Productivity and Investment: Time to Manage the Project of Renewal

Main points

• The underlying slowdown in growth and productivity is affecting all developed economies and has been happening in the UK for much longer than usually appreciated. Most likely this slowdown is the natural consequence of the changing economic structure as mature economies de-industrialise.
• The under-performance of the UK could be addressed in part by improving the governance and strategy associated with significant investment projects.
• Policy should now focus on maximising welfare rather than GDP growth, taking into account the changing structure of the economy as it continues to evolve. That means supporting much broader concepts of investment than just physical plant and machinery, and reflecting the positive externalities associated with investment, particularly in people.
• To maximise the sustainable rate of welfare growth going forwards, policy should focus on facilitating the digital transformation. And investment needs to be boosted specifically in health, education and in the transition to net zero greenhouse gas emissions. That could be private or public sector led, but a more activist and rational policy approach is needed either way.

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