UK ahead of G7 on productivity growth

A new report by the OECD shows that Britain is well placed in science, technology and industry to emerge from the global crisis.

Phase2 SANS TOC.fm The research contains two pieces of evidence which will stun critics of the Government’s long-term management of the economy. The UK country report outlines that:

“The United Kingdom has the largest value of foreign direct investment (FDI) relative to GDP among G7 countries. FDI inflows more than doubled in the first quarter of 2009, back to the same level as before the crisis. In the same quarter, FDI flows to the other G7 countries dropped by 63%…

“The United Kingdom registered the highest rate of productivity growth (2.4% a year) among G7 countries over 1998-2008.”

According to the report, the UK is particularly strong at ‘Competing in the world economy’ where it holds the top spot in four out of nine categories and in ‘Connecting to global research’ where it is top in three out of five categories. The UK is ahead of the OECD average in 74 per cent of categories. Meanwhile, the worst performance falls in the ‘Financing innovation’ category where Britain is particularly poor on measures of ‘Business financed R&D.’

The Government has, since 1998, actively sought to close the productivity gap with a series of interventions aimed at the “five drivers of productivity.”

Last week, Alistair Darling announced that £600 million would be cut from the higher education and science budgets.

Swagata

FDI is a double-edged sword. For just as it includes the likes of Nissan opening a plant in Sunderland, which is great, it also includes greedy takeover deals and asset-stripping private equity buyouts. Are we supposed to welcome Kraft’s hostile takeover as welcome FDI? I don’t.
willstraw

Very fair point, Swagata. The intention was to highlight a new report which hasn’t been covered elsewhere (presumably because it portrays the Government’s action in a positive light).
Balham Bugle

Strange that for productivity you concentrate growth and ignore productivity level where the UK lags behind the US, France and Germany (and is the basis of the Government’s productivity target). But when looking at debt, its level and not growth that’s important; the fact that the UK has the fastest growth in debt outside Ireland and Iceland is purely incidental.

It might also be worth noting that the period of fast productivity growth in the UK occurred in the early part of the OECD’s period. It’s slowed markedly since 2001. Hardly an advert for the success of Government’s policies; the longer we’re in power, the slower productivity will grow – stick with us and we’ll makes sure it gets even slower (and look now productivity is growing at -4%)

But surely, the main point is can we trust the UK’s productivity figures between 1998 and 2008. It’s clear that during much of that time, the economy was inflated by a unsustainable bubble which particular boosted output from the financial sector (which contributes around 25% of the UK’s economy). Productivity is just output divided by labour, so this bubble passes straight to productivity growth. Our productivity boost was a real as the finance sectors profits. The Treasury implicitly owned up to this in PBR 2008 when it lobbed 4% off its assessment of trend level of productivity; effectively saying that productivity growth was only around 2% on average over the last ten years.
willstraw

Balham Bugle,

That’s a clever, clever argument but doesn’t stack up. You wouldn’t compare the acceleration of a car with distance from London to Paris. They are two fundamentally different measures.

Closing the productivity gap requires productivity growth that is faster than in other countries. The growth measure is therefore the important one.

Neither the deficit nor the debt level is intrinsically important. What matters is the cost of repayment. This is turn depends on the sustainability of debt levels so a lower base allows for larger deficits without credit ratings falling or interest rates rising. In this case, it is the level that matters (as well as the strategy for bring budgets back to balance over the medium term).

Best wishes,

Will