23 July 2020
Philip McCann and Tim Vorley
2020, Edward Elgar, 392 pages,
Reviewer: Dame Kate Barker, British Coal Staff Superannuation Scheme
Poor productivity growth is generally identified as the UK’s key economic problem. The fifteen chapters here examine a range of aspects of this problem, with an introduction heroically aiming to draw the strands together. As an insight into current debates on this topic the book is invaluable, and hard to do justice to in this review.
One of the themes which emerges strongly, led by the chapter from McCann, is the role of regional disparities in the productivity story. He points out that the UK has ‘by far the highest interregional variation in both GDP per capita and also total factor productivity in Western Europe’. One puzzle is why productivity spill-overs and innovations fail to diffuse across the UK. McCann argues for more policy devolution so that regions and sub-regions can address their individual problems, rather than following national policies; one solution will not work for all.
The issue of spatial diffusion is also picked up in the comments on foreign direct investment by Harris. For FDI, being in a city as opposed to other locations further north, is less important than being in the South-East. Gardiner and Lewney, reviewing the work of Cambridge Econometrics, similarly indicate the underlying complexities of different regional performance. The shift to services from manufacturing has led to slower productivity growth in many cities. They recommend that future work distinguishes between the fundamentals of place and the consequences of those fundamentals, if really effective policy is to be developed.
A shortage of high-growth companies, sometimes identified as one of the UK’s weaknesses, is considered by Mason. While commenting that the shortage might be more apparent than real, reflecting the early takeover of high growth firms, Mason also points out that the preponderance of these firms is in the South-East. On a similar theme, the chapter by Henley discusses the role of place in the propensity for entrepreneurship. The ability of SMEs to absorb new technologies and techniques varies – but there is little understanding of why.
Other themes explored relate to innovation and the role of human culture and behaviour, and the gaps in our knowledge about human capital (especially adult skills and soft skills). This included an interesting reference to work suggesting that coal-mining areas tend decades later to have lower levels of entrepreneurship and stronger preferences for collective action. Productivity in a region, or a more local area, is therefore the result of many factors including the past narrative. The role of employment precarity in holding back productivity is discussed, as well as the issue of relating productivity to inclusive growth (a topic still under-explored).
Perhaps the most provocative chapters look at the UK’s policy record. Vorley and Nelles argue for a systems lens, and moving away from ‘economists, advancing economic models with ever more detailed conclusions within relatively narrow fields of inquiry’. They suggest there is a failure to understand interdependencies, including the importance of governance and trust.
Finally, Dymski criticises the fluctuations in government policy, and the irony that UK productivity performance deteriorated after governments sought to have a coherent science and technology policy. He puts part of the blame for this on the inconsistent approach to regional and sub-regional policy, and part on the instability of ministerial structures themselves.
This is an important set of papers and a testament to the range and depth of the work of the Productivity Insights Network. Putting together some of the wide-ranging chapters raises interesting questions (better return on HS2 or on more R&D support outside the ‘golden triangle’?). It contains many strands and details which policymakers need to be aware of, should explore further, but most importantly should act on.
Log in to comment