UK needs policies that would make Thatcher look ‘very moderate’ to boost productivity, says academic

What can be done to restore economic growth, and make the UK economy competitive in the new global economy?

Since its inception in May 2010, the Coalition Government done much to alter the conditions of UK workers in order to pursue its stated objectives of boosting the economy – although not all of these policies have proven popular with workers:

• At this month’s Trades Union Congress in Brighton, unions voted for co-ordinated strike action and to explore the “practicalities” of a General Strike in protest at the impact of economic austerity measures on pay, pensions and jobs.
• “Employee rights are being wound back significantly” as a result of the Coalition Government’s ongoing programme of employment law reform, argues City law firm Partner Michael Scutt.

But could it be that the Coalition Government is not going far enough?

One academic thinks so.

In the first of a series of lectures entitled The Greatest Ever Economic Change – delivered last week – Professor Douglas McWilliams of Gresham College argues that significantly harsher medicine is required if the UK economy is to be able to compete on a global level over the coming decades. McWilliams says:

Mrs Thatcher’s policies would appear to have been very moderate compared with what will be required if the UK is to be prevented from a fate where GDP virtually stagnates and consumers expenditure per household continues to fall.

McWilliams issues ‘wakeup call’ to Western economies

In this lecture series, McWilliams says that he seeks to issue “a wakeup call to those of us in the West who have not fully appreciated the scale of the challenge to us that is posed by the emerging economies from the East.”

He argues that “the economic development of two thirds of the world is the world’s greatest ever economic event,” dwarfing even the impact of the Industrial Revolution.

McWilliams believes that Western economies have been complacent regarding the challenge to the global balance of economic power that will dominate “the next fifty years at least,” posed by the growth of economies in Asia.

He argues that Western governments must take urgent and drastic action if they are to remain competitive in the new global marketplace:

There is a risk that the rest of Europe including even countries outside the Single Currency like the UK could slide in the same way that Greece now has into first stagnation and then economic collapse unless we recognise the challenges that we face from the East, analyse them carefully and respond by adjusting our own policies to reflect the changing external situation.

Complacency in the West breeds ‘anti-business posturing,’ says McWilliams

“When prosperity comes gradually, societies tend to ease up,” says McWilliams

He believes that Western economies have become complacent. They “introduce welfare systems, they stop saving and investing and let others do that for them; they start taking economic growth for granted; they indulge in anti-business posturing.”

In contrast, many economies in Asia “don’t take prosperity for granted. In Singapore, GDP per capita is already 30% higher than in the UK. In Hong Kong it is 50% higher. Yet they both work just as many hours per year as they did when they were poor. Compared with us, they work about 5 more months a year. They have held down public spending.”

Writing in the Evening Standard, Anthony Hilton provides comparative data on working hours in the UK and in Hong Kong and Singapore, in order to illustrate McWilliams’ argument:

Their peoples still worked as hard as they did when they were poor, [McWilliams] said. The average Briton works 1,625 hours a year – a 35-hour week with four weeks’ holiday plus bank holidays. This compares with 2,307 hours in Singapore and 2,287 in Hong Kong. In economic terms, this means the Singaporean is working the equivalent of four months a year more than we do.

Policies that would make Mrs Thatcher look ‘very moderate’ needed to boost UK economy, says McWilliams

McWilliams cites the outsourcing of jobs from the UK to Asia as evidence of the “rapid pace of change” that we are seeing in the global economy. He claims that “the Western financial crisis and the Eurozone crisis” are also “consequences” of this process of rebalancing.

The ongoing economic crisis in “Greece and other parts of Southern Europe” provides a cautionary tale for the UK in this context, according to McWilliams:

The euro has exacerbated their problems but it is not the only cause. The loss of growth from lost competitiveness has caused tax revenues to collapse which has been a major cause of the deficit problems and is the major reason why these deficits cannot easily be reduced.

McWilliams says that the UK must take drastic action to boost productivity and become more competitive, if it is not to suffer a similar fate:

Our slide will be more genteel [than that of Greece] and will be cushioned by the fact that we can control our own currency. But many of the factors affecting Greece apply in a more diluted way to the UK. [...] Mrs Thatcher’s policies would appear to have been very moderate compared with what will be required if the UK is to be prevented from a fate where GDP virtually stagnates and consumers expenditure per household – which has declined by 8% in the past five years – continues to fall. If we are to avoid this fate, policies to encourage growth are not just one option among many for politicians – they are an absolutely essential precondition.

McWilliams will set out specifics of what he thinks needs to be done in a future lecture in this series, entitled How to make Western Economies more Competitive, which he will deliver on Thursday 24 January 2013.

What’s your view?

I’m very interested to find out what XpertHR readers make of McWilliams’ arguments. Do you agree with his analysis of global economic trends? What do you make of his view that the UK needs policies that would make Mrs Thatcher’s “appear to have been very moderate” in order to compete with economies in Asia?

I’d love to hear from you.

You can submit comments via the box below, or contact me directly via Twitter, LinkedIn or Google+.

See also:

• The Greatest Ever Economic Change Visit the Gresham College website to see an overview of McWilliams’ lectures.
• Transcript for “The Greatest Ever Economic Change” Download the complete text of the first lecture in this series, from the Gresham College website.
• Could opposition to radical employment law reform move up the union agenda? XpertHR reports.
• The world of work in 2020: A very different place for us all? We look ahead to some possible scenarios for the world of work and for the global economy in 2020.
• Your flexible fiend A powerful provocation from 2011 by since-retired UK HR blogger The HRD, which explores similar theories to some of those that McWilliams discusses in his lecture.

• Lessons from Japan (1): Does the West face a lost decade of “Japan-lite” stagnation? and Lessons from Japan (2): Is the UK facing a “balance sheet recession”? Two posts from 2011 looking ahead to a possible future path for the UK economy.
• Government announces further proposals to ‘streamline employment law’  XpertHR reports on the package of employment law reforms announced by Business Secretary Vince Cable last Friday.
• Cable’s employment law reforms meet with mixed response Personnel Today reports.

• XpertHR economic commentary September 2012: Triple-dip recession in prospect? XpertHR’s economic commentary for September 2012 assesses prospects for growth and the possibility of a “triple-dip recession.” We also look at the likely resurgence in trade union activity in autumn 2012, and report on latest readings on key economic indicators, including inflation, pay awards and unemployment.