The Productivity Engine

What powers economic productivity? An easier question to answer may be what doesn’t. From short-term considerations that account for variations in productivity across different companies, sectors and countries, such as the quality of management - expenditure and utility of equipment, economies of scale, education and training, to the long-term challenges in trade - (de) globalisation, obstacles in policy and industry collaboration, the factors that influence GDP are close to infinite.

Understanding what dictates a country’s productive capacity is perhaps the ultimate puzzle for policymakers. And in publishing this report, we aren’t under any illusion that we have all the answers to solve these serious questions. The determinants of a prosperous society stretch right to the root of what is provided as basic human rights, like healthcare, education and shelter. We would only minimise the importance of these systems by trying to confront them all.

Instead, we want to focus on one of the ‘genesis blocks’ of economic output – space. How society’s use of land influences productivity and whether we are using available space optimally, are two vastly overlooked issues that have an enduring effect on living standards. They dictate our headroom for growth. And they beg the question: how could we better reallocate resources to elevate productivity, from homes in the right places to thriving cities, space for high-value work, and the infrastructure that will support the transition to a Net Zero future?

Turbocharging productivity would mean that companies can increase profits without raising prices and, in the public sector, government agencies could deliver better services without necessarily spending more.

But if we want to achieve greater economic efficiency, advance living standards, and enhance our global standing, there must be a better comprehension of the ceiling on productivity, and to what degree this is self-imposed. We face some fundamental questions before we consider how best to restart the UK’s spluttering productivity engine.