Post on 01-Jan-2016
transcript
1
The role of Government in fostering competitiveness
and growth
Ken Warwick
Deputy Chief Economic Adviser
UK Department of Trade and Industry
2
Structure of presentation
• Overall aim of competitiveness policy
• Role of Government• UK experience• Examples of policy interventions• Conclusion and discussion
3
Overall policy aim
………to increase prosperity for
all…………• by driving up productivity and competitiveness
through:
– successful business;
– world class science and innovation; and
– fair markets.
4
Prosperity for AllRelationship Between Objectives
• Main way the DTI pursues its vision of
‘prosperity for all’ through its aim of raising
productivity. But others factors also contribute,
e.g.
– Quality of the Environment.
– Distributional issues (e.g. regions and gender)
• Environmental and distributional improvements
can affect productivity.
– But they are also policy objectives in their own right.
5
Role of government – key principles
• Government role limited but crucial• Set the framework:
– Stable macroeconomic environment– Establish and enforce property rights and
contract– Company, consumer and employment law
• Invest in assets where the market under-provides:– Public goods – basic science– Transport and other network infrastructure
• Correct market failures
6
Classes of market failure
• Externalities• Barriers to entry• Imperfect information and
uncertainty• Public goods
7
Framework for Intervention• Work with the grain of the market• Market failure rationale necessary
though not sufficient…• Allocate resources where most effective
– Where there are the biggest opportunities– Where Government has effective levers
• Research and evaluation needs to be used more systematically so limited resources used where impact is greatest
8
Lessons of evaluation of DTI schemes
• Horizontal preferable to sectoral• Strength of scheme rationale is key• Promotion of collaboration brings
benefits• Additionality greater for SMEs• Support most effective for long-term,
innovative schemes, with strategic commitment
• Well specified schemes with clear objectives score best
9
DTI Business Support Review• New business support system will:
– Have clear market failure rationale– Be more focused on investments to drive up
productivity– Focus on improved delivery & customer relationships
• Smaller range of products• Customer access through Business Links, DTI
relationship managers or delivery partners such as banks
• Improved monitoring and evaluation to ensure ongoing improvement in impact
10
The UK experience
• UK Competitiveness: moving to the next stage, Porter and Ketels 2003
• Porter identified two periods of UK economic reform– 1980s framework improvement– 1990s/2000s – rebuilding the asset
base
11
1980/90s – framework reform
• 1980s - Injection of market mechanisms– De-regulation, privatisation, labour market
reform• 1990s reform of macro environment
– Inflation targeting post ERM, independent central bank/fiscal rules post 1997
• Late 90s – Reform of competition policy, company law, corporate governance
12
1990s/2000 Asset building
• Major investments in UK national assets– Science base– £180bn transport programme– Education (significant improvements
in literacy and numeracy)– Institutional reform
13
How successful has it been?
