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Tackling Britain's productivity problem

23 July 2015
Tackling Britain's productivity problem

Tackling Britain’s woeful productivity record is now one of the incoming UK government’s core economic goals. With France 27 per cent and Germany 28 per cent more productive than the UK, and the US even further ahead, there is much catching up to do. This matters because the rate of productivity has a significant impact on living standards, which is one of the main reasons why these have stagnated in the UK.

Beyond the political rhetoric, though, George Osborne’s recently announced “productivity plan” is mostly a rebranding of policies under a productivity banner rather than introducing any substantive policies that might actually raise the rate of productivity. The chancellor rightly wants to encourage more productive investment in the economy but many of the government’s policies still actively encourage unproductive investment, particularly in existing housing assets.

This latest move from Osborne has also exposed a deepening political fault line in the government’s approach to economic reform, between the need for more active government policies and the view that a combination of minimum regulation and a low-tax environment will automatically lead to rising productivity. As the recent abuses of the global foreign exchange market have highlighted, this latter position is flawed. In May 2015, UK and US regulators fined six major global banks nearly $6bn after a lengthy inquiry into alleged collusion among banks for setting rates that cheated customers while adding to their own profits.

As Thomas Aubrey argues in his latest essay, the role of the government should be to ensure that firms and workers have access to the building blocks they need to produce goods and services. Government therefore has a central role in improving access to those building blocks – and that means making capitalism more democratic. A failure to democratise capitalism will mean that the UK will continue to languish in the productivity league tables, with a continued focus on unproductive investment and rent extraction due to highly inefficient and unfair markets.

Policy Network is in the process of setting up a new Centre for Progressive Capitalism to look in more detail at the market and policy failures that are constraining productivity, with the objective of promoting policies that will drive productivity growth, thereby increasing living standards for all.

The debate between left and right constrains the development of our political economy leading to stagnation. It’s time for a new agenda focusing on democratising access to land, education and finance
It is more important than ever that policymakers focus on establishing effective policies that maximise entrepreneurial opportunity

Data-driven innovation has the potential to be a major part of the European effort to grow the economy


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