ECONOMIC pundits are rapidly dividing into two tribes: the Pessimists, and the Nostalgics. The Pessimists are the easiest to spot. For them, the paradigms have shifted, and the UK is on the wrong side. The economy’s sluggish growth is the “new normal”, and we must lower our expectations, grit our teeth and make the best of it.
The Nostalgics are equally glum, but have a different remedy. With a dash more stimulus, they argue, we can pick up where we left off economically in 2007. The pre-crash economy wasn’t especially unsustainable, apart from a few pesky banks, and what really matters is the quantity of the stimulus, not the quality.
But both these positions seem to suffer from a besetting sin of economists: lack of imagination. Take the Nostalgics’ argument. Set aside the question of whether we can afford an eight-figure stimulus package, which has been debated ad infinitum over the past five years. Think instead about the economy of the early 2000s. Despite years of healthy growth, not all was well. Investment in intangibles like R&D and product design, which had risen as a proportion of GDP all through the 1990s, fell from 2000 to 2007. Companies’ tangible investments also fell, and those they did make were increasingly bricks and mortar, not computers or machines. Instead of investing, companies piled up reserves. What some remember as a golden age looks in retrospect more like the age of cash and concrete. Using fiscal means to wind the clock back to 2007 won’t on its own solve our problems.
But the Pessimists are also wrong. When it comes to long-term growth, the deciding factor is human ingenuity. Nesta’s research showed that two-thirds of UK growth between 1990 and 2007 was the result of innovation. And there is no reason to think this is faltering.
Over the next decade, expect to see significant advances in economically important technologies. Self-driving cars are already quietly moving around the streets of Nevada, and in test facilities in Oxfordshire. Artificial intelligence programmes are interpreting medical data from scans and sifting through reams of legal documents faster and better than the most diligent radiographer or paralegal. The analysis of Big Data is improving how we sell groceries to how we operate machines. And the internet is enabling the rise of what some call “collaborative consumption”, allowing anyone with a spare room to become a hotelier, anyone with spare cash to become a VC, and anyone with spare time to become a coder.
Of course, technology means more than computers and the internet. New materials and digital manufacturing techniques like 3D printing are leading to what one expert has called a New Industrial Revolution. Continual biometric monitoring and real-time analysis, combined with genetic profiling and personalised medicine, could transform healthcare.
This has big implications for government policy. If the UK’s economic future rests on how well we take advantage of disruptive technologies, then perhaps the details of policy matters as much as the macro picture.
So rather than seeing infrastructure spending as primarily a form of stimulus, we should think about the sort of infrastructure we’re building. Take HS2: is it right that we are buying £33bn worth of trains and tracks, the infrastructure of the nineteenth century, when for far less we could have nationwide superfast broadband, the infrastructure of the twenty-first? It means thinking carefully about skills, and asking why our children aren’t learning coding in schools, like they do in tech hotspots from California to Israel to Estonia.
It means encouraging experiments, not picking winners. If self-driving cars are to revolutionise the economy, they need to be tested. Why not give a willing town the right to legalise self-driving cars, plus some funding to see how they change urban design, commuting and shopping? Then let businesses and citizens work out what works.
Above all, the government needs to consider Britain’s third tribe, from whom we’ve heard little in the past five years: the Optimists. They may have been quiet, but they were busy too. Between 2007 and 2010, our research showed that over 60 per cent of new jobs in the UK were created either by startups or by the 1 per cent of firms that grew the fastest.
If we’re to reap the harvest of these new technologies, the government needs to create a world where optimists can flourish. This means liberalising planning and immigration so that entrepreneurs brave enough to expand aren’t stopped by government. It means creating a culture where angels and VCs can back growth firms in the expectation that, if they succeed, they’ll be able to float on public markets. And more than anything, it means getting beyond the sterile debate between Plan A and Plan B, and prioritising Plan I: ingenuity, innovation and inspiration.
Stian Westlake is executive director of research at Nesta.