New research published by Nesta has identified three unexpected factors holding back productivity growth in Britain in the decade before the financial crisis.
New research published by Nesta has identified three unexpected factors holding back productivity growth in Britain in the decade before the financial crisis. These deep-seated problems seem to have worsened since 2009, casting new light on the ‘productivity puzzle’ – why growth has been slower than expected since the recession. Understanding and addressing these, it argues, could be worth at least £96 billion to British GDP every year.
In The Other Productivity Puzzle: Business dynamism and productivity growth before the crisis, researchers analysed ONS data on all existing and new businesses in Britain between 1998 and 2007, looking at their productivity, size and growth in unprecedented detail. In particular, the research looked at the changing relationship between productivity and business size.
The report identifies the three main issues contributing to the long term decline in productivity over the decade:
These three issues could be the result of a wide range of factors, including a poorly functioning financial system, unfavourable trading or regulatory conditions for innovative new entrants, or the impact of technological change on business longevity.
The research covers the decade to 2008, but current research suggests that these problems are unlikely to have improved, given widely reported difficulties in access to finance since the crisis.1
Stian Westlake, Executive Director of Policy and Research, Nesta, comments: “The results of this research surprised us, suggesting there was something rotten in the economy long before the 2008 crisis hit, and it is unlikely things have improved since. Unless Britain becomes a better place for good businesses to scale up, our productivity woes are likely to deepen, making the recovery a very unsatisfactory one.”
Nesta’s research into British productivity complements its wider work into how innovation can drive growth.
1. ‘The UK productivity puzzle’, Bank of England Quarterly Bulletin 2014 Q2
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