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Westlake Legal Group > Productivity

Trump Says the Fed Prevented 4% Growth. That Isn’t True.

Westlake Legal Group 22DC-FEDGROWTH-facebookJumbo Trump Says the Fed Prevented 4% Growth. That Isn’t True. United States Economy Productivity International Trade and World Market Interest Rates Inflation (Economics)

WASHINGTON — President Trump has repeatedly blamed the Federal Reserve’s interest rate policy for preventing the American economy from reaching the 4 percent growth he had promised. On Wednesday, Mr. Trump renewed that criticism from the sidelines of an elite gathering in Davos, Switzerland.

“No. 1, the Fed was not good,” Mr. Trump told CNBC when asked why economic growth was closer to 2 percent last year. Data for the full year isn’t in yet, but the economy probably expanded at 2.2 percent or 2.3 percent relative to the fourth quarter of 2018, economists estimate.

Mr. Trump also pointed to the grounding of Boeing’s 737 Max plane and severe storms as factors that held back the economy, but added that “with all of that, had we not done the big raise on interest, I think we would have been close to 4 percent.”

Economists said that claim was not realistic.

The central bank’s nine interest rate increases between 2015 and late 2018 — three of which it reversed last year — probably reined in business investment and the housing market, economists say. But that impact did not shave nearly 2 percentage points from economic growth. It is hard to know how big of a drag it did create, since Mr. Trump’s trade war was weighing down business sentiment and investment simultaneously.

Here are a few ways to think through how the economy might have shaped up had the Fed acted differently.

In the real world, the Fed lifted rates between December 2015 and the end of 2018 in an effort to achieve a soft landing: one in which growth continued at a moderate pace and inflation, which the Fed is supposed to keep under control, settled around its 2 percent target.

When growth showed signs of wavering in 2019 and inflation remained soft, Fed officials reversed course, cutting rates three times.

In the most extreme counterfactual, one in which the Fed never raised its policy interest rate at all, growth might have been 1 percentage point higher in 2019, said Ernie Tedeschi, policy economist at Evercore ISI.

That estimate, which he based on the central bank’s main economic model, would have gotten America to around 3.2 percent growth in 2019 — but at a hefty cost.

“Inflation would’ve been well above their mandate, 2.5 percent and rising, at this point,” Mr. Tedeschi said. Price gains are like an aircraft carrier — they’re hard to turn around once they get going — so that would have necessitated a sharp increase in rates. Such an abrupt change could have plunged the economy into recession.

“It would certainly be painful,” Mr. Tedeschi said.

But even in that version of the world, one in which the Fed was willing to play with fire by leaving its policy totally untouched at near-zero for more than a decade, the economy could have achieved that 4 percent growth figure only absent a trade war — and even that is a stretch.

While it’s hard to gauge precisely how much Mr. Trump’s tariffs reduced growth, estimates suggest they could have shaved between 0.5 and 1 percentage point away in 2019, Mr. Tedeschi said.

All of these projections are highly uncertain — it is difficult to know how the world would have shaped up after the fact, and it is impossible to know how policies would have interacted.

And even if the basic figures are right, this scenario is unrealistic. Leaving interest rates at rock bottom would have been expected to generate unsustainable economic conditions. That runs contrary to the Fed’s very mission, given to it by Congress.

In another version of the world, the Fed could have raised interest rates between 2015 and 2018, but then lowered them much more quickly in 2019 as inflation pressures remained muted. Had they dropped the federal funds rate to zero at the very start of the year, Mr. Tedeschi said, it might have added about 0.35 percentage point to growth, getting the economy up to the 2.5 percent range.

That is also far-fetched — the Fed has never slashed rates to zero outside of a recession. Doing so at a time when the economy was growing and Mr. Trump was pushing for a move would have looked overtly political, threatening the central bank’s prized independence. It could have raised the risk of higher inflation. And even if conventional models are totally broken and price pressures no longer respond to loose Fed policy, rock-bottom rates at the height of an expansion could have helped to fuel financial excesses.

So how did the Fed’s actual policies affect growth?

Relative to the economy’s structural growth path — the one driven by labor force expansion and productivity — the Fed’s rate-setting may have shaved about 0.1 percentage point from growth in 2019, according to an estimate from Julia Coronado, a founder of MacroPolicy Perspectives. Slower capital expenditures and trade probably shaved another 0.1 percentage point from growth. But those effects were offset by the aftereffect of ramped-up government spending and tax cuts, which she estimates probably lifted growth by about 0.4 percentage point.

But even here, there are uncertainties.

While it is clear that business investment fell sharply last year and manufacturing sagged, weighing down growth, it is hard to tell how much of that was a lagged response to higher interest rates and how much was a response to the trade war.

Anecdotally, businesses primarily blamed slower global growth and uncertainty stemming from the tariffs for that slump.

But interest rates probably had at least some economic impact. After the central bank cut them three times between July and December 2019, the wavering housing market perked back up, for instance.

“The slowdown in capital expenditures came along when the trade war escalated,” Torsten Slok, an economist at Deutsche Bank, said in an interview. “One cautious estimate is that the trade war played a bigger role,” he said, but “it’s just really difficult to wiggle out which was the cause.”

The upshot: The Fed matters around the edges, but, in the longer run, it is unlikely that the economy can achieve the 4 percent growth Mr. Trump has promised.

Tax cuts and higher government spending have helped to nudge growth temporarily above its potential — it came in at 2.8 percent in 2017 and 2.5 percent in 2018, decently above the roughly 2 percent sustainable growth rate.

Yet those gains probably will not hold. The working-age population is growing more slowly, and productivity, which popped temporarily, has since fallen back to earth. The ingredients for naturally higher economic growth do not exist.

The Congressional Budget Office estimates that over the next decade, growth will average 1.9 percent a year, up slightly from the preceding decade but down substantially from the 3 percent and higher growth that prevailed before 2000.

“We haven’t seen 4 percent growth for many, many years,” Mr. Slok said.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

The Economy Is Expanding. Why Are Economists So Glum?

Westlake Legal Group 08DC-ECON-02-facebookJumbo The Economy Is Expanding. Why Are Economists So Glum? Wages and Salaries United States Economy Unemployment Taxation Recession and Depression Productivity National Debt (US) International Trade and World Market Interest Rates Inflation (Economics) Immigration and Emigration Federal Taxes (US) Federal Budget (US) Economic Conditions and Trends Banking and Financial Institutions

SAN DIEGO — The mood among economic forecasters gathered for their annual meeting last weekend was dark. They warned one another about President Trump’s trade war, about government budget deficits and, repeatedly, about the inability of central banks to fully combat another recession should one sweep the globe anytime soon.

Among the thousands of economists gathered for the profession’s annual meeting, there was little celebration of Mr. Trump’s economic policies, even though unemployment is at a 50-year low, wages are rising and the economy is experiencing its longest expansion on record.

Underlying their sense of foreboding was a widespread sentiment that the current expansion is built on a potentially shaky combination of high deficits and low interest rates — and when it ends, as it is bound to do eventually, it could do so painfully.

Those concerns were echoed on Wednesday by economists at the World Bank, who called the worldwide expansion “fragile” in their latest “Global Economic Prospects” report. The report forecasts a slight uptick in growth in 2020 after a sluggish year bogged down by trade tensions and weak investment. But it said “downside risks predominate,” including the potential escalation of trade fights, sharp slowdowns in the United States and other wealthy countries and financial disruptions in emerging markets like China and India.

