Britain must rediscover its economic spirit of adventure

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FT editor Rula Khalaf picks her favorite stories in this weekly newsletter.

The writer is the author of ‘Growth: A Reckoning’ and an economist at Oxford University and King’s College London.

The British economy is in trouble. No progress. Productivity is falling, ranking below the US, Germany and France. Real wages have barely moved for 16 years, their worst run since the Napoleonic Wars. And investors are starting to borrow, with high borrowing costs of up to 16 years.

How did Britain get into this mess – and how will it get out? It is hard to think of a more important question for the country. However, the new Labor government has yet to provide a convincing answer. Instead, they focus on a few economic messages that create self-serving traps and actively harm growth.

The protest message was “No tax on working people”. Perhaps this was politically expedient, to fend off warnings that voters’ pay packets would be raided. But the approach was flawed, with Labor reeling for weeks over the exact meaning of the word “work”. Worse still, keeping the hope in power Economy come back.

This is not a good time to introduce the biggest – the biggest since 1993 – tax hike of £40bn. a bit Companies are in Decline. The number of new startups has been declining for five years. Unemployment is stubbornly high. And the result of the latest increase in National Insurance – which studies suggest will lead to higher costs and lower wages – appears to be a tax on workers.

In office, he carried another message: Britain faced a “black hole” in public finances. This would have been seen as fiscally irresponsible, requiring new credit rules and transparency measures. But instead, Labor presented it as a budget outlay, repeatedly emphasizing the enormity of the deficit (“£22bn”), twisting themselves in unconvincing argumentative gymnastics to frame the obvious solution for their own frame – more austerity.

And again, none of this helped growth. A week later we are told about Britain’s dire situation, how “difficult decisions” and “difficult choices” lie ahead. All that unrelenting pessimism crushed the country’s spirited animal spirits.

Andy Haldane, former chief economist at the Bank of England and FT contributing editor, said: “The government has created suspicions about fear mongering. . . It is sad because after the election there was a feeling of renewal, renewal.

The closest the government has come to examining what has gone terribly wrong is their latest message that we need to “fix the foundations”. It is true that Britain has failed to do the basics. We have a backlog of several million houses that need to be built. The application process for the Lower Thames Crossing – a tunnel under the river – will cost more than double the cost of building the world’s longest road tunnel in Norway. We haven’t built a nuclear power station in three decades and our next one – Hinkley Point C – is six times more expensive than the ones in South Korea.

To pursue prosperity, however, it is not enough to simply fix the foundation. Britain must also build the future.

What little we know about growth comes from new ideas, inventions, and technological advances, not just old-fashioned investments in roads and houses. This points to a deeper examination of what has gone wrong in Britain: not only have those old modern investments stagnated, but these other growth-promoting parts of economic life are also declining.

Businesses are struggling to innovate, filing fewer patents than rivals in Europe and elsewhere and now relying on private R&D. fall out As a percentage of GDP. British universities aren’t helping, they’re doing an amazing job of producing academic research (57% more publications per capita than the US) but they’re consistently poor at using those ideas effectively.

The city of London, Britain’s traditional lifeblood, appears to have weakened. Since 2007, the value of US stocks has tripled while the overall value of companies listed on the London Stock Exchange has fallen. Moreover, Britain’s preferred industries are dated. The five largest companies by market capitalization in the UK are mostly from old-school sectors: oil, mining, finance, chemicals. in the USApple, Nvidia, Microsoft, Amazon, Alphabet dominate.

We know that the technology sector is important for growth. In the US, it is entirely responsible for the country’s impressive productivity performance – three times Acceleration in the Eurozone and the UK since 2008-09. That’s why this week’s AI “Action Plan” for the UK is so inspiring: AI is the most important technology of the 21st century and the UK has the most valuable AI sector in Europe. It must now build on it by deploying the political leadership and financial resources needed to turn the 50 recommendations in that plan into reality.

Three hundred years ago, Britain thundered ahead of its rivals because it possessed a new spirit – risk-taking, entrepreneurial, aggressive in its search for new ideas about the world, singular. It is about putting those who think into practical use. It is that spirit that we need to nurture again.