Sunday, October 08, 2017

The Adam Smith Institute on the Productivity Problem

Those who have known me for a long time will be aware that I have not always seen eye to eye with the Adam Smith Institute.

However, I agree with a great deal of a paper by Sam Bowman's on the ASI website,

"It's the productivity stupid."

Sam starts with the same horrifying graph showing UK productivity flatlining under governments containing ministers from all the main parties over the past ten years which I reproduced in my own post this week on the subject and concludes that most of the main problems in British politics are down to our poor productivity performance.

He agrees with Theresa May that fixing the broken housing market is probably the most urgent aspect of this and Sam has a number of suggestions about how to do so, including reducing or abolishing stamp duty land tax.

Cutting corporation tax will generally provide more incentives for investment, but Sam points out the importance of appropriate allowances allowing businesses to offset investment against corporation tax. I hope Phillip Hammond takes this point on board.

Perhaps the most thought-provoking section of the paper is the one where Sam admits that ASI thinking is still developing and argues that nobody really understands well enough what we can do to promote more innovation.

Asking why British firms do not innovate more, he goes on to write

"It might be because our approach to regulation is excessively cautious, especially in areas dominated by the state such as healthcareMark Lutter’s paper from earlier this year outlined how we might make it much easier to use medicines and instruments approved for use abroad in the UK and encourage more innovation domestically. Regulatorysandboxesand explicit rules that preserved permissionless innovation would help here too." The issue of sluggish productivity growth deserves more attention than it is getting from politicians over the entire political spectrum and from the media. It is vital for the future of the country that we do better.

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