“The materialization of these risks would test the ability of policymakers to respond effectively to negative events,” the report by the bank, which is led by David Malpass, a former Trump administration official, stated.

The bank’s warnings echoed the fears expressed by many economists in San Diego, both in small research-paper presentations and in ballroom discussions of the clouds on the global economic horizon.

Trade tensions between the United States and China have cooled at least temporarily, but they are escalating across the Atlantic as European nations begin to impose new taxes on technology companies that are largely based in the United States. Mr. Trump has already threatened tariffs on French goods in retaliation for a tech tax, and many analysts worry that separate trade talks between the United States and the European Union could end in a tariff war. Manufacturing is mired in a global slowdown, with the sector contracting in the United States.

At a packed room in San Diego last week, researchers presented estimates that tariffs imposed by the United States and China — which remain in place despite the recent truce in trade talks — have reduced wages for workers in both countries already.

The American economy appears to have grown by a little more than 2 percent in 2019, though the statistics are not yet fully compiled. That is likely to be the slowest rate of Mr. Trump’s presidency, and well below the growth he promised that his economic and regulatory policies would produce.

The World Bank estimates growth in the United States will slow to 1.8 percent this year and 1.7 percent next year. That would be nearly the lowest annual rate since the last recession ended in mid-2009. The bank said the forecast reflected fading stimulus from Mr. Trump’s signature 2017 tax cuts and from government spending increases he has signed into law.

The cuts, and to a lesser degree the additional spending, have helped push the federal budget deficit to nearly $1 trillion a year, even as unemployment lingers near a half-century low. Fiscal deficits remain high in several other wealthy nations, particularly given how far into an economic expansion those countries are.

Interest rates have been dropping across advanced economies, thanks to long-running trends like population aging. That leaves central banks — which usually stoke growth by making borrowing cheaper — with far less conventional power in a recession.

Economists have been “going through the stages of grief” as they accept that such low rates are likely to prevail, John C. Williams, who leads the Federal Reserve Bank of New York, said at the weekend’s gathering.

After the 2007-09 recession, economists speculated that the conditions that plagued developed nations — low growth, low inflation and low interest rates — would be short-lived. Scars were still healing after the worst downturn since the Great Depression, they thought.

That view has slowly been replaced by a more pessimistic one, as the field acknowledged that economic gains were likely to remain muted across advanced countries. In 2019, the Fed had to step back from plans to raise rates further and cut borrowing costs instead, leaving its policy rate at less than half of its 2007 level and underlining just how diminished the new normal looks.

“It’s clear that more was, and still is, going on,” Janet L. Yellen, the former Federal Reserve chair said at the event. “Although monetary policy has a meaningful role to play in addressing future downturns, it is unlikely to be sufficient in years ahead for several reasons.”

Ms. Yellen emphasized that government spending would need to play a larger role in combating future downturns, calling for stronger automatic stabilizers, which increase government spending when the economy weakens and tax receipts fall. There is no imminent sign that Congress is ready to enact such policies, but hope for government action was a constant refrain in San Diego.

Sluggish growth in worker productivity has held back the economy, said Valerie A. Ramey, an economist at the University of California, San Diego. She called on lawmakers to increase spending on infrastructure and research and development in order to spur a productivity acceleration.

Ms. Yellen, who assumed the presidency of the American Economic Association at the meeting, oversaw its program of panels and presentations, assembling a lineup that included several papers assessing damage from tariffs and the trade war. She said she and her colleagues rejected four proposals for every five that were submitted, choosing some that showed the benefits to advanced economies of attracting immigrants, particularly highly skilled ones, in stark contrast to Mr. Trump’s hard line on immigration to the United States.

Few of the papers presented assessed Mr. Trump’s tax law, and none of them argued, as Mr. Trump’s advisers did at similar conferences in recent years, that the tax cuts were supercharging investment.

In an interview on Saturday morning, over a buffet breakfast in a hotel restaurant with a view of the swimming pool, Ms. Yellen said that she had a reason for picking the sessions she did, calling low interest rates the macroeconomic “issue of our times.” She said she shared other economists’ concerns about trade and economic policy in the current environment.

“You do see a number of sessions in the program about this,” Ms. Yellen said. “I organized the program, and I think it’s not an accident you’re seeing it. I think it’s very important.”

Ben S. Bernanke, who was Fed chair during the 2007-09 recession, told the conference that a juiced-up monetary policy arsenal should be enough to combat the next downturn.

But “on one point we can be certain: The old methods won’t do,” he said. The Fed will need to use bond-buying and other tricks to supplement rate cuts.

And even economists’ most hopeful takes had a gray lining. Mr. Bernanke’s relative optimism hinged on the idea that interest rates would not continue to fall. Ms. Yellen’s hope for the future turned on greater activism from politicians to fight recessions.

If those things do not happen? The United States could look more like Japan, where inflation has slipped much lower, rates are rock bottom and the budget deficit much larger.

In good times, said Adam S. Posen, president of the Peterson Institute for International Economics, that may not be the worst outcome. In a recession, though, the nation’s example may offer bad news. In the years since the financial crisis, Japan has rolled out an extremely active economic policy — both monetary and fiscal — to move its inflation rate back up, and it has succeeded only in averting outright price declines.

“It is wise to be cautious, and not assume that they will be as effective as we think,” Mr. Posen said of monetary policies. “We need to think about different ways of doing fiscal-monetary coordination.”

And while some economists, such as Harvard’s Lawrence H. Summers, extolled high fiscal deficits as a necessary weapon against slowdown or recession, others, such as Harvard’s N. Gregory Mankiw and Kenneth Rogoff and Stanford’s Michael J. Boskin, presented research warning that high levels of government debt could crimp growth.

Those papers echoed warnings that those economists issued earlier in the expansion that did not come to pass. But they argued that the large amounts of federal debt that has accumulated in the meantime posed a threat. In other words, the economists warned, it is only a matter of time.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Daniel Rossall-Valentine: How to reform and improve the Apprenticeship Levy

Daniel Rossall-Valentine is Head of Campaign for This is Engineering at the Royal Academy of Engineering, and Deputy Chairman of Sevenoaks Conservative Association. He writes in a personal capacity.

Apprenticeships can aid social mobility by providing young people from all backgrounds with an opportunity to “earn and learn”, building a career with a long term future.

I’ve been fortunate for the last three years to work with an organisation that has unparalleled access to business and educational leaders so have been in the front seat as the apprenticeship levy has been implemented. The scheme is far from a failure, but it does need urgent tweaks if it is to win the confidence of employers and fulfil its potential.

The Apprenticeship Levy was announced by George Osborne in his July 2015 budget. It came into effect in  2017. The former Chancellor set an ambitious target of starting three million apprenticeships by 2020.

The levy is payable by all employers with an annual pay bill of more than £3 million through PAYE at a rate of 0.5 per cent of their full pay bill. Each employer sets up an individual apprenticeship account that holds all levy payments and that an employer can use to pay for apprenticeship training.

Money paid into an apprenticeship account remains available to that employer for 24 months from the date of payment. Any amount that remains unclaimed after that period will expire and is then available to cover the cost of apprenticeship training at small and medium-sized enterprises (SMEs) who have not paid the Levy.