• UK now has GDP per head similar to Germany, France, and above EU average
• Recent performance largely driven by labour market – highest employment in G7
• Productivity performance in 1990s still lags US and EU
14
Breakdown of UK Growth
-4%
-2%
0%
2%
4%
6%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
GVA Grow th due to Productivity (per w orker)
GVA Grow th due to Jobs
Source: ONS
15
UK Productivity gap is longstanding
0
20
40
60
80
100
120
140
160
180
200
1870 1913 1950 1973 1979 1989 2000
US
France
Germany
Note: 1870 - 1973, Maddison (1991). 1979-1999, DTI calculations using OECD data
17
What Drives Productivity?• The Government has identified five
drivers of productivity:
– Innovation– Enterprise– Skills– Investment– Competition
18
Michael Porter on the UK
Source: Porter and Ketels (2003)
19
Innovation - strong sciencePapers and citations per head of population (UK = 100)
0
20
40
60
80
100
US France Germany
Papers per head
Citations per head
Source: OST (Period: 1995 – 2000)
20
Innovation - weak R&DBusiness R&D per worker
0
200
400
600
800
1,000
1,200
US Germany France UK
1995 US Dollars (PPP)
1990 1995 2000
Source: OECD
21
Enterprise – numbers involvedPercentage of Workforce engaged in Enterprise
0%
2%
4%
6%
8%
10%
12%
US Canada Italy UK France Germany Japan
Source: Global Entrepreneurship Monitor 2001
22
Enterprise - ease of setting up a business
0 10 20 30
US
Germany
UK
France
Japan
Italy
05,00010,000
Minimum cost to establish (euros) Minimum delay to establish (weeks)
Source: OECD (1998)
23
Skills – performance lagsSkills account for part of the
gapRelatively poor literacy and numeracy
‘Gap’ at intermediate level
Perception of weak management performance
Source: UK Competitiveness Indicators 2002
0%10%20%30%40%50%60%70%80%90%
100%
France Germany
SkillsCapitalTFP
Adults with literacy and numeracy skills at the lowest levelSelected OECD country comparison, 1997
0
10
20
30
40
50
Poland
Irish
Rep
ublic UK US
New Z
ealan
d
Switzer
land
Belgium
Austra
lia
Canad
a
Ger
man
y
Nethe
rland
s
Sweden
Per cent of adult population
Percentage of adults w ith literacy skills at the low est level Percentage of adults w ith numeracy skills at the low est level
Source: Literacy Skills for the Know ledge Society, OECD
Business executive perceptions of quality of managementG7 comparison, 1996-2002Average survey score, 0-10 scale
0
2
4
6
8
10
USA Germany Canada France UK Italy Japan
1996 & 1997 2001 & 2002
Source: IMD
24
Investment - capital stock by sector
0 50 100 150 200 250
Mining
Gas, Electricity & water
Manufacturing
Construction
Distributive trades
Financial & business services
P ersonal services
US France Germany
Relative Capital per hour worked (UK = 100)
Source: NIESR, 1999
25
Competitive markets - Business Environment
1998-02 2003-07
Netherlands 2 1
Canada 3 2
USA 1 3
UK 4 4
Germany 15 13
France 16 16
Italy 23 23
Japan 27 26
EIU Competitiveness Ranking November 2002
0
2
4
6
8
US UK Germany France
Survey Score (0-10)
1996 & 1997
2001 & 2002
Business Perceptions of How Government Supports Competitiveness
Source: IMD Source: EIU
26
Accounting for the Gap by Factor
Source: Porter and Ketels (2003)
27
EU productivity lags US….
0
50
100
150
200
250
US
Austri
a
Belgium
Denm
ark
Finlan
d
Franc
e
Germany
Greece
Irelan
dIta
lyLux
Nethe
rland
s
Portuga
l
Spain
Sweden UK
28
As does TFP
0
50
100
150
200
250
US EU Austria Belgium Denmark Finland France Germany Greece Ireland Italy Lux Neth Portugal Spain Sweden UK
ProductivityTFP
29
Assessment
• UK framework conditions are supportive
• But more needs to be done to build assets– Increase factor accumulation
• And combine assets together better– TFP and innovation
• This is common across the EU
30
Latest data encouraging
0
20
40
60
80
100
120
140
1997 1998 1999 2000 2001 2002
US France Germany
Productivity per worker (UK = 100)
31
Role of government – recap• Indicators provide a useful way of benchmarking UK
performance on the ‘drivers’ against other countries.• But they do not necessarily indicate where policy
interventions will be most effective.• Preference for market-based solutions:
– Identify market or institutional failures– Ensure that interventions help to correct for that failure
• Government has a key role in setting the macroeconomic, institutional and regulatory framework in which business operates.– And improving public sector productivity.
32
The role of Government in fostering competitiveness
and growth
Ken Warwick
Deputy Chief Economic Adviser
UK Department of Trade and Industry