The author is the author of Growth: A Reckoning and an economist at the University of Oxford and King's College London
The British economy is in trouble. Growth is non-existent. Productivity is already lower than in the United States, Germany and France and is falling. Real wages have barely budged for 16 years, the worst rate since the Napoleonic Wars. Investors began to falter, pushing borrowing costs to a 16-year high.
How did Britain get into this mess – and how does it get out of it? It’s hard to imagine a more important issue for this country. However, the new Labor government has yet to provide a convincing answer. Instead, they focused on some economic information, which created unhelpful traps for themselves and seriously damaged economic growth.
The opposition’s message is “no taxes on working people.” Perhaps this would be politically useful as a counter to warnings that they would rob voters of their wages. But it was poorly worded, leading Labor to engage in weeks of esoteric debate over what the word "jobs" really meant. Worse, delivering on the promises of the administration has weighed on the economy.
Now is not a good time to put the bulk of a huge £40bn tax rise - the biggest since 1993 - into action. Small companies are declining. The number of new start-ups has been declining for five consecutive years. Unemployment remains high. The consequences of the final national insurance hike - surveys show higher prices and lower wages - actually look like a tax on workers.
During his tenure, another piece of information was confirmed: Britain's public finances faced a "black hole". This could be seen as fiscally irresponsible and require new lending rules and transparency measures. But instead Labor describes it as a fiscal overrun, harping on the enormity of the shortfall ("£22 billion"), contorting itself with mind-boggling argumentative gymnastics to avoid the obvious solutions to their own framework - More austerity.
Again, none of this helps growth. Week after week we are told about the catastrophic state of affairs in the UK and how “tough decisions” and “tough choices” lie ahead. All this relentless pessimism destroys the country's stirring animal spirits.
Andy Haldane, former chief economist of the Bank of England and contributing editor of the Financial Times, pointed out that "the government has caused fear, foreboding and uncertainty...". . It's unfortunate because right after the election, there was a sense of renewal and renewal. "
The closest the government has come to diagnosing the problem is their recent message: We must “fix the foundations”. Indeed, the UK has failed to do the basics well. We have a backlog of millions of homes that need to be built. The application process for the Lower Thames Link, a tunnel under the river, cost more than twice the actual cost of building the world's longest road tunnel in Norway. We haven't built a nuclear power plant in thirty years, and our next one - Hinkley Point C - will cost six times as much as South Korea.
However, in the pursuit of prosperity, simply strengthening the foundation is not enough. Britain must also build its future.
What we know little about growth is that it comes not just from old-fashioned investments in roads and homes, but also from new ideas, innovation and technological advances. That points to a deeper diagnosis of what's wrong with Britain: it's not just old-fashioned investment that's stalling, but other growth-enhancing parts of economic life that are languishing as well.
Businesses are struggling to innovate, filing for far fewer patents than rivals in Europe and elsewhere, and private R&D as a share of GDP is now falling. Not helping, British universities do an excellent job of academic research (57% more publications per head than the US), but have been poor at turning those ideas into production.
The City of London, Britain's traditional source of vitality, looks tired. While the total value of companies on the London Stock Exchange has been falling since 2007, the value of U.S. stocks has tripled. What’s more, choosing British industries is outdated. Most of the UK's five largest companies by market capitalization come from traditional industries: oil, mining, finance, and chemicals. In the United States, Apple, Nvidia, Microsoft, Amazon, and Alphabet dominate.
We know the tech industry is really important for growth. In the US, it is almost entirely down to the country's astonishing productivity performance - three times that of the euro zone and the UK since 2008-09. That’s why the UK’s AI “action plan” this week is encouraging: AI will become the most important technology of the 21st century, and the UK has the most valuable AI industry in Europe. It is now necessary to build on this foundation and deploy the necessary political leadership and financial resources to turn the plan's 50 recommendations into reality.
Three hundred years ago, Britain was ahead of its rivals because a new spirit took hold - risk-taking, entrepreneurial, proactive in discovering new ideas about the world, and single-mindedly paying them forward. All practices. We need to cultivate that spirit again.