The Levy was, and is, a bold attempt to encourage employers to train and progress staff, and a brave effort to tackle some of the UK’s greatest cultural problems; our belief that education primarily takes place in classrooms, our excessive faith in “credentials” and our concomitant under-estimation of on-the-job experience and training.

However, despite its noble intent, the Levy remains a rather clunky system which was created following rushed implementation with insufficient problem analysis, design, testing or adaptation. Whitehall unfortunately defaulted to its long-standing preferences for finding “one best way” and for creating a single top-down template lacking in flexibility.

The Levy has received a good deal of criticism, little of which has so far been accepted by the Government. One exception relates to levy-sharing. Levy-paying firms could only share 10 per cent of their levy with other businesses but from April 2019 firms have been able to share up to 25 per cent with other businesses in their supply chain.

The design errors can be categorised under three headings:

Optimistic forecasting

  • The Government under-estimated the cost of higher-level apprenticeships, and thus the percentage of money that would be claimed back by levy-payers. This has left insufficient money in the digital fund for smaller organisations to claim.

Some aspects of the system are too rigid

  • The system stipulates that to qualify as an apprenticeship at least 20% of the time of the apprentice should be spent away from the workplace.

The claim-back system is too inflexible

  • Organisations are required to spend money set aside within two years or lose it. This often does not give organisations enough time to organise apprenticeship programmes, especially where the firms cannot identify good quality local training providers.

Some aspects of the system are too loose

  • Curiously, there is no mandatory requirement for qualifications within the new apprenticeship standard. Without qualifications being part of apprenticeships, it is hard to see how they can ultimately lead to high-skilled, high-paid jobs.
  • With little regulation of apprenticeship quality, it is too easy for levy paying employers to recoup their payments by rebadging existing training schemes as apprenticeships. Even more concerning, existing staff can simply be designated as apprentices without the creation of any additional job opportunities.

Many large organisations which run excellent training schemes, internships, traineeships and work placements have resigned themselves to simply paying the charge, because their schemes are not compliant with the rules of the levy.
Other organisations have failed to find suitable training schemes in their localities, and so would like to collaborate with other employers to create suitable training, but the Levy only allows them to use 25 per cent of the funds for joint ventures.

Several essential reforms are required urgently.

  • The three million apprenticeships target should be abandoned and new rolling targets set which focus on the number of apprenticeship completions rather than apprenticeship starts. Industry specific targets should also be set for industries which are central to the industrial strategy and national productivity.
  • Increase the funding for the scheme by extending the levy to all large firms operating in the UK. The levy is currently only charged on payroll taxes. This means that large companies that spend less than £3 million on direct staff in the UK escape the levy. If firm size were measured by UK sales rather than payroll cost, the free-rider problem would be removed and the funding significantly improved.
  • A more flexible approach to on-the-job training, moving away from the stipulation that 20 per cent of the training should take place off the job, This four days on site, one day off-site pattern works in some industries but not in others. For instance, this pattern is a common way for accountants to train, but works less well in retail, where learning may all take place on site. This inflexible pattern is also tough for small employers, who may need to reschedule training at short notice due to staff absence or other business needs. No single pattern of work-based learning will satisfy all job types. The new system should allow employers to design bespoke training patterns that fit business requirements and hours of operation.
  • A more robust definition of what an apprenticeship actually is. Lack of definition has resulted in massive definitional stretching with some academics with PhDs being labelled as apprentices, and the apprenticeship badge also being applied to regular management training and routine clerical work. We risk the term “apprenticeship” being rapidly diluted and degraded if definitions and standards are not attached to it.
  • Increase the element of the pot which can be used by firms to collaborate on training. Many parts of the UK have real shortages of training provision and so organisations should be able to use at least half of their levy pots to work with other players to create centres of excellence for training.

The apprenticeship levy has the potential to rapidly deliver the apprentices that the economy needs and produce a highly skilled, productive workforce. But it has become very clear that this has not yet happened, and the levy is not working to its potential. The Levy’s design faults are serious, but not insurmountable. The government needs to listen to its critical friends and produce fast reform of this scheme to help Britain compete and to ensure that our young people get the training and jobs that they need and deserve.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Ben Brittain: Get Brexit Done and innovate like Israel

Ben Brittain is a Policy and Data Analyst for a regional economic institute. 

The Conservatives were gifted their ‘stonking majority’ by deprived constituencies that are far removed from the growth and economic power of London. The UK is a tale of two economic nations – a wealthy and highly productive London and South-East, and everywhere else, where gross value added more resembles former communist states. It was in these former mining and industrial heartlands of the Midlands and the North where working-class people lent their vote to the Conservatives to ‘get Brexit done’.

The challenge for this new government is to make the economy one whole, bridging the productivity and wage gap between London and the periphery towns of city-regions. The government will want to reward the North and Midlands for their support at the polls. But getting Brexit done is only one step. The next is to embark on a long process of economic revival in these regions, drive agglomeration within cities through transport infrastructure and skills investment.

The Government has the opportunity to level-up productivity right across the whole UK. For that, we must not look not to Silicon Valley and seek to replicate it on the Tyne – but instead look to Israel.

Today, Israel is considered an innovation superpower, with more companies listed on the NASDAQ than any other country except the United States. The Israeli success in innovative industries, such as ICT, is based on an R&D-intensive, novel-product-based, export-oriented business model. One that the UK should adopt to create a post-Brexit, R&D-heavy, exporting economy.

Israel is a hot-bed of ground-breaking technology companies such as Waze and the autonomous driving company, Mobileye, which has been snapped up by Intel for $15.3 billion. These large dominant companies are an exporting successes, but large innovative companies have to start somewhere.

Israel’s success is driven by its impressive start-up culture, and this start-up friendly ecosystem is actively fuelling an innovation economy. Israel started more than 10,000 companies between 1999 and 2014, with 2.6 per cent of these start-ups creating revenues of more than $100 million. Their success is down to reform-oriented policy makers driving change in the public sector, embedding innovation, unafraid of the role of the state as a friend to free-markets and individuals that want to start an enterprise.

The UK needs to embed five elements within its future growth framework to drive innovation. These are: support for start-ups; a substantial growth in the training of scientists and engineers; empower research-oriented civic universities and drive commercialisation within universities, expand access to venture capital, and utilise the strength of government and big-data in regional industrial strategies. All of these interact with each other to drive the process from invention to innovation.

The UK has an unrivalled higher education system that is ready to plug-in to regional economies and drive sector specialisations. To achieve this, BEIS should restart the work of the Smart Specialisation Hub and bring it in-house, to further understand how productivity is evolving in regional firms. Businesses are best placed to lead in the identification of new opportunities for growth, and many regions are already developing highly-productive sector clusters, which should not be hindered by central government imposing their own industry preferences. Instead, local industrial strategies should identify current productivity strengths and seek to implement necessary supportive interventions and create the correct ecosystem for their growth.

A culture of people, business and universities fully attuned to research and development is required, as is leveraging long-term private sector commitment. Regions should focus on what they are good at – such as the automotive industry in the West Midlands – prioritise research and innovation investment in a competitive environment, and implement policies that are strategic, based on a shared vision for regional innovation and development (such as the development of UK’s first Tesla-style battery gigafactory in the West Midlands which will build on current agglomeration).

Creating dynamic and innovative clusters in regions previously neglected and cut-off from London’s success will ensure the success of Brexit is the success of Wales, the North and the Midlands. If there are greater opportunities for high-skilled, well-paying work in innovative companies, focused on exporting, catalysed and fuelled by free-ports across the region, in industries such as space, AI, life-sciences, health and clean energy, then London will no longer suck the life out of those regions. More local residents will have better paid jobs, with more disposable income to spend in local high-streets, meaning the physicality of neglected towns in places such as Darlington and Walsall can be overcome.

The nation could be one economic success story; a real One Nation Toryism. To do that the Government will need to get Brexit done and Innovate like Israel.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Neil O’Brien: Policies for a new Britain – in which the central point for new Tory MPs is moors on Sheffield’s edge

Neil O’Brien is MP for Harborough.

The rain fell. As the weeks of the campaign went by, bright orange Halloween pumpkins rotted on doorsteps, while Christmas decorations gradually went up. Across the country floods came and receded. The short days got even shorter.

A man in a beautiful big Georgian house with a very large Apple Mac in the window told me that we had ruined the country. A man in a bungalow on an estate told me that he’d voted Labour his whole life, but this time he would be voting Conservative.

Leaflets went soggy in the drizzle. Towns and villages turned on their Christmas lights. More rain fell, and then, at the end of it all, there was a flood tide of a different kind. A blue tide, sweeping across the country, particularly in the midlands and north.

That flood has washed away old familiar landmarks. The Beast of Bolsover is gone. Jo Swinson is gone. Jeremy Corbyn is going. The “People’s Vote” campaign has shut down in the light of… how people voted. “Workington Man”, much discussed at the start of the campaign, really did turn Conservative, and sent Mark Jenkinson to Parliament.
Laura Piddock, who’d vowed never to be friends with a Conservative, was replaced by one: Richard Holden.

The Conservative Party has been profoundly changed by the election. Since 1997 we’ve gone from having from three per cent to 34 per cent of seats in the North East. From 13 per cent to 43 per cent of seats in the North West. From 13 per cent to 48 per cent in Yorkshire. From nought per cent to 35 per cent of seats in Wales. And from 24 per cent to 75 per cent of seats in the West Midlands.

Our new intake are 30 per cent of the parliamentary party. And their seats are different. In 2001, we had just no seats in the 30 per cent most deprived constituencies in England. In 2010, we had 24. Now it is 49 of those seats. In 2001, we had just 14 seats in the most deprived half of England. Now we have 116.

Look at the change another way. Average out where in English Conservative MPs elected in 2017 represented, and the centre point was down in the Speaker’s leafy Buckingham constituency. Average out the newly elected Conservative MPs in England in 2019, and the central point is out on the wild and windy moors on the edge of Sheffield.  It would take you a long time, but you can now walk almost the whole length of the Pennine Way without leaving a Conservative constituency.

The Prime Minister also has the chance now to go on an epic trek: one to change the face of British politics forever.
It goes without saying that we need to keep our promises on GBD (Getting Brexit Done) and the NHS. But we can’t let Whitehall just KBO with business-as-usual.

I don’t think we will. The signs of last week’s earthquake have been there for some time, and people like Dominic Cummings have the most been attuned to them. Even some of the 2019 strategy has been road-tested before. Under Cummings in 2001, the no euro campaign ran “Never Mind the Euro, what about our hospitals?” flyposters, riffing on famous the Sex Pistols album cover.

In the James Frayne/Dom Cummings led-campaign against the North East Assembly in 2004, the campaign had a strong anti-politics-as-usual slant, with ads condemning the cost of the proposed “talking shop” for ordinary people.
But now we have a majority, how to respond to the dissatisfaction that’s been growing for so long?

Once we get Brexit done, we should be conspicuous in the use of our new freedoms. We could axe the hated tampon tax or cut VAT on fuel. We can improve animal welfare, banning live exports and puppy smuggling. We could end the absurd practice of paying child benefits to children living overseas. We could help small business, reviewing legislation that curtails lending like the CRD IV and Solvency 2. We could replace bureaucratic EU regional development funding with something better, and end the environmental waste of the CAP and Common Fisheries Policies.

Things like the review of sentencing and end of early release are key to showing the county is under new management.

But the question I am most interested in personally is whether we can have a bold enough economic policy that people in the newly gained Conservative seats can see the difference in five years’ time.

Let’s be clear: many of the places we’ve gained have suffered economic decline for many decades. There is a good economic case for levelling up: there are no major countries that are richer per head than Britain and have a more geographically unbalanced economy. More balanced growth is stronger. But to get it, we need to mobilise in an unprecedented way.

I’d suggest four ways to level up.

First, rebalance the government’s most growth-enhancing spending. Spending which most spurs growth is too concentrated on places that are already successful. We should rebalance spending on innovation, transport, housing and culture to lift the performance of poorer areas. Government should rethink the focus on current demand levels and current strengths which creates a vicious circle for less wealthy areas.

Second, we should recognise that Britain has de-industrialised more than any other G20 country since 1990; that the UK’s tax system is currently uniquely hostile to manufacturing and other types of capital-intensive businesses; and that this has a particularly negative effect on lagging parts of the country which are more reliant on manufacturing.

Despite its small share of overall GDP, manufacturing makes an outsize contribution to productivity growth and compared to professional services is more likely to happen outside city centres.

While manufacturing accounted for around a quarter of productivity growth nationally since 1997, it provided 40-50 per cent of productivity growth in poorer regions like Wales, the West Midlands and North West. More generous capital allowances would help lagging regions, but currently EU rules limit the places in which we can offer such allowances. Let’s use our new freedom.

Third, lets recognise the centrality of private sector investment in growth. Moving public sector jobs around doesn’t cut it. We need private inward investment. That means souping up DIT and making sure we are using every weapon including tax breaks to attract higher end private sector jobs to poorer places.

The highlight of the Conservative manifesto for me was the pledge to invest a stonking £3.2 billion a year in R&D by the end of the Parliament. But unless we spend differently, it won’t benefit lagging areas.

So, fourth, we have to shift the balance of government R&D: from mainly in universities to more happening in firms. From fundamental research, to more applied (like in China and the Asian economies). And from half the core budget being spent in three cities, (London, Cambridge and Oxford) to a distribution more in line with the geographically balanced spending of the private sector.

And more. We should learn from the Connell Review and the way the US uses ringfenced budgets for innovative procurement to put rocket boosters under small tech firms. We should build up innovate UK and make it easier to get SMART grants too.

Obviously, there are a zillion other things: sorting out the over-expansion of low-value university arts courses and under-investment in apprenticeships. Building on funding to fix run down town centres… there’s masses to do.
But above all, somewhere in Whitehall there has to be a strong central point to make all this happen “by any means necessary”.

We start with a huge river of goodwill from this election. Now we need to channel it to get the wheels turning again for places that feel left-behind.

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A Few Cities Have Cornered Innovation Jobs. Can That Be Changed?

There are about a dozen industries at the frontier of innovation. They include software and pharmaceuticals, semiconductors and data processing. Most of their workers have science or tech degrees. They invest heavily in research and development. While they account for only 3 percent of all jobs, they account for 6 percent of the country’s economic output.

And if you don’t live in one of a handful of urban areas along the coasts, you are unlikely to get a job in one of them.

Boston, Seattle, San Diego, San Francisco and Silicon Valley captured nine out of 10 jobs created in these industries from 2005 to 2017, according to a report released on Monday. By 2017, these five metropolitan regions had accumulated almost a quarter of these jobs, up from under 18 percent a dozen years earlier. On the other end, about half of America’s 382 metro areas — including big cities like Los Angeles, Chicago and Philadelphia — lost such jobs.

And the concentration of prosperity does not appear to be slowing down.

America’s deepening inequality has become a cause for alarm. The picture of a country cloven between a small set of prosperous urban “haves” and a large collection of “have-nots” has come sharply into focus as an opioid epidemic has overtaken vast swaths of the country. It gained the attention of the political class in 2016, when voters across the industrial heartland embraced Donald J. Trump’s populist message.

The search for ideas that could improve the economic conditions of deprived areas, long derided by economists as a fool’s errand — why spend money on improving the lot of places rather than people, many experts argued — is now at the top of policymakers’ lists.

The report is by Mark Muro and Jacob Whiton from the Brookings Institution’s Metropolitan Policy Program, and Rob Atkinson of the Information Technology and Innovation Foundation, a research group that gets funding from tech and telecom companies. They identified 13 “innovation industries” — which include aerospace, communications equipment production and chemical manufacturing — where at least 45 percent of the work force has degrees in science, tech, engineering or math, and where investments in research and development amount to at least $20,000 per worker.

The authors argue that a broad federal push is needed to spread the business of invention beyond the 20 cities that dominate it. “Hoping for economic convergence to reassert itself would not be a good strategy,” Mr. Muro said.

Westlake Legal Group innovation_maps-335 A Few Cities Have Cornered Innovation Jobs. Can That Be Changed? Urban Areas Research Productivity Metropolitan Policy Program, Brookings Institution Labor and Jobs Innovation Information Technology and Innovation Foundation Income Inequality

Metro areas that have

gained innovation jobs . . .

Gained the most

In thousands

Raleigh, N.C.

San Francisco

Madison, Wis.

Silicon Valley

Salt Lake City

Charleston, S.C.

. . . and those that

have lost them.

Lost the most

In thousands

Wichita, Kan.

Oxnard, Calif.

Los Angeles

Albuquerque

Colorado Springs

Durham, N.C.

Philadelphia

Washington

Westlake Legal Group innovation_maps-600 A Few Cities Have Cornered Innovation Jobs. Can That Be Changed? Urban Areas Research Productivity Metropolitan Policy Program, Brookings Institution Labor and Jobs Innovation Information Technology and Innovation Foundation Income Inequality

Metro areas that have gained

innovation jobs . . .

Gained the most

In thousands

Lost the most

In thousands

Wichita, Kan.

Oxnard, Calif.

San Francisco

Raleigh, N.C.

Los Angeles

Albuquerque

Madison, Wis.

Colorado Springs

Silicon Valley

Durham, N.C.

Philadelphia

Salt Lake City

Washington

Charleston, S.C.

. . . and those that

have lost them.

Westlake Legal Group innovation_maps-1050 A Few Cities Have Cornered Innovation Jobs. Can That Be Changed? Urban Areas Research Productivity Metropolitan Policy Program, Brookings Institution Labor and Jobs Innovation Information Technology and Innovation Foundation Income Inequality

Metro areas that have gained

innovation jobs . . .

. . . and those that

have lost them.

In thousands

Gained the most

Lost the most

In thousands

Wichita, Kan.

Oxnard, Calif.

San Francisco

Raleigh, N.C.

Los Angeles

Albuquerque

Madison, Wis.

Colorado Springs

Silicon Valley

Durham, N.C.

Philadelphia

Salt Lake City

Washington

Charleston, S.C.

Data are the change in jobs from 2005 to 2017 in 13 industries including scientific research and development services, Aerospace product and parts manufacturing and Software publishers.

Source: Brookings Institution analysis of Emsi data

By Karl Russell

Expanding the knowledge economy across all of America might indeed be a fool’s errand. As Mr. Atkinson noted, Erie, Pa., and Flint, Mich., might never attract the Googles or Apples of the world. But midsize cities like St. Louis, Pittsburgh and Columbus, Ohio, could feasibly transform into hubs of technological entrepreneurship.

The report’s authors propose identifying eight to 10 cities, far from the coasts, that already have a research university and a critical mass of people with advanced degrees. The government would then spend about $700 million a year for research and development in each of them for a decade. Lawmakers could give high-tech businesses that set up shop in these cities tax and regulatory breaks. Mr. Atkinson suggested a limited break from antitrust law to allow businesses to coordinate location decisions.

Battling the forces driving concentration will be tough. Unlike the manufacturing industries of the 20th century, which competed largely on cost, the tech businesses compete on having the next best thing. Cheap labor, which can help attract manufacturers to depressed areas, doesn’t work as an incentive. Instead, innovation industries cluster in cities where there are lots of highly educated workers, sophisticated suppliers and research institutions.

Unlike businesses in, say, retail or health care, innovation businesses experience a sharp rise in the productivity of their workers if they are in places with lots of other such workers, according to research by Enrico Moretti, who is an economist at the University of California, Berkeley, and others.

Other industries and workers are also better off if they have the good fortune of being near leading-edge companies. The report points out that the average output per worker in the 20 cities with the most employment in the 13 high-tech industries is $109,443, one-third more than in the other 363 metros across the country.

The cycle is hard to break: Young educated workers will flock to cities with large knowledge industries because that’s where they will find the best opportunities to earn and learn and have fun. And start-ups will go there to seek them out.

Even skyrocketing housing costs have not stopped the concentration of talent in a few superstar cities. High-tech companies that seek cheaper places to set up beyond their hubs often go to Bangalore, India, rather than Birmingham, Ala.

“They keep the core team in Silicon Valley or Seattle but put the other stuff in Shenzhen or Vancouver or Bangalore,” Mr. Atkinson said. Shenzhen, China, may not be much cheaper than Indianapolis, he added, but Shenzhen is already a tech hub in its own right.

Westlake Legal Group innovation-productivity-335 A Few Cities Have Cornered Innovation Jobs. Can That Be Changed? Urban Areas Research Productivity Metropolitan Policy Program, Brookings Institution Labor and Jobs Innovation Information Technology and Innovation Foundation Income Inequality

Annual output

per worker

Health care

Basic manufacturing

Innovation industries

Innovation jobs in the most

concentrated metro areas

are the most productive.

For metro areas in the bottom 75%

of employment in each sector.

Westlake Legal Group innovation-productivity-600 A Few Cities Have Cornered Innovation Jobs. Can That Be Changed? Urban Areas Research Productivity Metropolitan Policy Program, Brookings Institution Labor and Jobs Innovation Information Technology and Innovation Foundation Income Inequality

Annual output per worker

Innovation

industries

Basic

manufacturing

Health care

Innovation jobs in the most

concentrated metro areas

are the most productive.

For metro areas in the bottom 75% of employment in each sector.

Source: Brookings Institution and Information Technology and Innovation Foundation analysis of Emsi data

By Karl Russell

It is uncertain whether government support could pull innovation out of the clutches of superstar cities. The proposal by Brookings and the Information Technology Foundation will not come cheap: They estimate a $100 billion price tag over 10 years.

