The effectiveness of our new government is called into question
One of the biggest headaches for Britain’s new government is raising productivity. Productivity, or the efficiency of production, is the main driver of human welfare. Raising it is the Holy Grail of economic policy. As Paul Krugman, the economist and Nobel laureate put it, “Productivity isn’t everything but in the long run it is almost everything”.
* UK’s productivity performance since the Financial Crisis has been dismal. Unlike previous downturns there has been no bounce in productivity since the recession. Among the major industrialised nations only Italy has done worse than the UK in raising productivity since 2007.
* If the UK’s pre-2007 trend had continued, productivity today would be more than 16% higher. Wages and the standard of living would be significantly higher than today.
* The gap looks even worse measured in terms of absolute levels of productivity. Output per hour in the UK is 25% lower than in Germany, the US and France.
* Something seems to have gone badly wrong