Strategies for Reigniting Growth

Tyler Goodspeed, a distinguished US economist, delivered the Ralph Harris Memorial Lecture, offering a compelling analysis of the UK’s stagnant economic growth. He identified four key factors of production – land, capital, labor, and energy – as being significantly hampered by government policies, ultimately stifling productivity. Goodspeed argued that Clement Atlee’s 1947 decision to establish “green belts” around cities restricted urban development, while other planning restrictions from the same era continue to impede productivity. Furthermore, he posited that the UK’s capital markets are failing to adequately support startups and small businesses due to tight liquidity regulations that incentivize lending to the government over private enterprise. High marginal tax rates, starting at lower income levels compared to the US, create a substantial disincentive to work, further hindering economic growth. Finally, the UK’s commitment to phasing down gas and banning fracking forces it to import energy at considerable cost, exacerbating its economic challenges.

Goodspeed emphasizes that significant economic production is impossible when the fundamental factors of production are constrained by government interventions. He also highlighted the detrimental impact of the 2007-8 financial crash, observing that while the US economy rebounded after an initial dip, the UK’s growth flatlined. He attributes this divergence to increased taxes and more stringent regulations in the UK following the crisis. Adding to Goodspeed’s analysis, the role of entrepreneurship as a key driver of growth has also been stifled by high taxes and burdens on smaller businesses. This combination of factors has created an environment where productivity and economic expansion are significantly curtailed.

To address this economic stagnation, Goodspeed proposes a three-pronged approach. Firstly, he advocates for a “Policymaker Hippocratic Oath,” urging policymakers to prioritize avoiding harm to the nation’s productive system. This emphasizes the need for policies that facilitate rather than obstruct economic activity. Secondly, Goodspeed highlights the importance of recognizing the link between “people and policy.” He argues that the bureaucratic nature of institutions like the Bank of England and Whitehall often results in policies that favor the interests of bureaucrats over the productive public. This aligns with Liz Truss’s perspective on the dominance of the bureaucracy in shaping policy, leaving ministers as mere spokespersons for the established order. This reinforces the need for policymakers to be acutely aware of the potential for institutional biases and the importance of prioritizing the needs of the wider public.

Finally, Goodspeed emphasizes the necessity of having political leaders who possess a genuine understanding of the critical role of productivity and market forces in driving economic growth. He underscores the need for leaders with strong ideological convictions in these areas. This contrasts with the current political landscape, often characterized by a tendency towards compromise and a lack of firm ideological stances. The absence of such leadership, according to Goodspeed, further contributes to the UK’s economic woes. The implementation of these recommendations, according to Goodspeed, would pave the way for a more robust and vibrant UK economy.

The core of Goodspeed’s argument revolves around the idea that excessive government intervention is the primary obstacle to economic growth in the UK. He contends that by restricting land use, hindering capital formation, disincentivizing labor through high taxes, and imposing costly energy policies, the government has created an environment that stifles productivity and undermines economic expansion. He suggests that the focus should shift towards creating an enabling environment for businesses, fostered by policies that minimize intervention and promote market-driven solutions. This includes streamlining regulations, lowering taxes, and ensuring that capital markets function effectively to support businesses of all sizes, particularly startups and small enterprises, which are often the engines of innovation and job creation.

Goodspeed’s call for a “Policymaker Hippocratic Oath” underlines the importance of a fundamental shift in the mindset of policymakers. He advocates for a more cautious approach to policy interventions, urging policymakers to prioritize avoiding harm to the productive capacity of the economy. This implies a move away from excessive regulation and a greater emphasis on allowing markets to function freely, thereby fostering innovation, competition, and economic growth. This principle underscores the importance of carefully considering the potential consequences of policy decisions and prioritizing the long-term health of the economy over short-term political gains or bureaucratic interests.

The issue of bureaucratic influence, as highlighted by both Goodspeed and Liz Truss, further complicates the challenge of implementing pro-growth policies. The dominance of bureaucratic institutions can lead to policies that perpetuate the status quo and prioritize the interests of the bureaucracy over the broader public. This calls for a concerted effort to reform bureaucratic structures and ensure that policymakers are accountable for implementing policies that truly serve the interests of the wider economy. The need for political leadership with a strong understanding of and commitment to pro-growth policies is paramount. Without such leadership, the UK risks continuing down a path of economic stagnation.