The recent wild fluctuations in equity markets have once again highlighted the extent to which short term concerns can shape a defining sector of our economy. Unfortunately this is not an outlook confined to the trading floors. Current political debate is now overwhelmingly shaped by a short-termist attitude to economic growth.
The original Conservative claim that growth would automatically follow tough action on the public deficit may have been ditched but it has only been replaced by claims that various tweaks to taxation, employment law or planning regulations offer short-cut routes to a healthier economy. This is a particularly unhappy state of affairs because it is impossible to come to genuinely meaningful conclusions about what we should be doing to address immediate economic problems, unless we are clear about what we should do to address the longer term.
In particular, Osborne and Cable need to recognise that even if we see a return of healthier growth over coming months, this will not necessarily mean that the UK economy is out of the woods. New economic powers in Asia and elsewhere are striding into the global market with increasing confidence and business know-how. Simultaneously, business practices in a wide variety of sectors are being radically and speedily transformed by the new general purpose technology of the interactive web. Similar confluences in the Twentieth century, such as the rise of mass production and the US in the 1910/20s and flexible production in Japan in the 1960s/70s, saw the UK’s share of global markets shrink as the growth and productivity of domestic business increasingly lagged international competitors.
Worryingly the weaknesses that led to these historical failures still exist today. A new analysis of international economic data, published this week by IPPR and written by myself and David Nash, reveals that the UK has not shaken off its long term underperformance in four vital areas: business investment, skills, business innovation, and presence of UK firms in emerging markets. These crucial elements of any economy ensure that the businesses which drive growth are able to adapt effectively to market and technological changes.
Concerns about these persistent weaknesses are not new. Anxious debates about one or more have emerged at different times throughout the Twentieth Century. Unfortunately those debates characteristically take off once the economic consequences of the weaknesses have become undeniable and usually irresolvable. For example, the failure of British business to modernise in the immediate post-war period only became an issue of serious political concern by the early 1960s when French and German companies were well ahead of British business in terms of productivity and market share.
This is why a debate about growth that fails to set short-term goals within the context of a wider policy framework designed to address the UK’s persistent economic weaknesses will never create the sort of longer term, sustainable growth that policy-makers claim they have been aiming for since the Crash of 2008.
So when we discuss the current problem with credit flows to British businesses, we also need to understand how other countries use the state more effectively to direct investment to innovative firms over the long term.
When we question how we get young people back into work, we also need to consider recasting our skills and training system so that it can respond more strategically and speedily to technological change.
When politicians laud success stories like the Old Street Roundabout, we need to appreciate that the web is not simply an issue for the IT sector but a huge threat to businesses that do not have a bold programme of policy support in place to aid innovation.
And when politicians of all parties talk of the need to turn Britain into a leading exporter, it has to be accepted that while expanding our export credit guarantee scheme is a crucial step, it will prove ineffective unless it is one small piece of a much larger policy jigsaw designed to address the problems of investment, skills and innovation.