The British disease: short-termism

August 23, 2011 9:26 am

Author:

Share this Article

Union JackBy Adam Lent, Associate Fellow at IPPR

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claim that growth would automatically follow tough action on the public deficit may have been ditched but it has only been replaced by claims that various tweaks to taxation, employment law or planning regulations offer short-cut routes to a healthier economy.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.

Comments are closed

Latest

  • Featured 5 reasons why Labour’s tuition fees plan is a big improvement

    5 reasons why Labour’s tuition fees plan is a big improvement

    I was ready to be underwhelmed by Ed Miliband’s tuition fees announcement today. In recent weeks the outlines of Labour’s HE funding policy had been clear, leaving little scope for a ‘big bang’ announcement. And besides, cutting tuition fees to £6,000 didn’t look like a particularly radical reshaping of a system that is quite critically flawed. If the only policy that had been announced today had been a cut in the headline tuition fees figure I’d have been a bit […]

    Read more →
  • News Polling Scotland Labour retain poll leads on NHS and cost of living, but SNP extend lead in Scotland

    Labour retain poll leads on NHS and cost of living, but SNP extend lead in Scotland

    Labour have kept healthy leads with voters on the issues of managing the NHS and keeping down the cost of everyday items, but trail on other major topics of immigration, the deficit and economic growth. Latest polling by ComRes for ITV News shows that 34% of voters trust Labour most to run the NHS, compared to 22% for the Tories, and 31% on keeping down the cost of everyday items, compared to the Tories on 22%. When ComRes polled last month, […]

    Read more →
  • News Video Ed Miliband gives “official Labour Party position” on that dress

    Ed Miliband gives “official Labour Party position” on that dress

    The debate over the colour of a dress has been today’s biggest story. By this morning, the original Buzzfeed story had been read by more than 20 million people, all trying to figure out whether the dress was white and gold or black and blue. With Labour leader Ed Miliband doing the media rounds to promote the party’s latest election pledge to cut tuition fees, it was only a matter of time before he was asked his position on the […]

    Read more →
  • News Full text: Miliband’s speech pledging tuition fees cut

    Full text: Miliband’s speech pledging tuition fees cut

    Ed Miliband MP, Leader of the Labour Party, in a speech at Leeds College of Music, said: Today is about the young people of Britain. And all who care about them right across the generations. I have listened to you. And today I pledge the government I lead is going to work with you to change your future for the better. Four years ago I said the Promise of Britain – that the next generation will do better than the […]

    Read more →
  • Featured Labour confirm pledge to slash tuition fees by a third in email to supporters

    Labour confirm pledge to slash tuition fees by a third in email to supporters

    As expected, Labour have today confirmed that they pledge to cut tuition fees from £9,000 to £6,000 a year. In an email sent out to thousands of supporters by Ed Miliband in the last few moments. This is the fourth Labour election pledge (after reducing the deficit, controlling immigration, and funding for the NHS), and Miliband says it is a promise they will keep: “And unlike with certain other parties, that’s a promise you can rely on.” Update: Here’s the […]

    Read more →