Prosperity and the productivity puzzle

25 July 2018

By Charlotte Alldritt

The pursuit of inclusive growth is a challenge facing national government leaders across the world. From South Africa, Brazil and India, to the Congo, Egypt and Barbados, countries are developing strategies to ensure as many people as possible can contribute to and benefit from economic prosperity.

In the USA, UK and much of western Europe the political imperatives for inclusive growth have shaped domestic policy agendas and made elections. The parallels between the election of Trump, populist parties in Europe and the UK’s decision to leave the European Union are often made, with their origins stretching back at least to the financial crisis and to prior decades of deindustrialisation and economic dislocation. Amidst a range of complex factors in each case, it is clear that many voters were ready to voice their frustration and angst at the greatest false promise of our age; the hope that economic recovery and growth would alleviate patterns of persistent poverty and inequality has not materialised. Maps of health, wealth and income inequality in the UK look broadly the same today as they did a generation ago. Prosperity has not trickled down. Places that have been poor are still poor.

Economic policy to drive productivity and growth has often tended to focus on the macroeconomic environment, designed – in theory at least – to enhance our competitiveness and win, to dig out George Osborne’s phrase, the ‘global race’. Fiscal policy, a flexible labour market and the odd (comparatively low) bit of government R&D investment have been the go-to, centrally designed and delivered policy levers of choice.

The idea of inclusive growth poses significant questions for how we think about macroeconomic policy. As we navigate the Brexit process and look to strike trade deals outside the EU, are our corporate governance frameworks, our fiscal and monetary policy and our labour market regulation geared up to support inclusive growth? Are we pushing for appropriate systems and institutions at an international level, and what might this mean – for example – as we continue to shape the future of UK and global financial services in the long wake of the 2008 crisis? The Centre for Progressive Policy (CPP), a new economics think tank, is committed to examine these questions as we seek to make inclusive growth a reality – working with local and national partners in the UK and globally.

However, we equally emphasise the need to look at the context in which national policy is applied and where global dynamics play out at a place level. At CPP we believe that place matters and must be at the heart of our understanding and development of effective, integrated economic and social policy. Such integration of economic and social policy is the basis of inclusive growth. So often the two aspects are held separately, predicated by different values and assumptions, and devised through different methods and academic disciplines. But the two are inherently linked.

At a place level we see that productivity is not just a feature of investment in high speed connectivity or high value added clusters. These are important. But so too is the degree to which all people have access to quality jobs, where they are paid fairly, have access to training and where there is scope for progression. Mental, physical and public health, education and careers advisory; access to affordable childcare; youth, cultural and leisure services are all integral to creating thriving places where prosperity is broad-based.

In this way, we also strive to challenge many of the traditional economic orthodoxies – particularly at a macro level. Without a clearer connection between local, regional and national economic challenges and interventions, we will forever wonder how we fix what becomes an increasingly abstract ‘productivity puzzle’. Without an understanding of place and how policy is manifest on the ground, we will continue to promise or hope for inclusive growth without finding the means to shift away from our current ‘grow now, redistribute later’ approach.

Inclusive growth requires complex system change. Informed by deep data-driven diagnostics and with the commitment of creative, collaborative ‘whole place’ leaders, places offer the greatest opportunity to make inclusive growth a reality.

This article was first published by the All Party Parliamentary Group on Inclusive Growth. You can follow Charlotte Alldritt @CAlldritt