What are the UK economy’s prospects for recovery following the coronavirus pandemic? A recent paper from the John Mills Institute for Prosperity (summary here) argues that in order to recover effectively the UK needs to sustain much faster growth in investment, output and productivity. It can only really do this by rebuilding its manufacturing base through a strategy of sustaining a weaker exchange rate and through increased government support for lending to industry.
Mills is an entrepreneur and long-time supporter of the Labour Party. He also campaigned for the UK to leave the EU. For some years now, he has led the call for UK government policy to pay much more attention to supporting reindustrialisation. Periods of exchange rate overvaluation over many years have played a major role in hampering the UK’s manufacturing exports and have left the country with a much reduced industrial base.
A much larger industrial base with an improved ability to export onto world markets would, he argues, help to eliminate the UK’s unsustainable current account deficit and thereby make possible a reduction in the country’s accumulation of private and public debt without further attempts at austerity, which have only weakened overall economic growth and reduced the level of provision of public goods and services.
It would also increase the capacity for more rapid growth in output and productivity, in a way that can rebalance the UK’s grossly unequal regions by restoring prosperity beyond London and the South East. As Mills puts it, a more competitive light manufacturing sector has greater potential for increasing productivity via increased investment in new capacity than much of the services sector. In short, the UK needs a much more ambitious industrial strategy.
Mills has made these arguments for some years, but this most recent paper adds the impact of the pandemic and the question of economic recovery from the crisis associated with coronavirus. If the UK is to sustain the necessary increased funding for public health, social care and an ageing population, decarbonisation and climate change mitigation, and education and training to support economic restructuring, the economy needs to have a much improved, and by implication a much more balanced, performance in terms of growth in output and productivity. He makes a strong case that this can only be done via concerted efforts to reindustrialise.