The UK’s productivity problem continues. Output per worker has barely grown since the beginning of the financial crisis in 2008. Why is this a problem? Because if we want rising living standards, we must have rising productivity over time.
In theory, rising productivity in our economy gives us choices between increased income and increased leisure time. We can choose on a spectrum between more income for the same hours worked and the same income for fewer hours worked, in other words, more leisure time. Depending on how we in society value work and leisure, increased productivity should make possible increases in human welfare.
Today, output per hour worked in the US is at a similar level to that in France and Germany. However, total hours worked per head in the US have tended to outstrip those in the latter two countries, meaning that output per head remains higher there.
Americans are on average richer (although greater inequality means that many of them are not), but they achieve these greater riches by working longer, while their French and German counterparts have more leisure time, including a shorter working day and longer holidays. This is down to collective economic and social choices, although these are also necessarily political in nature, and far away from simple choices freely made by individuals, as some might choose to believe. Continue reading →
The BBC reported on Tuesday that government borrowing for the 2017-18 financial year fell to its lowest level in eleven years, at £42.6bn. This was lower than forecast and represents 2.1% of GDP. However much of this reduction is accounted for by reduced spending rather than increased tax revenue. This is because economic growth remains sluggish, at 0.1% in the first quarter of 2018 according to the latest figures, and is failing to generate buoyant tax receipts.
So austerity continues, while growth is faltering. The Chancellor, Philip Hammond, claimed today that “our economy is strong and we have made significant progress.” This is surely breathtaking arrogance. The deficit may be down, but the economy is struggling.
According to economist and entrepreneur John Mills, the UK economy could be doing much better and significant imbalances remain, which are constraining growth and improvements in productivity and wages. Continue reading →
Last year the UK government published its industrial strategy, which, broadly speaking, aims to improve the country’s economic performance, from productivity and wage growth to job creation and regional imbalances.
This strategy, which seems to consciously avoid the more traditional term, ‘industrial policy’, is welcome. But does it go far enough, and what of importance is missing from the strategy?
There are some significant blind spots in the new strategy. One of the most glaring is the neglect of macroeconomics and the level of the exchange rate. Another is, remarkably, the neglect of the manufacturing sector itself, and a necessary focus on reindustrialisation. Continue reading →
Immigration can be a divisive but also a sensitive issue. Arguments surrounding last year’s referendum here in the UK on EU membership could not avoid it. Media hysteria, particularly from the right, has focused mainly on the negative impacts, and rational debate has been drowned out. The right seemed to shout loudest, and the left often ended up talking to itself.
The overall findings of the study suggest that, at least in the UK, the overall net economic and fiscal (tax and public spending) outcomes from large-scale immigration are small when compared with the effects of more rapid population growth. Rowthorn argues that considerations of the latter should play a more important role when deciding future government policy. Continue reading →
The UK general election votes have been cast, and the results are nothing short of remarkable. Contrary to the early predictions of disaster for the main opposition Labour party, and for its leader Jeremy Corbyn, it was instead Theresa May’s Conservative party that suffered a heavy blow. The conservatives lost 12 seats in parliament and […]
The UK election result is a personal disaster for the Conservative leader Theresa May. She called the snap election to get a big majority and crush the opposition Labour party and its left-wing leadership. But instead the Conservatives lost seats and its majority in parliament and Labour under leftist Jeremy Corbyn increased its share of […]
According to Tom O’Leary the underlying aim of austerity has been to restore business profits, by putting downward pressure on wages, and reducing taxes on business and the rich. But while wages have stagnated, profits have not recovered significantly. As profits lead investment, growth in the latter has been weak, and the basis for an improved growth performance and living standards has so far failed to materialize.
Those on the right would respond to this by engaging in deregulation and further austerity, which might include reducing workers’ rights and environmental protections, and deepening cuts in public spending and taxes. Such policies would be short-sighted and damaging. Those on the left would favour a large increase in public investment in order to ‘crowd in’ private investment. This could be far more beneficial, as growth in public investment has been weak for years, while the burden of regulation remains relatively low internationally. But at the moment the UK has an unassailable right wing government too distracted by Brexit to engage in such a progressive agenda. Continue reading →