Richard Jones

Yes. I may need to take a post-retirement holiday from it.

There was at least a deliberate nonchalance about it - Nigel Lawson explicitly said that he didn't think the current account deficit mattered, and the abolition of capital controls meant that there was no immediate penalty from it.

...the current govt's industrial policy owes an obvious debt to the Clark/May strategy, and is none the worse for that. Full expensing is good, and from an economic point of view making it more expensive to employ workers is good too, though the politics is hard. But more trade friction clearly bad.

... continued by Cable's dept as much as coalition politics let them get away with. The Clark/May industrial strategy that Giles was behind was imv a good one that, if it hadn't been scuppered by the policy instability of post-2015 Conservative governments might have borne fruit...

Sectoral balance of the UK economy, showing decline in GVA share of manufacturing

The big decline in manufacturing GVA share was in the 90's & 2000's, stabilising thereafter. High FX rate probably a big part of that.
In terms of govt policy, I think Mandelson's "New Industry New Jobs" was a significant shift in rhetoric around manufacturing...

...so Apple taught Chinese companies how to do high value manufacturing (& they built supply chains & engineering communities of practise to support it), but it turned out they could do the R&D, design & marketing as well, hence emergence of global brands like Huawei, Xiomi, BYD.

V relevant to discussion about China (e.g. in Dan Wang's book Breakneck). We used to think it was fine to offshore the low value manufacturing & keep design, marketing etc.
But arguably it turns out that it's the uncodified process knowledge around high value manufacturing that's important...

...so that unbundling important to bear in mind when considering the statistics. Good discussion in article below of how many high value services are associated with manufacturing
There's a separate discussion of how sustainable that unbundling actually is
www.bennettschool.cam.ac.uk/wp-content/u...

Increasingly think that "services" is not a useful analytical category. An IC designer working for ARM & a care worker are both important, but their contributions to the economy look very different. And an identical chip designer working for Intel would be counted as manufacturing...

Yes, I think shortcomings, in general, in technology adoption and diffusion, could be a big part of the problem, and failure to develop new business models could be part of that.

...Why might that mechanism not be working? It needs a well-functioning labour market, maybe there are problems there?
But it is v. puzzling that finance, retail, professional and scientific services all show negative TFP growth over 25 years.

There is one obvious big non-tech problem, which is that we suffered diminishing returns in North Sea oil and gas.
But you know my view, apparent productivity increases in non-tech sectors are v. often the result of Baumol mediated spillovers from sectors where technology is advancing very fast...

UK Total factor productivity index by sector Source: Euklems & INTANProd database, 2024 release

UK Total factor productivity index by sector (detail)

Since I have some TFP data to hand...

Science and innovation policy for hard times: an overview of the UK's Research and Development landscape - The Productivity Institute A look at the history and future of the UK's science and innovation policy.

But yes, it's all very complicated & textured, and I have tried to capture the importance of this complexity in things I've written, e.g.
www.productivity.ac.uk/research/sci...

I remember the arguments in the mid-2000's that importance of R&D had been overstated, because the UK had seen a big drop in R&D intensity but productivity was still strongly growing. I don't think those arguments aged well

And I do think there's a perverse reluctance to look at the data, which shows a large fall in R&D in the 1990's and 2000's, particularly in the private sector and govt applied, and connect that to a subsequent fall in TFP growth.

Did I mention science? That's why I said "broadly defined".

But... it's notable that the sectors where there have been continuous rises in TFP have been those ones where technological progress is most obviously in play - ICT and manufacturing...

Econometricians: our growth problem is a total factor productivity problem

Economists: total factor productivity growth comes from innovation (broadly defined)

Me (obviously naive): shouldn't we try and understand why our innovation system isn't working so well?

Received wisdom: build more houses

(All data here from Euklems & INTANProd database, 2024 release)

Labour productivity growth in various sectors of the UK market economy since 1995, showing strong decline in mining & quarrying reflecting diminishing returns from North Sea oil and gas

What sector of UK's market economy showed largest productivity fall since 1995?
Mining & quarrying (includes oil & gas). Shouldn't be a surprise, but too many forget how much the apparent success of UK economy in 80's & 90's due to North Sea oil & gas, & how much its decline since 2000 is a headwind

Labour productivity growth in selected UK manufacturing subsectors. Largest growth is in the textiles and apparel subsector

What sub-sector of manufacturing showed the largest increase in productivity since 1995.
It's a relatively small one, but the answer surprised me!

Labour productivity growth in sectors of the market economy, showing manufacturing in second place. Mining and quarrying shows a large decline.

What sector of the UK's market economy showed the 2nd largest productivity growth since 1995?
Promoters of the importance of manufacturing in the economy won't be surprised, others might be...

Labour productivity growth since 1995 by sector of the market economy. Information and communication shows by far the largest increase

What sector of the UK's market economy showed the largest productivity growth since 1995?
The answer probably won't surprise you...

At the moment largely a city centre/ south GM story, digital/knowledge intensive business services.
Long way still to go though, still below UK average productivity & much weaker economies in mfg based E & N GM
Better transport helps, trams & better bus service now, better inter city links needed.

Plot of productivity since 1970, showing slowdown since mid-2000's

Graph showing relative productivity performance of English cities, showing Greater Manchester's outperformance

UK's fiscal difficulties arise, as much because we don't earn enough, as because govt spends too much.
Cause is the productivity slowdown - without that we'd all be 36% richer
Maybe there's something to learn from Greater Manchester's outperformance in productivity growth

...but I would add that GMs relative success happened during 14 years of wildly incoherent, inconsistent & counterproductive economic policy from central govt.
I know I'm in a minority, but I don't think the current govt's economic policy has actually been that bad given the inheritance.

Indeed, I agree on both counts (though a measurable uptick in the productivity numbers would change market perceptions well in advance of much material effect on fiscal receipts)...

Plot of productivity growth in English city regions since 2004, showing Greater Manchester's outperformance

Getting GDP growing again would work too, which needs a return to productivity growth.
There is a genuinely strong story to tell about GM's relative performance here (though still some way to go in absolute terms). It's by no means all down to AB, but he certainly appreciates its significance.

None of this is to deny that the UK does have some comparative advantage in pharma, but I think it's important not to be uncritical about the "world-beating" rhetoric that surrounds it, or to fail to recognise the real challenges that have faced it over the last decade & a half.

As for clinical trials, UK is current 10th in world for phase 3 trials. UK's emphasis on early stage R&D has exposed it to the worldwide slowdown in pharma R&D productivity. The pharma sector has actually been one of the major contributors to the UK's productivity slowdown.