Poor, and declining, national productivity is a serious malaise. Not only does it mean that inflation is likely to rise – as wage rises lead to increased costs without corresponding output rises – but investment also declines).
It seems ironic that firms invest more when things are going well but they do -and it’s not really very surprising.
So successful countries can benefit from a virtuous spiral while unsuccessful countries continue to decline.
It seems, obvious that those unsuccessful countries need to find a way to breakout of their downward spiral of low investment and resulting low productivity.
This clearly needs government action to stimulate growth. However the steps to do this are not always clear.
The US has shown us a possible path. The Biden government, under the inflation reduction measures, made huge investment in infrastructure development.
This does two things. It directly stimulates growth in specific sectors- like construction and allied supply chains; it also provides an improved infrastructure which can benefit other sectors- improved communication, improved transport links, improved employee skills, etc.
(Ironically for Joe Biden, he is unlikely to gain the benefit(in terms of recognition of his ’legacy’ The incoming president will likely take all the credit having spent the last couple of years talking dwn the economy, which has actually been in rude health.)
The NEW UK government does not seem to have learnt the lesson. Their initial economic steps seem to have reduced the ability, and the willingness, of UK firms to invest in growth – and so far they have not made real progress on, or even plans for, infrastructure development.
It is not easy to break out of the spiral of decline. but to fail to learn such an obvious and recent lesson seems like carelessness at the very least.