The Starmer Government appears desperate for economic growth, positioning it, almost Chinese style, as a source of political legitimacy.
Where does economic growth come from ? What policy tools are used around the world to achieve it ?
In the UK political parties tend to focus on fiscal policy or macroeconomics; both more of a facilitator (or a hindrance?) than generator of growth.
Beyond that, the left of centre, when not criticising growth per se, tend to focus on ‘industrial policy/strategy’ by which they usually mean interventionist state subsidy (ie ‘picking winners’) , full/partial state ownership (ie ‘partnerships’) , ‘more regulation’, or protectionism.
The right of centre, by contrast tend to focus in theory, though not always in practise, on the functioning of markets; typically expressed from the perspective of arms-length passive investors interested in purchasing assets, private or state. The right often assume that a focus on markets necessitates a reduction in the quantity of economic regulation, however that might be measured, rather than de-monopolisation.
The main problem with the leftist approach, (apart from the fact that it puts commercial decisions in the hands of government officials with little or no experience of real-world commerce), is that the policy tools deployed are blunt and costly, often wasteful, with lots of potential unintended consequences involved in the dynamics.
The main problem with the rightist approach is that it sticks too much to the theoretical sphere, separated from the messy reality of commerce. It glosses over the extent to which business is regulatory-dependent, and ‘financialised’ ie. where companies are de facto a service to banks and investment banks rather than the reverse as it should be.
Instead, industrial policy is best described as commercial policy, focusing on the underlying purpose of commercial law and associated regulation; that is, a framework for formalising various forms of ‘collective economic activity’, supporting access to finance, and enabling the trading of commercial assets (equity). Commercial law should ensure transparency, accountability and limit undue monopoly power to ensure ‘economic pluralism’. These are all regulatory functions but it is the quality of regulation that matters not the quantity.
In the UK, there is a sad lack of transparency (ultimate beneficial owners being opaque), most forms of monopolisation are outwith competition rules, equity ownership is damagingly concentrated, banking & finance is so de jure cartelised and poorly regulated that most banks rarely lend outside of ‘property collateral’ any more. R&D levels in the UK are not only low, they are mostly focused on military manufacture, where innovations stay under wraps. Skills investment is almost entirely disconnected from the nature and location of future demand.
The commercial functions of UK embassies (outside of hydrocarbons) are amateurish, compared with our rivals, and poorly coordinated from Whitehall.
Accountability is poor in the UK, with appalling practices both common and legal; at the micro level firms going into administration and then restarting under another name, and at the macro level dodgy share buybacks and misleading prospectuses abound. ‘The polluter pays’ principle is rarely applied, providing disincentives for clean-green businesses.
Addressing all of these problems, with assured major growth outcomes, is the real ‘industrial policy’. There is major set of tricky policy tasks ahead, requiring a decade-long programme.
At present the relevant institutions in the UK government do not have the capacity to undertake them, however, especially given the fragmentary distribution of institutional responsibilities. Sorting out this mess is a political opportunity, with great rewards. Such reforms are not costly compared with ‘picking winners’ and bail outs. A tough but worthy political opportunity for Liberal Democrats and their historic concern for the ‘real economy’ and the need for limits to concentrated economic power.
* Paul Reynolds works with multilateral organisations as an independent adviser on international relations, economics, and senior governance.
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15 Comments
This is a good and timely article. There are worrying signs that the lobbying by Big Tech into Downing Street will increase monopolies in the UK, not roll them back.
Both right and left show no signs of understanding that a competitive market has to be a regulated market, lest cartels emerge. Also that naturals monopolies require different handling from those sectors where competition is possible. Instead we have sectors where “the usual suspects” appear again and again despite scandals.
Thank you for a timely article.
Might “Economic Growth” only be valid and sustainable if all citizens, and their children, are equitably rewarded and enabled by first class infrastructures such as health, provision, education, an effectively sized and equipped military etc, etc. and by having pay proportional to national wealth and growth?
Currently the well paid receive serious pay increases while the rest receive disproprtionally lower pay.
How is longer term growth achieveable when some 20% to 25% of future work force, currently children, are harmed/stunted by being kept premanently underfed/semi-starved?
Might valid, equitable and sustainable socio-economics be well achieved by the adoption of Social Liberalism, or the like, with a mixed economy and a tax set up which is optimally personned and fair.
Currently, it favours the wealthy and preys on the poorer sections of our Neoliberalised unstable and unsustainable society.
Might we return to a form of Symbiotic Capitalism/Industrial Capitalism and start to lessen the harms done to our society and our economy by the adoption of Austerity/Neoliberalism?
This is a very interesting and thoughtful article. I wholeheartedly agree with its analysis that real economic growth stems not from government micromanagement or abstract market theory, but from a healthy, transparent, and competitive, as well as diverse ecosystems. I always prescribe myself to the philosophy of Jo Grimond—a name rarely celebrated in the 2020s—that we should be vigilant against monopolies, whether they arise in the private sector or from a top-down State. Healthy cynicism of concentrated power, whether corporate or governmental, is central to sustaining a flourishing economy.
