The Economist - USA (2022-06-11)

56 TheEconomistJune11th 2022
Britain

Theeconomy

Stagnationnation

I

n the classicshort documentary “Pow­

ers  of  Ten”,  made  in  1977,  the  camera

steadily pans out from a picnicking couple

in  a  lakeside  park  to  show  first  the  Earth,

then  the  solar  system,  and  eventually  the

entire universe. An expanding field of view

brings  home  the  scale  of  things.  So  it  is

with the challenges facing Britain. 

In the week that Boris Johnson scraped

through a vote of confidence in his leader­

ship, the narrowest field of view focuses on

the  prime  minister:  how  wounded  he  is,

and how long he will survive (see next sto­

ry). Zoom out a bit and you can see the im­

mediate  issues  facing  an  enfeebled  gov­

ernment, from a creaking health service to

the rising cost of living. 

Zoom out farther still, though, and one

problem  fills  the  screen:  the  country’s

anaemic growth rate. A healthier economy

would raise people’s living standards; fast­

ergrowthisthewaytosquarethecirclebe­

tweenlowertaxesandbetterpublicservi­

ces.Yettheoecd, a clubofrichcountries,

reckonsthatonlyheavilysanctionedRus­

siawillfareworseintheg 20 in2023.And

whereas  average  annual  gdpgrowth  over

the  decade  preceding  the  2007­09  finan­

cial  crisis  was  2.7%,  the  Office  for  Budget

Responsibility  (obr),  a  fiscal  watchdog,

predicts the new normal is closer to 1.7%. 

The  political  debate  is  moving  rapidly

onto this terrain. Mr Johnson says growth

is  his  top  priority.  Cabinet  ministers  are

urging tax cuts. The Labour Party is work­

ing up a growth strategy. But talking is a lot

easier  than  delivering.  Zoom  out  again,

and it is clear that Britain’s growth problem

islong­standingandgettingworse.

Inthecomingmonthswewillpublisha

series of articles onhow to getBritain

growingagain.Butfirstitisvitaltounder­

standhowbadthingsare.Thatmeansfo­

cusingononeissue—productivity.

Overthelongrunproductivitygrowth,

ortheabilitytoproducemorewithless,is

allthatreallymattersforrisinglivingstan­

dards.Althoughintheoryeconomiescan

growwhenpeopleworklongerhours,at

somepointthatstrategyislimitedbyem­

ployees’healthandthenumberofhoursin

a day.Raisinglabourproductivity,orthe

amountworkerscanproduceinanhour,

can happen with investment. Or it can hap­

pen  with  greater  total  factor  productivity

(tfp),  a  measure  of  the  overall  efficiency

with  which  capital  and  workers  are  used.

tfpcan be traced to factors like better man­

agement practices or stiffer competition.

Britain once set the pace in productivi­

ty.  At  the  start  of  the  19th  century  it  over­

took  the  Netherlands  as  the  world’s  “pro­

ductivity frontier”. A century later, Ameri­

ca  was  in  the  lead.  A  study  by  Stephen

Broadberry of Oxford University and Doug

Irwin of Dartmouth College has document­

ed how in around 1850, American workers

produced roughly 10% less than their Brit­

ish peers. By 1910 they produced 25% more.

Britain  never  regained  its  lead.  Two

world wars hit hard; at home, meanwhile,

domestic  competition  waned.  European

peers  industrialised  behind  protective

trade barriers. By the end of the 20th centu­

Britain’sproductivityproblemislong-standingandgettingworse

→Alsointhissection

58 BorisJohnson’sdivineright

60 Bagehot:Unconservatism

britain’s

growth

crisis

→ Read more at: Economist.com/Britain