What Nobel economics prize winners teach us about growth

{"text":[[{"start":null,"text":"

"}],[{"start":7.94,"text":"The writer is the Mercers’ School Memorial Professor of Business at Gresham College and author of ‘Growth: A Reckoning’"}],[{"start":16.77,"text":"Why is the British economy still so stagnant? According to the IMF, UK living standards are set to improve at the slowest rate in the G7. Read the papers or listen to the podcasts and one answer is more popular than any other: the Labour government does not have a clear growth strategy. "}],[{"start":37.75,"text":"I think this criticism is unfair. The government does have a growth strategy. The problem is that it is a bad one. And this week’s award of the Nobel Prize in Economics to Joel Mokyr, Philippe Aghion and Peter Howitt, is a reminder why. "}],[{"start":54.08,"text":"At the moment, Labour’s growth strategy is heavily focused on doing big, impressive things in the material world that we can see and touch. Building far more houses and far better transport networks. Far more public infrastructure, too. "}],[{"start":71.82,"text":"“Not a single new reservoir has been built in over 30 years,” complained Steve Reed, then environment secretary, a few months ago, channelling the construction-heavy spirit of the strategy."}],[{"start":85.60999999999999,"text":"This view of what causes growth was not plucked out of thin air. A recent survey of more than 100 economists, researchers and policymakers identified “build, build, build” as the central priority for the country. “Britain’s economic stagnation”, the report concluded, “is a crisis of building.”"}],[{"start":105.69999999999999,"text":"To be clear, building won’t harm the economy. Yet the lesson from the Nobel Prize-winning work of Mokyr, Aghion and Howitt is that serious growth comes from a very different place — discovering new ideas, unleashing innovation and whipping up technological progress. In short, growth comes from the intangible world, not the tangible one. "}],[{"start":131.08999999999997,"text":"The UK’s decline over the past few decades is a reminder of this fact. I am not sure that people realise quite how poor the country has become relative to the US since the 2007-08 financial crisis: remove London from the map and average GDP per head is less than in Mississippi, America’s poorest state. If the UK had grown at the same rate as the US, people would now be £8,000 richer on average. "}],[{"start":165.67999999999998,"text":"The big question, though, is why the UK (and the EU) have performed so poorly. The most compelling answer came in the 2024 report by former ECB president Mario Draghi. “If we exclude the tech sector”, he observed, “EU productivity growth over the past twenty years would be broadly at par with the US.” "}],[{"start":189.01,"text":"Draghi understood something very important: that the US economy had flourished not because America built more houses but because, unlike the UK and EU, it had a thriving technology sector. This provided a cauldron of new ideas and new technologies that drove them on — leaving us far, far behind. "}],[{"start":213.48999999999998,"text":"A growth strategy that took this understanding on board would look very different; asking, “How can we get more growth?” is the same as asking, “How do we generate more new ideas?”"}],[{"start":226.73,"text":"It would, for instance, focus on reforming intellectual property rights with the same intensity as planning reform. Just as the latter means standing up to Nimbys who block new builds, the former would mean confronting the powerful creative industries currently trying to throttle reform on the use and re-use of new ideas in society. "}],[{"start":249.67,"text":"It would take R&D more seriously. A country cannot expect a steady stream of new ideas without investing in their discovery — the UK’s R&D spending sits below the OECD average. And if the £7.5bn cost estimate for a new reservoir in Oxford is representative, the UK will end up spending almost four times more on reservoirs in the coming years than the annual R&D government budget."}],[{"start":278.56,"text":"It would do far more to get talented people into the parts of the economy that generate new ideas — and keep them there — for example, by exploiting the mess in US higher education, poaching great minds who feel alienated from American institutions. And it would mean a greater sense of alarm about why some of our most innovative industries — from finance to life sciences — increasingly see the UK as a hostile place to operate. "}],[{"start":310.85,"text":"Above all, though, the strategy would start early. In schools, for instance, rather than resisting generative AI — the prevailing attitude that I meet — we should be spending up to a third of our time teaching the next generation to use it effectively."}],[{"start":327.33000000000004,"text":"This advice is for all countries, including the UK, who are struggling to turn around stagnant economies. Too many political leaders are drawing on old-fashioned ideas about what causes growth — to little effect. This week’s Nobel Prize is a reminder to take alternatives far more seriously."}],[{"start":356.41,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1760715191_3374.mp3"}