Thursday, December 08, 2005
As that nice Mr Osborne rather unkindly reminded our Roadblock Chancellor on Monday, long long ago the latter said "productivity is a fundamental yardstick of economic performance". And so it is. Improving productivity is the only sustainable path to increasing Britain's prosperity.
And fair play. Gordo and Balls understood that right from the start. In fact they made it a central plank of their economic policy. They ran high-powered seminars at Number Eleven, where top economists were invited to expound on the very latest developments in post-neoclassical endogenous growth theory. They issued weighty reports. They lectured business on how it was missing out on the massive new opportunities they had identified. And of course they tinkered.
Boy, did they tinker. Special subsidies and tax breaks for all kinds of pet schemes they reckoned would boost productivity. Like the hundreds of millions shovelled into Research and Development tax credits, which have undoubtedly enriched shareholders in the major pharmaceutical companies, but which have apparently produced an actual decline in R&D spending. Or the zillions blown on daft training schemes that had to be closed down after they attracted fraudsters. Or...well, we all get the picture.
Anyway, the bottom line is that productivity growth has now fallen to 0.5% pa, compared to around 2.5% pa when Labour came to power- a massive plunge. And according to the ONS, average productivity growth in the eight years since they came to power now stands at 1.4% pa, compared to 2.2% in the previous eight years under those hopeless boom and bust Tories.
Labour have cut Britain's long-term productivity growth rate by more than one-third.
We've blogged about this before (eg see here and here), highlighting two key points. First, among the lies, damned lies, and general fog that comprise productivity statistics, the one undoubted truth is that we're definitely behind one country. That country is the United States, which is at least 25% ahead of us and every other major economy.
Second, the real reason that this and every previous Labour government has tried to plan, regulate, and subsidise Britain into faster growth is because they do not want to follow the only policy that actually works.
In our modern globalised age, the only proven way for governments to foster faster productivity growth is for them to downsize themselves. Less interference and regulation, and most of all, less taxation.
Posted by Mike D at 10:52 am