Our current system in the UK is far from a true capitalist or mixed economy; it functions as predatory capitalism, with monopolies, cartelised finance, opaque ownership, and weak accountability dominating. I like that Paul calls for long-term reconstruction of our commercial framework which is strongly needed. History provides instructive examples: Teddy Roosevelt famously broke up monopolies to protect markets and competition, while other American presidents used industrial strategies to shape a fairer and more innovative economy – often with cross party consensus (although admittedly when Parties were more aligned with each other and was less partisan). These approaches show that government can play a constructive role not by picking winners, but by creating the conditions in which competition, transparency, and innovation thrive.
If the Liberal Democrats champion this kind of commercial reform, focusing on pluralism, accountability, and real economic dynamism, this would be both principled and strategically powerful agenda.
Growth comes from using more energy
@Jenny Barnes
Economic growth is necessary if we have a growing population to prevent GDP per head falling. As a pro-immigration party, we have to support economic growth that at least matches the rate of population growth.
In relation to issues raised above the first question is ‘what is economic growth?’. Is it always a bad thing ? Always a good thing ? Are there bad and good types of growth ? Broadly the good type of growth is the ‘build a better moustrap’ growth (for want of a better phrase). To paraphrase Alfred North Whitehead ‘Humans progress by doing more and more things automatically, without effort’. Over time humans learn to do things better and produce ‘labour saving devices’; from the wheel and the penknife, to better ploughs and the best soil for the most prolific plants. It is natural to want to do things better, find a better way, make something better. This motivation features in philosophy from Plato to Archimedes.
There is such a thing as the ‘quality of growth’. Higher quality growth is fiscally, environmentally and socially sustainable. That is, not based on the application of money borrowed via unsustanable debt, not using up limited resources or causing environmental damage, or not predicated upon elite enrichment, which leaves the rest of society behind.
The article essentially refers to all economic policy outside of macroeconomics & monetary policy, and outside of fiscal policy. As such the two big omissions are trade policy and ‘local’ planning policy. Trade policy is made difficult in the UK since it was an EU competence until 2020. It is a field where long term expertise is required. The UK has struggled to get a good trade policy team working well (ignore the spin) and even more trouble dovetailing trade policy with domestic economic strengths. Planning in the UK is pretty catastrophic. It neither protects communities and the environment, nor does it facilitate good quality economic growth. Government reforms neither define precisely the problem with UK planning it is trying to solve, nor does it set out the real aims of planning policy. Petty, often ludicrous, procedures tend to trump benefit to the community and nation. Trade policy and plannng policy both need significant reform, starting with tabula rasa.
@Jean Melville – I would argue it’s the other way round. Without immigration we would have a falling population and (more importantly) a falling ratio of working to non-working people. That would result in fewer income tax payers supporting a growing pensioner population, which is not financially sustainable. We need sufficient immigration to maintain a viable ratio.
For those that don’t know, the Government did publish it’s Industrial Strategy earlier this year – https://www.gov.uk/government/collections/the-uks-modern-industrial-strategy-2025
In typical Labour fashion, it does ‘pick winners’ both in the form of eight industrial sectors (the ‘IS-8’) but also in focusing on the regions where the IS-8 already exist. And like every similar document from every Government ever, it promises to ‘cut red tape’. We’ll see….
But fundamentally you can’t just wish growth or successful new businesses into existence. The prerequisite is investment, and the prerequisites for investment are stability and confidence, which have been in short supply since the financial crisis. And, uniquely, we did Brexit to ourselves ensuring we took an extra hit before the pandemic, Ukraine war and Trump tariffs that affected everyone else.
@Nick Baird
You may be correct that a level of net migration is necessary to prevent the population from falling, but that was not my point. My point is that the rate at which our population is growing – due entirely to net migration – is 1.1% per annum. Irrespective of whether you believe that that rate of population growth is a good thing or not, the fact remains that unless GDP increases by the same rate, GDP per capita will be reducing.
There was an amazing discussion on the mid day news today about why vet bills have sky rocketed. Apparently this is because of new technology requiring expensive. Investment in up to date equipment ! So much for productivity improvements in the service sector helping to give us economic growth.
@Christopher Haigh
As I understood the new technology was needed to perform procedures on animals which were never considered when the original ‘All creatues geat and small’ TV series was shown in the 1970s.
e.g. CT scans which were only just being developed for use on humans, never mind animals
These are excellent points, and thank you to Nick Baird for attaching the link to the Government’s industrial strategy. I agree with the sectors but need to read the policies.
I would like to add four more points:
Productivity – real economic growth (and income growth) comes from improvements in productivity, from investment in skills, training, and technology. Where are the opportunities for productivity growth, and how will we pay for them?
Geography – all big ticket public sector investment (apart from arguably nuclear) is in the southeast. HS2, Heathrow, Gatwick, Crossrail, Oxford / Cambridge hub. Where are the investment opportunities outside of the southeast? For example, tidal barrages in the northwest and HS3.
Purpose – I can’t help thinking that the UK has lost all sense of collective purpose and direction. If we (the UK) thought more about purpose, and less about ideology, it might
encourage innovative ideas, and people to join in.
Time-to-value – investment needs to constructed so that we can get the benefits sooner. This is my argument against HS2 and airport expansion in the southeast.
Green growth is the key that unlocks our economic prosperity. Whether it is off shore wind turbines, heat pumps, home insulation or organic farming these can offer more employment without harming the environment. Some are export opportunities and all reduce our imports while allowing people to have secure jobs while earning a decent wage.