The Brexit settlement will be key to the future of productivity in Britain, writes Harry Picken
Productivity matters. It is vital to the wellbeing of the economy owing to its integral role in both living standards and wages. In recent years, economists have identified a ‘productivity puzzle’ in which productivity has frequently been forecast to grow, yet has still not returned to pre-crisis levels. A major component of this productivity puzzle over recent years has been a perpetual long-term lack of investment.
It was almost inevitable that investment would begin to slow down after the 2008 crash, with investors hesitant in an economy racked with uncertainty. This uncertainty can be understood, not as the result of the actions of national governments, but rather as the result of an external shock – the global recession.
It is difficult to mitigate for such unforeseen shocks. Whilst the financial crash of 2008 and subsequent recession was the result of a systemic problem, it was difficult to forecast how the collapse of Freddie Mac and Fannie Mae would lead to crisis throughout the interconnected global financial system and serve as a cause of global recession. To some extent this is understandable.
However, what is not understandable is a self-inflicted injection of yet another wave of mass uncertainty within the economy caused by a vote in which the electorate had insufficient information regarding its full impact, and where one side acted in an unlawful manner.
Brexit will put a definitive end to any hope the Bank of England may nurture that a return to pre-crisis levels of productivity in the near future is possible. With the United Kingdom falling to 116th out of 144 countries for capital investment as a percentage of gross domestic product in 2016, the future of productivity in the UK looks as if it has several years of left before any meaningful recovery can take place. Several large firms have already indicated their anxiety over Brexit uncertainty, with the European-based plane manufacturer Airbus already making it clear that it will ‘reconsider its investments’ in the UK following Britain’s exit from the European Union. More recently, the head of Amazon UK has stated that there could be ‘civil unrest’ if the UK crashes out without a deal. Politicians need to take these companies at their word about Brexit’s economic effects.
This lack of investment in our economy has real implications. It means our firms will have no choice but to work with even more outdated technologies and equipment whilst their European counterparts will increasingly have access to the newest forms of capital which are more efficient and allow them to get more done. This chronic lack of investment will gradually give way to poorer and poorer levels of productivity. This process has already begun to take place with productivity falling by 0.4 per cent in the first three months of 2018, according to the Office for National Statistics.
This is a problem because productivity impacts our standards of living. If Labour is to be the champion of ordinary men and women across the nation after nearly a decade of failed Tory austerity, it cannot in good conscience back a Brexit that would put them in peril.
We have always been an internationalist party based on the ideal of cross-border cooperation for the creation of a fairer social order. Brexit is currently the greatest threat to this internationalism. We cannot sit back and accept a deal orchestrated by the right of the Conservative party due to the prime minister’s weakness. When Brexit fails, we will be held to account for our actions. This means finding strategies to mitigate against the worst effects of Brexit, and lobbying as hard as possible to remove the uncertainty that will plague our productivity into the future.
Harry Picken is general secretary of Lancaster University Labour Club. He tweets @HarryPicken
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