Explaining Britain's Economic Performance: A Critical Note

Abstract

The contributors to this Controversy section have supplied a rich smorgasbord of potential explanations for Britain's descent in Angus Maddison's rankings of real per capita incomes from second in I950 to tenth in I979. As with any good smorgasbord, there is too much to digest comfortably. On the table are inadequacies in the British system of education and training, financial shortsightedness, high tax rates, barriers to competition, the fragmented structure of industrial relations, under-investment in manufacturing plant and equipment, and the defensive nature of investment. The dilemma is deciding what to put on one's plate. Our four contributors provide little guidance on this score. To be sure, disputes over the relevance of some of the explanations are in the open: for example, where Crafts minimises the importance of U.K. investment in machinery and equipment on the grounds that the country's investment ratio was never significantly below the European median and that physical investment is not an important source of productivity externalities, other authors emphasise the inefficiency of investment (Eltis) and positive linkages from investment in the manufacturing sector to employment in the rest of the economy (Kitson and Michie). Generally speaking, however, we are provided little advice on how 'to weigh the different explanations and reconcile them with one another. It would have helped had the authors done three things: placed Britain's postwar relative decline in its historical context, provided more of an international comparative perspective, and distinguished proximate from fundamental determinants. No one would deny that the causes of Britain's relatively slow growth since I950 are historically rooted. Not that one gets this sense from the papers in this symposium! None makes more than passing reference to the legacy of the period before World War II. Fig. I shows for the century beginning in i 88o the extent to which the country's performance has lagged that which would be predicted by its relative standing in Maddison's league tables. For each year, per capita income in each of Maddison's i6 countries is regressed on its initial level (in I870, I9I9 or I946, as appropriate) and a constant term. The fitted values are then used to construct the predicted rate of growth from the base year to the current year. Fig. i shows the average annualised rate by which Britain's actual growth lags that predipted by the regression. The predominance of positive entries since I 950 confirms that British growth lagged that of the rest of the OECD since World War II even after controlling for initial position,