Magazine article Management Today

The Davies Prescription for UK Growth

Magazine article Management Today

The Davies Prescription for UK Growth

Article excerpt

It's a bitter pill to swallow but manufacturing on its own isn't going to turn the economy around. Instead, we need to focus on our strengths in pharma, engineering, education and tourism - and rehabilitate the unloved financial sector.

A healthy dose of confidence could also work wonders.

As the economy has slipped back into double-dip territory, the debate among the chattering classes has centred on whether the chancellor needs a plan B and if his deficit reduction strategy risks pushing us further downhill. Wise voices have called for a 'growth strategy', usually without being terribly precise about what it might contain.

In fact, George Osborne will find himself changing strategy willy-nilly, as the recession reduces tax revenue and increases welfare expenditure. So the question is whether he should try to offset that effect with even sharper cuts. My answer would be no, and, indeed, if he can find ways of accelerating housebuilding, and useful infrastructure investment, he should go for them. But I suspect his room for manoeuvre is in practice quite modest, and that in their present skittish mood investors could extract a high price for any dramatic change of policy.

The bigger question we face is what are the long-term strengths of the British economy, and how the Government should attempt to sustain them. I am not a strong believer in industrial strategies conceived in the BIS offices on Victoria Street, but many government policies, and not just the overall fiscal balance, do affect the real economy. Education priorities, regulation, immigration policies, government purchasing, and the rest, all have the power to make or break industries and companies.

When the Coalition took office, the broad lines of its strategy were clearly set out. Rebalancing was the buzzword. We needed to shift the economy away from its excessive reliance on finance, a love affair that had ended in tears in 2007, when the girl was found to have maxed out on the nation's credit card.

To replace her, the government proposed to rekindle an old flame, unloved for the past four decades. Manufacturing was back in fashion. George Osborne promised a 'march of the makers' to replace the bankers' ball. Many were sceptical. It is hard to think of an example of an industrialised country that has turned round a declining share of manufacturing in GDP. But there were some grounds for hope of a revival of exports. Sterling devalued sharply in 2008, by 20% or so against the euro, giving British firms a competitive edge.

Sadly, while export performance has improved a little, there are few signs of a sustainable increase in market share. Exporters seem to have taken the benefit of devaluation mainly in the form of wider margins, rather than increasing volume. UK exports have risen by 29% by value since 2007, while US exports have risen by 44% and Chinese by 87%.

It is widely accepted that confidence is the key to recovery, and confidence is severely lacking today. The Economic Optimism Index (the balance of people who are optimistic or pessimistic about the economy) is now at -32. That is not as bad as the -64 we reached in 2008, but it has been slipping recently, and the UK's score is lower than the comparable figure for Spain, Italy or Ireland.

Most people think their children will have a lower standard of living than they did and the population has a very low opinion of British business. Only 4% of those polled by Mori think that British business is a valuable asset for the country, lower than for any other of the 10 options cited. And only 13% of the population think the UK has a strong economy.

What is particularly surprising is that we are far more pessimistic about ourselves than foreigners are. In a global poll about the respective positions of different countries, fully 48% of respondents considered that the UK economy was fundamentally strong. The French were an exception, bless them. …

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