Against the backdrop of a stubbornly bleak productivity picture in the United Kingdom, the Information Technology and Innovation Foundation (ITIF), a leading technology policy think tank, today released a new e-book (also available as PDF) arguing for a sea change in thinking that would make productivity growth the principal goal of economic policy and significantly expand the scope of Prime Minister David Cameron’s national productivity strategy.

“Economists all agree that productivity is the key to improving people’s living standards,” said ITIF President Robert D. Atkinson, the book’s author. “But few believe governments can do much about it. They are wrong to be so skeptical. Policymakers can and must craft national strategies that accelerate productivity. In fact, this should be the principal goal of economic policy. While the Cameron government should be commended for making the U.K. one of the few nations with a national productivity strategy, the plan focuses mostly on improving market conditions and ‘factor inputs’ and not enough on targeted incentives, productivity-focused R&D, and sector-specific strategies that can really power growth and increase living standards.”

Atkinson’s book upends a heated series of debates among economists about the future prospects for productivity growth and about its relative benefits or harms for workers. The book rejects the views of both productivity pessimists such as Northwestern University’s Robert Gordon and productivity Pollyannas such as MIT’s Erik Brynjolfsson, arguing instead that the United Kingdom could enjoy a significant pickup in productivity growth—but only if it broadens its national productivity strategy. The book also marshals data to refute the notion that such progress would come at workers’ expense.

“All too often, productivity is portrayed as a boogeyman that kills jobs, undermines incomes, and exacerbates inequality,” said Atkinson. “These views are not just utterly wrong, but also dangerous, because they can undermine political support for putting the productivity pedal to the metal.”

The book explains that a core reason productivity has lagged in leading nations like the United Kingdom is that industries have failed to adopt the best new tools in the best possible ways. Neoclassical economic theory holds that organizations have plenty of incentives to boost productivity on their own, and government should not proactively encourage greater productivity because it would only distort the marketplace. But Atkinson refutes this notion. Rather than conceiving of economies as large markets in which self-interested actors respond to price signals, Atkinson argues it is more accurate to think of economies as large, integrated enterprises that work best when countries enact comprehensive productivity strategies that, among other things, support activities that individual enterprises cannot or will not undertake effectively on their own.

Atkinson writes that, to boost productivity, nations need to get beyond the passive, conventional advice that governments should merely establish the right market frameworks and instead embrace an array of policies that promote greater productivity in all organizations. He outlines a detailed framework to guide policymakers on the necessary elements of an expanded U.K. national productivity strategy. It includes the following elements:

  • Making higher productivity the principal goal of economic policy;
  • Eliminating preferences for small firms over larger firms, because small businesses are generally less productive;
  • Increasing capital investment by raising the price of labor (with higher minimum wages, less low-skill immigration, etc.) and lowering the price of capital equipment (with investment tax credits, etc.);
  • Reforming corporate governance to provide better incentives for investing in long-term capital projects;
  • Expanding science and technology research targeted specifically toward the development of productivity-enhancing and labor-displacing technologies;
  • Analyzing opportunities and constraints facing every major industry, and developing sector-specific productivity policies; and
  • Developing a dedicated productivity agency to develop and coordinate a sophisticated productivity agenda.

“Without productivity growth, sustained income growth is impossible,” Atkinson concluded. “We have to go beyond the standard counsel from conventional economists that it is enough for policymakers simply to get market conditions and factor inputs right. It is not. Nations need smart, analysis-based productivity strategies, and they must find the political will and bureaucratic means to implement them effectively. If the United Kingdom does this right, then it could benefit from a much-needed acceleration in productivity growth and boost in living standards for its residents.”

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