Marcus Evans Group | Worldwide Headquarters | American Offices | Latin America | European Offices | African / Asian Offices

Will LSE’s growth commission make a difference?

Former US Treasury secretary Larry Summers and current OBR (and ex-MPC) member Steve Nickell have given evidence

The big wigs at the London School of Economics were once famously asked by the Queen why they had failed to see the recession coming. It took some time for the great and good of the profession to come up with a not altogether convincing answer to HRH’s question, so it is to be hoped the LSE does a bit better with its growth commission, which was launched on Monday.

Giving evidence were two practitioners of the dismal science: Steve Nickell, ex-Bank of England MPC member and now one of the three members of the Office for Budget Responsibility; and Larry Summers, US treasury secretary under Bill Clinton, former adviser to Barack Obama and tipped to be the next president of the World Bank.

Nickell focused exclusively on the supply side of the economy, suggesting that the commission should look at ways of boosting productivity in the service sector, which accounts for 75% of the economy, as opposed to manufacturing, which now accounts for little more than a 10th of national output. Britain’s lack of skills was a handicap, Nickell said, as was the lack of numeracy and literacy in the bottom 60% of the ability range. In the long term, according to Nickell, bread and butter issues like planning, the availability of credit and R&D incentives were the key to higher levels of growth.

Summers had a different take. The UK government, he said, could not ignore the bigger picture, because if the level of activity remained at a depressed level relative to its trend that would lead to the next generation inheriting a smaller stock of economic capital, with an impact on school-leavers and managerial habits. Quite correctly, Summers noted that the UK’s national output has been very substantially reduced by the recession, and that without higher levels of demand there will not be stronger growth. In Britain, where the macroeconomic policy debate at Westminster is dominated by austerity, Summers’ views sound rather avant garde, but it is worth noting that in the US he has been strongly criticised, by Paul Krugman in particular, for not pushing for a bigger stimulus package when acting as Obama’s economic adviser.

Summers made five other suggestions: build on the strengths of the economy rather than seek to compensate for weaknesses; think very hard before taking the axe to the financial sector because it is unlikely Britain can generate other activities to replace those of the City of London; find ways of emulating the success of US universities in turning scientists into entrepreneurs; improve education; and tackle regional growth disparities, to which too little attention has been paid.

Nothing wrong with any of that. The LSE commissioners will no doubt produce a well-argued report in the fullness of time. There have, however, been reports from august commissioners going all the way back to Victorian times about the need for Britain to raise its game. Not one has made any difference. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds