Naturally I was very interested when the LSE’s Growth Commission report on the UK economy was published back in September. I’ve just looked through the book of the report,, edited by Tim Besley and John Van Reenen. It’s a very impressive publication, summing up concisely a vast amount of evidence on the long-term weaknesses of the UK economy.
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As the preface underlines, the report is not about the demand side issues and short-term growth, but rather about the supply side and the UK’s long term potential. The problems are hardly unknown. The individual chapters cover three main areas: infrastructure, skills, and private investment and innovation. The policy recommendations correspond to these, including a shopping list of proposals to improve primary and secondary schooling; an independent infrastructure infrastructure – a strategy board, a planning commission to deliver the strategy and a bank to finance it; and measures to support investment in innovation by the private sector centred on increasing competition in the banking sector.The chapters give a very useful summary of the state of the evidence in each of these areas, very handy for students – there are terrific lists of references too.
The recommendations are all deeply sensible. However, I think the book serves to underline two problems with the task the Growth Commission set itself. One is that any policy measures to address an area of concern are either rather motherhood and apple pie – ‘improve standards of primary education’ – or extremely detailed, because once you get down to thinking about actual measures to implement, they have to be. The report is surely right on the big picture, but patchier on the detail – inevitably in a 300 page book. The infrastructure sections are the strongest, the education ones the least persuasive – but maybe that’s because I’ve been closely involved in primary education as a governor helping turn around a school.
The other problem is that the book does not, for me, meet the challenge it describes in the preface: ‘If your ideas are so good, why haven’t they already been done?’ It is excellent on the economic analysts but doesn’t really tackle the difficulties of political implementation of “structural reforms”.
Take transport infrastructure. We surely know the London area needs more airport capacity; but a political decision on location is needed. However, early on the current government kicked this can down the road beyond the next election to wait for a later government. Yet any decision taken now would be much better than further delay – so argues Bridget Rosewell persuasively in her book, and she writes as a firm supporter of a new airport to the east of London.
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Or take HS2.does not have a view on this, perhaps because economists are divided on this issue as they are not on airport capacity. It’s not at all clear how an Infrastructure Strategy Board would navigate the politics of this project, although it’s plain as daylight that the amount of investment in infrastructure in general has been too low over a long period.
Still, it’s not the job of economists to deliver the politics, but rather to point out the uncomfortable realities. I ended the report feeling rather optimistic because, as it argues, the UK has a lot of assets that will support a stronger potential growth rate and future prosperity. The Commission argues for measuring progress in terms of median income rather than GDP per capita, to take account of the distribution of the gains, which seems entirely sensible. The economy’s problems may be long-standing but the counterpart of that is that we know what to concentrate our reform energies on.