There is one overriding problem with the UK economy. It’s just about the only thing that needs fixing. In his budget Phillip Hammond talked a lot about it, but did he do anything that will really make a difference? And what about entrepreneurs?
There is a view that only the private sector can create wealth. This view is wrong. Innovation creates wealth, and the government can play a key role in that.
Take as an example the most important, innovation of the last half a century. It is surely the internet. But the internet owes its entire existence to the US government and in particular, ARPANET, which created a network of devices that would be impervious to an attack on the US by a foreign power.
Innovation creates greater productivity, greater productivity creates growth, growth creates wealth.
And yesterday the Office of Budget Responsibility released figures to show that it estimates that this year, growth in productivity will be zero.
Let’s reiterate that: ZERO
It also projected growth in productivity of just 0.9 per cent next year, 1.0 per cent the year after, then 1.2 per cent, then 1.3 per cent in 2021. These are awful numbers.
That’s a cumulative growth in productivity over five years of just 4.4 per cent. To put that in perspective, average annual growth in productivity in the post war years is 2.5 per cent. If productivity grew like it used to, every 38 years or so the economy per worker would double in size. Average wages would double, spending on the NHS could double. At the current rate of growth it would take around 100 years for this doubling to occur.
You can see why people argue that the baby boomers were in fact the spoilt generation.
Looking at the economy, nothing else matters. Always, whatever the government does concerning the economy we should ask the question, but yes will this solve productivity?
So what do we need?
Well, we need better transport, better internet, a better, and a more appropriately educated work force and we need entrepreneurs.
Think in these terms. If productivity could be increased from the projected trajectory to the level we used to have, in the course, of a year the economy would become $40 billion larger than would otherwise be the case.
In short, If it were to solve the problem of productivity, the government could justify spending $40 billion extra a year, or at least what proportion it would receive in tax receipts from this.
Instead, Mr Hammond announced the allocation of £500 million for investment in artificial intelligence (AI) and 5G connectivity.
He is freeing up £10.4 billion over the next five years on measures designed to increase productivity.
You do the maths. He is tinkering.
He is a slave to the doctrine of austerity, on the need to balance the budget, when, if he could solve the problem of productivity the problem of government finances would be magicked away.
Howard Simms, chief investment officer at Apadmi said: “AI’s potential to change things is huge, and this investment may speed this change further.”
He is right. AI’s potential is huge. But is half a billion enough?