The payoff, however, would extend beyond the new technology hubs. Jon Gruber, an economist at the Massachusetts Institute of Technology, noted that in a world where Cincinnati becomes a hub of entrepreneurship, “we don’t need to fix opioid country” in Appalachia. That’s because many of those areas are within commuting distance of Cincinnati.

What’s more, not trying also entails risks. In his book “Jump-Starting America,” Mr. Gruber and his co-writer, M.I.T.’s Simon Johnson, argue for a sustained national effort to seed new technology clusters widely. Without federal government support, Mr. Gruber said, the United States is unlikely to produce many new high-tech hubs.

The risk, he said, is not only that much of America will be left to founder as superstar cities become more congested and less affordable. Political support for publicly funded research will crumble unless more of the country enjoys the benefits from innovation.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

A Few Cities Have Cornered Innovation Jobs. Can That Be Changed?

There are about a dozen industries at the frontier of innovation. They include software and pharmaceuticals, semiconductors and data processing. Most of their workers have science or tech degrees. They invest heavily in research and development. While they account for only 3 percent of all jobs, they account for 6 percent of the country’s economic output.

And if you don’t live in one of a handful of urban areas along the coasts, you are unlikely to get a job in one of them.

Boston, Seattle, San Diego, San Francisco and Silicon Valley captured nine out of 10 jobs created in these industries from 2005 to 2017, according to a report released on Monday. By 2017, these five metropolitan regions had accumulated almost a quarter of these jobs, up from under 18 percent a dozen years earlier. On the other end, about half of America’s 382 metro areas — including big cities like Los Angeles, Chicago and Philadelphia — lost such jobs.

And the concentration of prosperity does not appear to be slowing down.

America’s deepening inequality has become a cause for alarm. The picture of a country cloven between a small set of prosperous urban “haves” and a large collection of “have-nots” has come sharply into focus as an opioid epidemic has overtaken vast swaths of the country. It gained the attention of the political class in 2016, when voters across the industrial heartland embraced Donald J. Trump’s populist message.

The search for ideas that could improve the economic conditions of deprived areas, long derided by economists as a fool’s errand — why spend money on improving the lot of places rather than people, many experts argued — is now at the top of policymakers’ lists.

The report is by Mark Muro and Jacob Whiton from the Brookings Institution’s Metropolitan Policy Program, and Rob Atkinson of the Information Technology and Innovation Foundation, a research group that gets funding from tech and telecom companies. They identified 13 “innovation industries” — which include aerospace, communications equipment production and chemical manufacturing — where at least 45 percent of the work force has degrees in science, tech, engineering or math, and where investments in research and development amount to at least $20,000 per worker.

The authors argue that a broad federal push is needed to spread the business of invention beyond the 20 cities that dominate it. “Hoping for economic convergence to reassert itself would not be a good strategy,” Mr. Muro said.

Westlake Legal Group innovation_maps-335 A Few Cities Have Cornered Innovation Jobs. Can That Be Changed? Urban Areas Research Productivity Metropolitan Policy Program, Brookings Institution Labor and Jobs Innovation Information Technology and Innovation Foundation Income Inequality

Metro areas that have

gained innovation jobs . . .

Gained the most

In thousands

Raleigh, N.C.

San Francisco

Madison, Wis.

Silicon Valley

Salt Lake City

Charleston, S.C.

. . . and those that

have lost them.

Lost the most

In thousands

Wichita, Kan.

Oxnard, Calif.

Los Angeles

Albuquerque

Colorado Springs

Durham, N.C.

Philadelphia

Washington

Westlake Legal Group innovation_maps-600 A Few Cities Have Cornered Innovation Jobs. Can That Be Changed? Urban Areas Research Productivity Metropolitan Policy Program, Brookings Institution Labor and Jobs Innovation Information Technology and Innovation Foundation Income Inequality

Metro areas that have gained

innovation jobs . . .

Gained the most

In thousands

Lost the most

In thousands

Wichita, Kan.

Oxnard, Calif.

San Francisco

Raleigh, N.C.

Los Angeles

Albuquerque

Madison, Wis.

Colorado Springs

Silicon Valley

Durham, N.C.

Philadelphia

Salt Lake City

Washington

Charleston, S.C.

. . . and those that

have lost them.

Westlake Legal Group innovation_maps-1050 A Few Cities Have Cornered Innovation Jobs. Can That Be Changed? Urban Areas Research Productivity Metropolitan Policy Program, Brookings Institution Labor and Jobs Innovation Information Technology and Innovation Foundation Income Inequality

Metro areas that have gained

innovation jobs . . .

. . . and those that

have lost them.

In thousands

Gained the most

Lost the most

In thousands

Wichita, Kan.

Oxnard, Calif.

San Francisco

Raleigh, N.C.

Los Angeles

Albuquerque

Madison, Wis.

Colorado Springs

Silicon Valley

Durham, N.C.

Philadelphia

Salt Lake City

Washington

Charleston, S.C.

Data are the change in jobs from 2005 to 2017 in 13 industries including scientific research and development services, Aerospace product and parts manufacturing and Software publishers.

Source: Brookings Institution analysis of Emsi data

By Karl Russell

Expanding the knowledge economy across all of America might indeed be a fool’s errand. As Mr. Atkinson noted, Erie, Pa., and Flint, Mich., might never attract the Googles or Apples of the world. But midsize cities like St. Louis, Pittsburgh and Columbus, Ohio, could feasibly transform into hubs of technological entrepreneurship.

The report’s authors propose identifying eight to 10 cities, far from the coasts, that already have a research university and a critical mass of people with advanced degrees. The government would then spend about $700 million a year for research and development in each of them for a decade. Lawmakers could give high-tech businesses that set up shop in these cities tax and regulatory breaks. Mr. Atkinson suggested a limited break from antitrust law to allow businesses to coordinate location decisions.

Battling the forces driving concentration will be tough. Unlike the manufacturing industries of the 20th century, which competed largely on cost, the tech businesses compete on having the next best thing. Cheap labor, which can help attract manufacturers to depressed areas, doesn’t work as an incentive. Instead, innovation industries cluster in cities where there are lots of highly educated workers, sophisticated suppliers and research institutions.

Unlike businesses in, say, retail or health care, innovation businesses experience a sharp rise in the productivity of their workers if they are in places with lots of other such workers, according to research by Enrico Moretti, who is an economist at the University of California, Berkeley, and others.

Other industries and workers are also better off if they have the good fortune of being near leading-edge companies. The report points out that the average output per worker in the 20 cities with the most employment in the 13 high-tech industries is $109,443, one-third more than in the other 363 metros across the country.

The cycle is hard to break: Young educated workers will flock to cities with large knowledge industries because that’s where they will find the best opportunities to earn and learn and have fun. And start-ups will go there to seek them out.

Even skyrocketing housing costs have not stopped the concentration of talent in a few superstar cities. High-tech companies that seek cheaper places to set up beyond their hubs often go to Bangalore, India, rather than Birmingham, Ala.

“They keep the core team in Silicon Valley or Seattle but put the other stuff in Shenzhen or Vancouver or Bangalore,” Mr. Atkinson said. Shenzhen, China, may not be much cheaper than Indianapolis, he added, but Shenzhen is already a tech hub in its own right.

