprise electrical energy customers to the abroad suppliers of the know-how and finance. As an alternative of merely standing again and paying these payments (or imposing them on future taxpayers and prospects),the federal government ought to use its energy because the purchaser or guarantor to ensure new applied sciences are developed for the which the UK can seize vital worth.”
To grasp the causes of the productiveness slowdown extra absolutely, one must dive right into a extra detailed evaluation of productiveness efficiency in several sectors. My January 2015 piece,
Development, technological innovation, and the British productiveness disaster, took a primary have a look at this, utilizing early estimates from the ONS for complete issue productiveness by sector. Right here there was a distinction between regular development in ICT and manufacturing, and peaks – and subsequent falls – in two broad sectors: Agriculture, forestry & fishing, mining & quarrying, utilitiesand Monetary and Insurance coverage. For the sectors together with mining and quarrying, the height was at 2003, and I consider that this largely mirrored the output of the oil and gasoline sector – manufacturing of North Sea oil peaked round 2000. For the sectors together with monetary providers, the height was at 2007, so unsurprisingly correlated with the onset of the worldwide monetary disaster. My conclusion was basically that the UK had been a sufferer of what economists name “Dutch illness”, following the peaking of North Sea oil and the bursting of a monetary providers bubble: “Manufacturing and ICT have been squeezed out by the apparently larger, however finally unsustainable, returns from oil and finance, and when these wells dried up the economic system was left stranded.”
I nonetheless consider that Dutch illness is a useful, although partial, lens to have a look at our productiveness slowdown by way of. However since then we’ve learnt much more concerning the proximate causes of the UK’s sluggish productiveness development, and the sectors which have most contributed to the slowdown. A very good overview will be present in The Productiveness Agendafrom the College of Manchester based mostly Productiveness Institute (together with a bit by me on R&D).
For instance, cautious econometric evaluation has recognized that the important thing contributors to the slowdown, in sectoral phrases, have been transport tools, prescription drugs, pc software program and telecommunications. That is counterintuitive, in that these sectors are typically regarded as strengths of the UK economic system.
Extra typically, there appears to be a consensus that low ranges of funding – in each the private and non-private sectors – is a significant proximate reason behind low productiveness development. I would come with on this low total funding report, the low ranges of enterprise R&D that first attracted my consideration, greater than a decade in the past. Since it’s extensively accepted that technological innovation offers the premise for productiveness development, and R&D offers a proper construction for creating and implementing technological improvements, I’d nonetheless insist on its significance.
However this doesn’t not but reply the query of what it’s concerning the UK’s political and financial system that has led to this state of power underinvestment, or what needs to be completed to handle that. The implications, although, are clear – sluggish productiveness development has led to stagnating residing requirements and difficulties in funding public providers on the stage individuals count on. For my final phrases right here, I’ll quote what I wrote in July 2014:
“The erosion of the UK’s capability to technologically innovate was not inevitable – it was the unintended consequence of a sequence of political and coverage selections over a long time. We have to reverse this lack of capability. This must be completed as a part of a broader rethinking of the number of capitalism the UK economic system is at the moment based mostly on. With out this rethinking, we might be condemned to proceed on our present trajectory of low development, poor commerce efficiency and finally, lack of nationwide sovereignty.”
