For decades the current governing party in the UK seems to have assumed that economic growth comes from the blunt instrument of government borrowing and spending. But as state debt has approached 100% of GDP, they have had to think beyond that. Unfortunately, this has not amounted to much, with ideological barriers and lack of experience among decision-makers hindering reforms. Labour tend to resort to photogenic one-off remedies, which may or may not ultimately contribute to any beneficial growth; a heavily subsidised weapons deal, a fantasy ‘new-town’, or a trade deal of exaggerated benefit.
Economic growth is not quite as easy as that, although scoping out required reforms is relatively simple.
To be effective the government instead needs to state its considered position on where it thinks growth comes from, and what hinders it. In addition there is the question of what type of growth is being pursued; surely not all growth is good, especially growth that is not environmentally sustainable, nor fiscally or socially sustainable.
Improving the ‘quality of growth’ sits, strategically, alongside the quest for aggregate higher growth. Environmentally sustainable growth must include the implementation of the ‘polluter pays’ principle. Fiscal sustainability means growth should not be generated through unsustainable debt. Social sustainability means growth that is not captured by a plutocratic elite, leaving everyone else behind, or even poorer.
Economic growth policy should be based on the fundamental understanding of the human motivation to improve things, to make better things, and to ‘build a better mousetrap’ … which should underlie all ‘good quality’ growth. With the caveats above, this should underpin growth policy over the longer term. Growth which harms the environment, saddles future generations with debt, or just makes the rich richer, is not a public benefit.
The governmental factors that help or hinder beneficial economic growth can be simply set out; the framework of commercial law, the quality (not the quantity) of regulation, the usefulness of the banking and financial sectors, appropriate skill levels, general education, competition/monopoly rules, science and R&D, internal/external trade policy, trade facilitation and infrastructure (including transport links), the impartiality and costs of the legal system, international connections, utilities, land/buildings availability, and many other factors.
One could write several books on each topic, but they are nevertheless interdependent, and reforms need to be examined together as a set of interconnected systemic improvements, both national and regional. Coordination mechanisms are clearly needed for this, which in the UK are simultaneously fragmented and over-centralised … and weak. More effective growth management and facilitation requires a steely focus on the simplicity of aims, built around the themes of better application of commercial policy acumen in government, and a more fleet-of-foot private sector focused on long term success.
In parallel, the government needs to focus on defining and addressing the problems it wishes to solve. At the top of the menu come the three interlinked anti-growth evils of economic management; monopolisation, ‘financialisation’ and sclerotic government.
The key problem with monopolisation and cartelisation is that the worst of it occurs opaquely among ‘investors’, outwith the scope of competition regulators. The key problem of financialisation is that companies end up working for the banking/finance sectors, not the other way round. The deeper problems of a sclerotic government are rooted in secret cronyism, appalling procurement practices, ‘regulatory capture’ and an epidemic of conflicts-of-interest.
Unfortunately, you will hear nothing about these simple-but-not-easy reforms and institutional changes needed, from Labour, the Tories or Reform UK. The whole subject matter is entirely alien to them. To be continued …
* Paul Reynolds works with multilateral organisations as an independent adviser on international relations, economics, and senior governance.
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13 Comments
This is a valuable post with raises very important questions, not leat (1) the quality of growth; (2) the distribution of the proceeds of growth and (3) does not (yet) say enough about whether we really need growth.
1. Further growth must be sustainable. Growth which further poisons the planet or carelessly squanders the earth’s scare resources should be a no-no.
2. For the past two decades at least most of the proceeds of growth have flowed upward to the “have mosts” whilst the “have leasts” have stagnated where they are. Hence the current dissatisfaction with the “system” and the attractiveness of “snake-oil” salesmen such as Farage.
3. Do we really need yet more growth to afford a decent society? The UK economy is at leat four times richer than in 1945 and we managed to build a pretty caring society then.
I look forward to parts II and III . . .