Westlake Legal Group innovation-productivity-335 A Few Cities Have Cornered Innovation Jobs. Can That Be Changed? Urban Areas Research Productivity Metropolitan Policy Program, Brookings Institution Labor and Jobs Innovation Information Technology and Innovation Foundation Income Inequality

Annual output

per worker

Health care

Basic manufacturing

Innovation industries

Innovation jobs in the most

concentrated metro areas

are the most productive.

For metro areas in the bottom 75%

of employment in each sector.

Westlake Legal Group innovation-productivity-600 A Few Cities Have Cornered Innovation Jobs. Can That Be Changed? Urban Areas Research Productivity Metropolitan Policy Program, Brookings Institution Labor and Jobs Innovation Information Technology and Innovation Foundation Income Inequality

Annual output per worker

Innovation

industries

Basic

manufacturing

Health care

Innovation jobs in the most

concentrated metro areas

are the most productive.

For metro areas in the bottom 75% of employment in each sector.

Source: Brookings Institution and Information Technology and Innovation Foundation analysis of Emsi data

By Karl Russell

It is uncertain whether government support could pull innovation out of the clutches of superstar cities. The proposal by Brookings and the Information Technology Foundation will not come cheap: They estimate a $100 billion price tag over 10 years.

The payoff, however, would extend beyond the new technology hubs. Jon Gruber, an economist at the Massachusetts Institute of Technology, noted that in a world where Cincinnati becomes a hub of entrepreneurship, “we don’t need to fix opioid country” in Appalachia. That’s because many of those areas are within commuting distance of Cincinnati.

What’s more, not trying also entails risks. In his book “Jump-Starting America,” Mr. Gruber and his co-writer, M.I.T.’s Simon Johnson, argue for a sustained national effort to seed new technology clusters widely. Without federal government support, Mr. Gruber said, the United States is unlikely to produce many new high-tech hubs.

The risk, he said, is not only that much of America will be left to founder as superstar cities become more congested and less affordable. Political support for publicly funded research will crumble unless more of the country enjoys the benefits from innovation.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Andrew Smith: Invest in regeneration. How the next Conservative Government can deliver for the North.

Andrew Smith is a Conservative Councillor in Westminster and a consultant for Cicero Group. He writes in a personal capacity

The North is the key battleground in the general election. The path to delivering a Conservative majority runs through a ‘red wall’ of Leave supporting Labour seats, running from North Wales through the North West, Yorkshire and the North East.

As someone born and brought up in Bradford in Yorkshire who came to political consciousness during the years of Eric Pickles’ leadership of Bradford City Council, I know that that the Conservative message can have a strong appeal to towns and cities of the North.

Many of these areas have faced real economic hardship due to economic change. One of the reasons for the strong Leave vote in many of these seats was the sense that these areas had been left behind. Once proud industrial heartlands have suffered from the loss of skilled jobs.

Our Conservative approach needs to be focused on offering a different future for these areas. As well as the promise to deliver on the Prime Minister’s Brexit deal, we need to show how our approach to the economy can help to support growth in the North.

Conservative support for rebalancing of the economy and revitalising areas which have suffered from industrial decline is showing signs of success. Just one example is Rotherham’s Advanced Manufacturing Park. Now home to world-beating research and production, from firms such as McLaren and Boeing.

In his speech to the CBI this week, the Prime Minister set out how he wants to build on that success. He set out a positive vision of how a future Conservative Government can deliver for the North, through investment in public services, and better connectivity through fast broadband and 5G.

Transport infrastructure, unlocking investment was at the heart of Boris Johnson’s success in London. Now as Prime Minister, he made it clear that he wants to deliver the kind of investment in regeneration that he delivered as Mayor of London across all areas of the country.

He spoke about Northern Powerhouse Rail, which promises to transform the economy of the North though highspeed rail connections between the economic centres of the region. Hopefully with a station for my home city of Bradford.

Investment in buses and local road improvements were also part of the offer. This is spot as buses are too often neglected in the national policy debate. Investment in better bus service would bring huge economic benefits, especially in areas outside of London.

One issue which Johnson didn’t mention but needs to be part of our offer to the North is HS2. As someone born and brought up in Yorkshire, I been a long-term supporter of the project. While the scheme might be unpopular in the Chilterns it has strong support amongst business and the public in the North and the Midlands. It is a shame that uncertainty about its future is likely to linger with the publication of the independent review of the scheme delayed until after the general election.

The message from the North has been clear: both HS2 and Northern Powerhouse Rail are important for the future of the region. It seems that the Prime Minister agrees, and hopefully a clear commitment to both these schemes will make it into the manifesto.

He was able to set out this optimistic vison of supporting growth across the UK through investment in public services and infrastructure thanks to Sajid Javid’s plan to boost to investment spending while balancing the books on current spending.

Johnson’s “categorical assurance” that Javid will remain as Chancellor if we win the election is also good news for voters in the North. The Chancellor is northern-born, with a clear personal commitment to delivering investment which will boost economic growth.

Using low interest rates to fund investment to unlock the potential of the Northern Powerhouse was at the heart of his policy platform during his run for the leadership and clearly will continue to be a priority for him in the Treasury. I hope that we will see more of the Chancellor during the campaign explaining how his sensible economic plans can help support investment to boost productivity, while at the same time maintaining the Conservative’s record of fiscal discipline.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

James Cooper: Turbo-charging trade is about products, not productivity

James Cooper is the former Chief Executive of Associated British Ports.

For too long, the UK’s trade deficit has failed to attract the attention of UK policymakers. Yet the deficit clips our economic growth, reduces our pay cheques, and requisitions our savings.

So the Government’s announcement of its intention to create up to ten freeports around the UK is to be warmly welcomed.

Whilst I was at Associated British Ports (ABP), we were keen advocates of a “trade first” policy and firmly backed the idea of freeports. ABP wanted to bring “port-centric”, export-led manufacturing back to our deep sea ports. Blessed with great infrastructure and significant underutilised land banks in often deprived regions, they offer ideal locations to help redress three significant imbalances – imports vs exports; the north vs the south; and manufacturing vs services.

And while you might expect ABP to support measures that would encourage the growth of trade in physical goods, my personal position has always been that I don’t really care whether it is exporting an episode of Doctor Who, a bottle of whisky, an Aston Martin, or a degree from Imperial College – as a nation we need to pay our way in the world and we can do that by designing, making, and selling high quality products.

But our trade deficit, especially with the EU, tells its own story – while we excel in certain areas, sadly, we don’t excel in enough areas at scale. The Bank of England, Treasury, and a whole range of economic experts point to a shortfall in productivity as the British malaise. But I am not sure that they are aiming at the right target.

The real issue for the UK is not productivity but product. It’s not that we don’t know how to use Google efficiently, the problem is that we didn’t invent, finance, and sell Google. We need to move away from the focus on productivity, a focus which comes across as simply telling our workforce that they either have to work harder or work for less pay or a combination of both. These are the economics of a ‘tee-shirt economy’, and is that what we really want?

Instead we should be encouraging business to develop high-value, high-quality products that the world wants to buy. Every part of Government should be turning its hand to this endeavour. Yet the Government’s website for those wishing to file a patent advises in no uncertain terms that the process is “complicated”, “expensive” and “long”. We need to address that, to make a necessarily robust process simple, affordable, and swift.

