Why does Britain have such an abysmal record on productivity? It’s complicated, but it’s not a complete mystery. In fact, the clues are glaringly obvious.
There are several to be found in a must-read new report for NESTA by Tom Forth and Richard Jones.
It’s all about public funding for research and development, which in Britain is miserly compared to our main competitors. And because business R&D spend tends to correlate with government spend, we do badly on that front too.
In fact, on overall R&D investment, the UK is comparable to Italy, Spain and Czechia instead of Japan, South Korea and Sweden. This is how Tom Forth put it in a tweet: “If R&D spending was the English football leagues, we’re in the EFL League 2”. That’s what we used to call the Fourth Division — a humiliating place for Britain to find itself.
So assuming that every extra £1 of state investment draws in a further £2 of business investment, how much extra does the government need to spend each year to get us to the OECD average for overall R&D investment (which is 2.37% of GDP)? £4 billion is the answer — not exactly loose change, but surely doable (and, indeed, a government commitment).
But it’s not just a case of spending more money — we also need to share it more evenly across the country. The UK’s productivity problem is first and foremost a regional inequality problem. Most of our great cities beyond London have fallen far behind the capital — much further than the equivalent city comparisons in France and Germany.
Again, a lot of that comes down to investment — outside of London and its neighbouring regions, the other regions have been starved of it. Forth and Jones calculate how much it would take to raise public R&D in the the rest of the country to the level enjoyed by the “Greater South East”. As it happens, the answer is also £4 billion.
In the post-Covid economy, the Government’s levelling-up agenda is more important than ever — an opportunity to stop wasting the potential of Britain beyond the London-Oxford-Cambridge ‘golden triangle’.
But it’s not enough just to put things right. We also need a proper investigation into what went so wrong for so long. Why on Earth did successive governments chronically underfund R&D — and so unequally distribute the resources that were available? The consequences, after all, were foreseeable.
I don’t think it was deliberate effort to stitch-up the North and other neglected parts of the country. But it is evidence of decades of political and administrative failure. It required a culture of short-termism; over-centralised power structures; a penny-wise, pound-foolish approach to managing public finances; and a stubborn refusal to consider second-and third-order effects.
Like the use of a barium meal to detect abnormalities in the gastro-intestinal tract, we need to follow the trail of the decisions that underfunded R&D and wrote-off half the country. It’s not just about the myopia of electoral politics. The less political and more technical an area of policy, the more it tells you about the weaknesses of the permanent government (because policy is determined by officialdom not ministers). That’s why R&D policy — not exactly a doorstep issue — is such a useful guide to the guts of the Whitehall machine.