As our population grows, we need economic growth of at least the same rate or our GDP per head will be falling. (I am assuming that no one on this site would prefer to see GDP per head falling…)
In the 1960s one wage earner could support a family, a house, holiday etc. Now it takes two , and housing, heating and food seems more challenging. Has there really been growth?
@Jenny Yes there has been some growth in GDP per head above inflation. There has also been growth in inequality as conventionally measured by the Gini Index on net incomes. On top of this inflation has been much higher on the things that poor people buy (especially rent) than on those that tend to be bought by the rich. In the specific case of your single earner family, they were also badly hit by the removal of married man’s allowance. While that was a sexist concept that had to go, there has been no adequate replacement within the tax system and single earner couples still make up a very large proportion of those struggling to make ends meet.
@Jenny Barnes
In 1960 there were 4.3 million cars for a population of 52 million. Today there are 34 million cars for a population of 70 million. In 1960, only about 40% of the population were owner-occupiers; today the figure is nearer 65%. And of course people now have colour televisions, computers, mobile phones and all sorts of other consumer good that either didn’t exist or were completely unaffordable back in the 1960s.
Of course there has been economic growth and almost everyone has benefited, including the poorest who may still be poor relative to other people today, but have much more than poor people had in the 1960s.
Might the article below be of use?
axresearch.org.uk/Blog/2025/11/05/why-is-it-that-the-rich-always-seem-to-win/
The solution to the problem of growth is a very short one because it involves a switch, taking about one second, between British lawyers’ economic analysis (“In the end, someone’s got to decide economic issues, and lawyers have got to organise that decision”) and European mathematicians’ analysis (that economic growth occurs when nobody makes economic decisions: the seller does not make the buyer’s decision to buy a thing, and cannot decide to exist as the thing’s seller in face of non-existent buying decisions).
@Steve Not without adding a t to the front of the url.
The idea pushed by Rachel Reeves is that if the economy grows by N% we can then afford N% more teachers, N% more doctors and nurses etc.
We won’t be able to for the same reason that previous levels of growth haven’t enabled us to employ more in these professions. They rightly want to share in the increased prosperity so become N% more expensive!
I’m not saying we shouldn’t try to increase GDP but we do need to understand the limitations.
Growth is difficult in current circumstances but could be better than it is in the UK, says Martin Wolf, chief economist of the Financial Times in an interview I saw recently on Youtube. He recommended 1. Greater certainty of policy for business and public investment, 2. Devolution of power and resources to local/ regional areas (we have “massive overcentralisation” he says) 3. Encourage immigration to get more workers. 4. Raise taxes only from the better off to spend on public investment and incentivise private investment (“we are a low tax country” he says) 4. Increase contributions to pensions and incentivise more savings.
To add to Martin Wolf’s views, he blamed the current crisis on failure of leadership, the education system partly, the need for more shareholder power over the way companies operate, insufficient investment and savings, the unequal way in which any benefits of growth are shared around the population, Brexit, and too much reliance on the financial sector. He blamed the lack of adequate involvement of our people on 50years of government failure to fairly care for all our people and in particular mentioned the Osborne period.
“economic growth comes from the blunt instrument of government borrowing and spending.”
So which other instruments are sharper? The continual adjustment of interest rates to encourage either more saving or more private sector borrowing is about as blunt as is possible to be. At least government spending can be targeted to where it’s needed most.
The process of any type of economic reflation, either fiscal or monetary, which is necessary to produce growth comes with the risk of increased inflation. It’s always easier for companies, when aggregate demand increases, to increase their prices to boost their profits rather than increase their production.
Solve this problem and you’ll solve the problem of a lack of growth.
Growth that benefits our economy can be increased by government investment in the factors that facilitate it. These include education, skills training, research and its implementation and incentives for small businesses that operate in this area. All growth is not beneficial and easy areas for those that are include the numerous types of green growth, waste management and nature and biodiversity. For instance if we dealt with all our plastic waste here we would create many beneficial jobs.