And for those that battle their way through the process to create a commercially successful product, how do we facilitate their research of the overseas markets we need them to succeed in? We know that SMEs in particular see accessing overseas markets as expensive and risky. Government could do more to provide high quality advice to prospective exporters, and should consider subsidising international travel costs for SMEs. And what about reducing the rate of corporation tax on the export earnings of SMEs?

Those who build and maintain our infrastructure have a key role to play. Highways England and Network Rail should be specifically required to address the needs of trade (not just freight) in their planning. The Department for Transport should hold these state bodies to account for their role in supporting our exporters. New infrastructure – both physical and digital – that links British exporters to global markets needs to be built. As an island nation, our competitiveness and our ability to trade depends on connectivity.

Our educators need to focus on delivering a workforce capable of designing and making the quality products the world wants to buy. We should incentivise the development of creative, technical, language, and financial skills to the highest level, and the Apprenticeship Levy needs to be withdrawn and instead replaced with an incentive for business to deliver high-quality in work training.

The Treasury needs to embrace more policies that encourage our entrepreneurs and the UK’s world leading capital markets to build global giants at home, in the UK. We are too willing to sell our most successful young companies just at the moment they are poised for take-off, leaving the rewards of our creativity for others to reap. It’s a familiar point, so let’s get on with reforms that finally enable us to address the problem.

The UK’s trade deficit is currently £46bn per annum, a surplus in services partially masking a £150bn deficit in goods. This represents real cash flowing out of the UK, cash that is financed either by borrowing or by selling assets. It is one of the reasons we end up selling “crown jewels” to overseas buyers.

Just imagine if that flow was the other way, finding its way into people’s pay and pension funds and, yes, ultimately into the Government coffers that finance hospitals, schools, our police and military.

Our vision has to be creating a much more powerful British economy that sells high-quality, high-value goods made by a well-paid and highly skilled workforce. Every part of government, industry, education, finance, and society as a whole must share that vision and be willing to strain every sinew to achieve it.

This may be challenging but ultimately the lesson for the British economy is painfully simple; to improvise on James Carville’s refrain, “it’s the products, stupid”.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Neil O’Brien: How to rebalance Britain’s unbalanced economy – by levelling up, not levelling down

Neil O’Brien is MP for Harborough.

Even Brexit, it turns out, is about location, location, location. Ben Ansell, an Oxford professor, has found that in wealthier areas, where the price of a house averages £500,000, 70 per cent voted to remain. Poorer areas, where the average house price was £100,000, were an exact mirror image, with 70 per cent voting to leave.

Like a disclosing tablet, the EU referendum highlighted the different economic experiences of different places over recent decades: booming London and the most prosperous home counties voted to Remain, as did Scotland, the next richest part of the country. The reviving cores of our large cities did likewise. But smaller towns and cities, the countryside and coastal places voted overwhelmingly to Leave, as did Wales.

In response, Boris Johnson recently set out his ambition to “level up” poorer areas in a fantastic speech in Manchester. It’s the right thing to do – and it makes political sense too. The 2017 election saw us losing ground in wealthier-but-Remainy areas, and gaining former Labour seats in the midlands (and north) which we’d never gained before. We have huge potential to win in seats where people have felt taken for granted and left behind for many decades.

The economic case for levelling up is clear too. There are no G20 countries which have a more regionally imbalanced economy than the UK and are also richer than the UK. Conversely, all large countries that are richer per head than the UK have a more balanced economy.

In other words, a more balanced economy is a stronger one. In a highly unbalanced economy, resources like land and infrastructure end up overloaded in some parts of the country, and under-used in others, which is costly and wasteful. Given that workers (particularly lower skilled people) don’t simply move away from their families in the face of local economic problems, having greater distances between unemployed workers and job opportunities may well compound problems matching people to job opportunities. There might even be compounding mechanisms: if some areas have high unemployment that can lock in patterns of worklessness.

But to bring about a more balanced economy, there are two big lessons that the Prime Minister must draw from previous successes and failures.

First, the crucial thing is to attract private sector employment – particularly jobs that are knowledge and investment-intensive. The work of academics like Enrico Moretti and think tanks like the Centre for Cities shows how gaining “brain jobs” in the private sector has a much bigger multiplier effect than just moving public sector jobs to an area.

Tax breaks for inward investment can be very effective in attracting in new investment, which is why most other countries offer them. Within the UK, probably our most successful ever regional intervention was Margaret Thatcher luring Nissan to Sunderland with a mix of investment tax breaks, lobbying and the offer of cheap land (an old airfield). It’s now one of the most successful plants in the world.

When people think about regeneration, they often start with plans for a new tram or shiny cultural facility, which tend to be popular, and can indeed help growth in areas that are already motoring along. But such investments aren’t going to do much for areas where the economic engine has rusted up and needs restarting. Detroit famously built a fancy monorail intended to fight its economic decline: but in a city where every factory was gone it remained largely unused, drifting through a city that looked like it had been bombed flat. Without private sector investment, there’s no demand for it or anything much else.

Second, different things work in different places and a different set of policies are needed for our towns than our city centres. During the 1970s and 1980s the “inner cities” were a byword for decline. But in recent decades capital cities and the centres of other larger cities have outperformed other areas, right across the world. The shift from a manufacturing to a professional services economy (plus the growth of universities) revived the centres of our cities.

There are still many problems to solve in our cities, but the places that have struggled the most in recent decades have been rural areas, smaller towns and cities, and the outer parts of large cities (even outer London). Places on the coast and places without a university have suffered particularly badly from a brain drain. Labour have tried to capitalise on their discontent with glossy ads like their film “our town”.

What to do for towns is even trickier than helping big cities grow. Though there are trendy small towns from Hebden Bridge to Hay-on-Wye, simply copying ideas from big cities, like “culture-led regeneration”, is often a recipe for failure in small towns.

Improving connections between city centres and towns might help – Tom Forth has highlighted just how bad we are at this in Britain. The Prime Minister’s new fund to help regenerate town centres is a good move and will make them more attractive. We should do things like re-examine funding historic funding formulas for government spending on science, transport and housing, which are still heavily geared towards supporting London and other areas that are already growing fast. And we should offer devolved economic powers to counties, not just big cities.
The more we can use free market mechanisms to help poorer towns, the more likely we are to succeed.

Looking at Britain as a whole, chronically low investment rates are a big part of our long-term productivity problem. We should cut taxes on business investment across the whole country, and make the UK’s capital allowances among the most generous in the world (at present they’re among the least).

But to level up poorer areas we should go further, and have even more generous tax breaks for investment there, where the problem of low investment and low productivity is most severe. We should also empower the Department for International Trade to take part in the same aggressive tax competition for inward investment that countries in Asia, the US, and our neighbours in Ireland do so successfully. And we should use those tools to encourage inward investment into poorer places.

More generous capital allowances would help lagging regions anyway, even if introduced across the board. While manufacturing accounted for around a quarter of productivity growth nationally since 1997, it provided 40–50 per cent of productivity growth in poorer regions like Wales, the West Midlands and North West. Manufacturing requires roughly twice as much capital investment as the rest of the economy, so an investment-hostile tax system hits poorer places harder.

Ever since the referendum, there’s rightly been renewed focus on how to help poorer places. Helpfully there is decades of evidence about what does and doesn’t work. If we can join up an energetic new Prime Minister with the bit between his teeth, plus a new agenda for left-behind places, then we can really get things moving.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com