Far too many people are in low productivity, insecure jobs, struggling to make ends meet. The thesis in this report – produced jointly by the Centre for Social Justice (CSJ) and the John Mills Institute for Prosperity (JMI) – is that these problems would be much more manageable if the economy was performing better, growing faster and doing so with less regional inequality.
The UK is still a rich country by world standards, but it is suffering from low economic growth compared with many other economies, particularly many in the Far East. The need to respond to this challenge has not been lost on policy makers in either the recent or more distant past.
The issue raised in this report, however, is whether the focus of nearly all this work has been on the real root cause of the UK’s mediocre growth and massive inequality problem or whether too much effort has gone into researching supply side solutions rather focusing on the demand side of the productivity challenge.
Key findings in this report:
- The conventional approach to considering why the UK economy has been growing so slowly has been to focus almost entirely on supply side factors.
- Supply-side remedies on their own do too little to make sufficient difference. We estimate that, in relatively slow growing economies such as ours, successful implementation of the whole of the supply side agenda is capable of contributing no more than about a 0.5% increase in GDP per annum.
- The high return categories of investment are mostly found in the private sector, clustering around mechanisation, the application of technology and the use of power.
- A critically important feature about investments in mechanisation, technology and power, however, is that they tend to be found in the internationally traded, highly competitive privately owned light industrial sector, where profitability is key.
- To ensure that investment of the high growth orientated type is generated in sufficient quantities, the economy has to be able to sell its manufactured output into the world market at competitive prices.
- This is what produces the export-led growth which makes investment profitable enough to make sure that it materialises on a sufficient scale, thus generating greater productivity, rising GDP and increasing living standards.
- The reality is that no economy can grow as fast as the world average if it is losing share of world trade and no developed and diversified economy can grow reasonably rapidly – let alone in a balanced way – unless it has a prosperous manufacturing sector.
