In the third quarter of 2023, the United Kingdom’s GDP exhibited a marginal decline, marking a shift to negative growth. This development aligns with the predictions of a sustained economic slowdown in the post-Brexit era and underlines the urgent need to revise economic policies.
A comprehensive and professional analysis of potential policy reforms is offered in the ‘Ending Stagnation’ report by the Resolution Foundation. This extensive study, spanning nearly 300 pages, delves into potential pivotal changes necessary for steering the UK economy towards a stable growth trajectory. Interested parties can access the report online.
I hope the material will be read by all those concerned. Martin Wolf has undoubtedly done so and commented on the work in his article in the Financial Times. I would like to make a few remarks on this.
The service sector is a cornerstone of the UK economy, accounting for 80% of the GDP for nearly three decades. Fortunately, this sector has shown resilience amidst geopolitical upheavals and global economic shifts, particularly in knowledge-intensive services, which have seen substantial growth. It seems that we are good at this, so we need to strengthen it.
But what is needed to maintain our competitive advantage in this area? Yes, people. Skilled professionals. British companies have been comfortable for a long time, as they could easily get good professionals from the EU’s common labour market. This source has dried up, and well-trained workers hardly want to come here anymore. British universities, however, continue to attract talented students, so there is still a supply from there, but fresh graduates alone cannot solve the problem of professional replacement. Then there is the question of further employee training. This is the point where I see a problem.
Comparatively, British companies have been investing less in employee training than their Western European counterparts, with negligible increases in such investments over the past decade. This level of investment is inadequate for embracing new technologies and enhancing competitiveness, which fundamentally begins with people development.
And here, I would connect to Martin Wolf’s article. He writes that the study “..should also have given a clearer idea of how the promotion of high-wage services would generate incomes across the country. It could surely end up, instead, concentrating more population and wealth in London and the South East.”
In my opinion, creating a high-paying job will naturally raise the lower-paying ones, too. Let me explain what I mean. To perform a task that requires a high level of knowledge and technology, not only the person who does it is needed, but many others who support their work.
Filling these supporting roles also requires trained people, who need to step up from their previous roles to be able to perform their new tasks. Thus, they move up in the labour market hierarchy. They will acquire new skills and knowledge, which they can use throughout their careers. Every single highly trained job lifts many other people.
This elevator effect could prevail if employers provided training and coaching. In the 2010s, I conducted a study on this topic with IBM, and I can say its findings are still valid today.
Regarding Martin Wolf’s concerns about how this process can start on a national scale, I do not have a precise answer, but in the age of hybrid and remote work, it seems solvable.
And one last thought: In my opinion, one of the most critical questions is how we can equip workers with the competencies to be able to learn new knowledge and adapt to a new work environment. Yes, I’m talking about those soft skills that ideally should be acquired in school, such as the ability to learn, communicate, work in a team, solve problems, and many others. But this is another story.
In summary, the stagnation of the UK economy signals a pivotal moment for reassessing and reformulating economic policies, focusing on workforce development and training as critical drivers for sustainable growth.