Over recent months, the prospects for world growth have dimmed and risks to financial stability have increased. By one important measure — changes in real GDP since the recession began — the UK economy is doing worse now than it did during the Great Depression, while the opposite was true just a year ago.
Countries are seeking growth against a backdrop increasing constrains set by renewed concerns about fiscal discipline and the dynamics of international financial markets.
At the same time, inequality has been rising in many industrialised economies, and there is an increasing need to address the environmental impacts of economic activity in a co-ordinated manner. Many are questioning whether the distributional implications of growth can be ignored as they are important to the well-being of a nation, and can affect the political sustainability of policies.
In this rapidly changing environment, it is especially important to keep the issues pertaining to the long run firmly in the frame. To this end, the LSE Growth Commission will put forward ideas on the formulation and implementation of a strategy for the UK to secure long-term growth. The Commission aims to provide an authoritative contribution to the growth debate, underpinned by a rigorous, independent, evidence-based approach that will harness contributions from leading thinkers from academia, business and policy.
The Commission uses the word "growth" as an abbreviation for improvements in social well-being, and it intends to explore interpretations of social well-being that go beyond GDP per capita. The Commission is also of the view that social justice (i.e. distributional considerations) and sustainability are important objectives in their own right, as well as through their direct and indirect effects on growth. These two objectives form, together with growth, a "welfare triangle" which is a defining feature of the way the Commission conceives of social prosperity.
Underpinning the work of the Commission will be a series of empirical diagnoses around both contemporary and enduring features of the UK economy, viewed through the lens of the welfare triangle mentioned above.
This work will bring together a comprehensive, evaluative review of relevant preceding work as well as original research produced by the Commission's secretariat.
It will involve, amongst others, a detailed account of the growth performance of the UK over the last two decades (a period during which the century-long phase of economic decline was reversed); cross country comparisons of growth performance and its composition (by factor and sector); trends in public service performance; sources of external competitiveness; export performance of the UK in emerging markets; the role played by the financial sector; inequality and regional disparities; and analysis of the permanent effects of the current crisis on the UK's productive capacity (which lies within the wider "output gap" debate).
The Commission will draw on the output of its own analysis as well on relevant preceding work in the design of adequate responses to the growth challenges faced by the UK.
The stock of potentially relevant preceding work is vast, comprising numerous areas allegedly in need of improvements: e.g. regulatory barriers to competition such as planning and immigration controls; mid-level skill shortages; weak numeracy and literacy in the bottom and middle range of the skills spectrum; management capability deficits; lagging the US record in turning scientists into entrepreneurs; weaknesses in getting the output of R&D to the market; high energy prices; strained infrastructure; problems in access to credit; rebalancing the industrial composition of the economy; UK's role and relationship with international institutions; industrial policy; and the regulation of banks.
The Commission will review the evidence base that supports these claims and it will build on the work it finds especially robust and pertinent.
In parallel, the Commission wishes to break new ground in the policy design and in tackling barriers to implementation around a set of core areas: science, engineering and innovation; human capital; infrastructure and energy; management; and on the concept and measurement of social well-being.
Finally, in looking for effective responses to strategic growth challenges, the Commission will allow for a number of systemic, exogenous shifts in the wider economic environment – from the decline of manufacturing prices (limiting employment opportunities in the sector), to problems of global imbalances and lack of global governance – that it deems likely to influence the growth prospects of the UK.
The Commission wishes to orient the focus of its effort towards eliciting/facilitating practical changes. It sees as integral to its mission, and critical to its success, investigating the political economy around the main determinants of growth, to put forth ideas that are institutionally savvy, and to anticipate and address potential barriers to implementation.
The Commission is conscious it stands on the shoulders of a vast amount of preceding work whose results have struggled to embed in the institutional landscape. Especial attention and effort will be devoted to avoiding a similar fate.
Working in partnership with the Institute for Government, the Commission will seek to learn from previous experience of policy success/failures, and to develop a robust understanding of what underpins current and enduring institutional bottlenecks.