"Nearly all future growth depends on a productivity resurgence" says Martin Wolf. This being so, Simon is right to deplore the fact that George Osborne never mentioned the productivity stagnation in his Budget.
This, though, raises a paradox - that whilst there seem to be lots of possible policies which might raise productivity, neither of the main parties seems to be taking much interest in them: even Labour seems keener to talk about the symptom of low productivity - low real real wages - than about the causes and solutions to it.
Here's what I mean. Policies to raise productivity (pdf) might reasonably include some mix of the following:
- Infrastructure investment. Workers aren't productive if they are waiting for a train or stuck in traffic.
- Facilitating learning. Nick Bloom and colleagues have estimated (pdf) that over a third of the gap in total factor productivity between the UK and US is due to inferior management. Some of this gap might be closed if only managers were more aware of best practice. In this context, the very fact that the UK's productivity is lower than the G7 average is, in a sense, encouraging. It means we don't need new innovations to boost productivity; we simply need to learn what the French, Germans and Americans are doing. This also requires...
- Better vocational skills. Translating existing ideas into actual productivity requires skilled workers.
- More worker democracy. "shared capitalism seems to boost productivity" say Bryson and Freeman. Sharing profits encourages people to work harder. It also encourages them to find the small marginal gains that can cumulate to raise efficiency.
- A better financial system. A lot of productivity growth (pdf) comes from efficient firms entering markets and inefficient ones leaving. However, with bank lending still falling (pdf) whilst zombie firms are struggling along, this entry-exit process is clogged up and needs fixing. Some might say this requires the encouragement of venture capital and private equity, others a state investment bank.
- Stronger competition policy. The threat of losing market share to rivals should stimulate efficiency improvements.
- Better planning regulations. A hefty chunk of US productivity growth in the 90s came (pdf) from the growth of big box retailing. Do UK planning laws really facilitate such innovations?
- Higher aggregate demand. January's CBI quarterly survey showed that half of UK manufacturers cited uncertainty about demand as a factor limiting capital spending. Higher aggregate demand might also boost productivity by reducing unemployment, thus forcing firms to find ways of getting workers to work better rather than simply hire more staff. Verdoorn's law tells us that strong demand raises productivity. History tells us the same: UK productivity grew much faster during the 1947-73 long boom than at any other time.
- Increased equality. There are reasons to believe that inequality reduces productivity - perhaps by reducing trust (pdf), or by encouraging the rich to invest in protecting (pdf) property rights rather than in innovation.
Whilst this list isn't comprehensive, it's pretty long. There's a reason for this. The precise causes of relatively low productivity will differ from place to place and firm to firm - hence the need for a multi-pronged attack.
And here's my paradox. All of these ideas, except perhaps the last, should lie within the Overton window - though lefties and righties might reasonably disagree about the weights upon them. We have, therefore, a reasonable agenda for raising productivity.
And yet neither main party is putting anything like as much stress upon this as, I guess, most economists would like. This is yet another example of how there has emerged a big gulf between politicians and economists.
A caveat: It's possible that I'm being too optimistic. This paper claims that "there are few, if any, feasible policies available that have a significant effect on long run growth rates". However, it might be possible to raise productivity in the shorter-term (by which I mean several years). And what's wrong with testing their hypothesis? Anyway, I very much doubt that this paper explains politicians' lack of interest in raising productivity.