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Rula Khalaf, editor of the Financial Times, picks her favorite stories in this weekly newsletter.
The writer is the author of Growth: A Calculation and an economist at the University of Oxford and King's College London.
The British economy is in trouble. Growth is nonexistent. Productivity, already below that of the United States, Germany and France, is declining. Real wages have barely moved for 16 years, their worst rate since the Napoleonic Wars. Investors began to fluctuate, which led to borrowing costs rising to their highest levels in 16 years.
How did Britain get into this chaos, and how does it get out of it? It is difficult to think of a more important question for the country. However, the new Labor government has not yet provided a convincing answer. Instead, they were focused on a handful of economic messages that created unhelpful traps for themselves and hurt growth significantly.
In opposition, the message was “no taxes on the working class.” This may have been useful on a political level, as a defense against warnings that they might raid voters' salaries. But his bid was a failure, hampering Labor through weeks of esoteric debate over the true meaning of the word “labor”. What is worse is that the fulfillment of the promise in power has been hindered economy behind.
This is not a good moment to put the bulk of a huge £40bn tax rise – the biggest since 1993 – on business. small Companies They are in decrease. The number of new startups has been declining for five years. Unemployment is stubbornly high. The eventual consequences of increasing National Insurance – surveys suggesting higher prices and lower wages in the future – actually look more like a tax on workers.
In office, another message took hold: Britain faces a “black hole” in its public finances. This could have been seen as fiscal irresponsibility, requiring new borrowing rules and transparency measures. But instead, Labor presented it as fiscal overspending, repeatedly emphasized the size of the deficit (“£22 billion”), and contorted unconvincing polemics to avoid the obvious solution to its own framework – more austerity.
Again, none of this helped growth. Week after week, we are told about the disastrous state Britain is in, and how “difficult decisions” and “difficult choices” lie ahead. All this relentless pessimism has crushed the country's exciting animal spirit.
Andy Haldane, former chief economist at the Bank of England and contributing editor to the Financial Times, noted that “the government generated fear, anxiety and uncertainty…” . . This is unfortunate because immediately after the elections there was a feeling of revival and renewal.
The closest the government has come to a diagnosis of what has gone wrong is its final message: we must “fix the foundations”. It is true that Britain is failing to do the basics. We have a backlog of several million homes that we need to build. The application process for the Lower Thames Crossing – a tunnel under the river – costs 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 three decades, and our next plant – Hinkley Point C – is six times more expensive than the one in South Korea.
However, in the pursuit of prosperity, it is not enough to merely repair the foundations. Britain must build the future, too.
What little we know about growth is that it comes not just from old investments in roads and housing, but from new ideas, creativity, and technological progress. This points to a deeper diagnosis of what went wrong in Britain: not only are these old investments stagnant, but these other growth-enhancing parts of economic life are also weakening.
Companies struggle to innovate, patenting far fewer inventions than competitors in Europe and elsewhere, with R&D projects now private. drop As a percentage of GDP. It doesn't help that British universities do a fantastic job of producing academic research (57% more publications per capita than their US counterparts) but are consistently weak at putting these ideas to fruitful use.
The city of London, the traditional source of British vitality, appears exhausted. While the total value of companies on the London Stock Exchange has declined since 2007, the value of US stocks has tripled. What's more, the industries that chose Britain are becoming outdated. The five largest UK companies by market capitalization are mostly from old-school sectors: oil, mining, finance and chemicals. in weit's Apple, Nvidia, Microsoft, Amazon, and Alphabet that dominate.
We know that the technology sector is really important for growth. In the United States, it is almost entirely responsible for the country's astonishing productivity performance. Three times The pace of growth in the Eurozone and the United Kingdom since 2008-2009. That's why the UK's AI “action plan” this week is encouraging: AI will be the most important technology of the 21st century, and the UK has the most valuable AI sector in Europe. It must now build on them, and deploy the political leadership and financial resources necessary to turn the 50 recommendations contained in that plan into reality.
Three hundred years ago, Britain was ahead of its rivals thanks to a new spirit that overcame it: risk-taking, entrepreneurship, and aggressiveness in discovering new ideas about the world and the insistence on putting them into practical use. It is that spirit that we need to nurture again.
