The government sees improved productivity as the cornerstone of its Levelling Up policy.
That means supporting the private sector – the real engine of wealth creation to invest more, grow more and take more risks
Economist David Smith has warned about the slow growth rate of the economy:
We are drifting, with 1% growth in sight.
This puts us well behind the USA economy and the Eurozone.
The government’s concrete proposals are a promise to boost domestic public investment in R&D by 40%; the creation of an Advanced Research and Innovation Agency, an investment of £3bn in British Business bank Regional investment Funds and a ‘target’ of £100m investment in three innovation accelerators. In the light of cutbacks in transport the other promise – to improve transport connectivity – already looks stillborn.
There’s no agenda – let alone vision – here for wealth creation in stronger companies. No diagnosis of our system and its shortcomings.
If the UK is to stop its economic drift it needs an injection of energy that touches every stage in the life of companies from their birth, infancy, early financing; growth; nurturing by effective ownership and leadership; and ultimately global competitiveness.
This reinvigoration can only be led by entrepreneurs, owners and leaders. It can, however, be facilitated by government and supported by finance and education. .
A comprehensive government approach to wealth creation would encourage:
- Entrepreneurship and creativity from primary school onwards
- Diversity of people and of corporate form
- A commitment to business as a force for good
- Long-termism by boards and owners with an eye on the next generation
- High standards of regulation and enforcement
- A tax regime that encourages re-investment and long-termism
Evidence this week from an all party select committee suggests that we have imposed additional obstacles by our chosen Brexit route. Still we have to start from where we are.
Lord Frost calls for a ‘low-regulation, entrepreneurial’ economy’. The Grenfell Tower tragedy reminds us that where regulation and enforcement are weak, entrepreneurial energy that should go into serving customers and society goes into cheating.
Just as a good education policy is based on understanding how children develop, so an effective wealth creation policy begins with an understanding of the life cycle of companies. As they grow, companies reach defining moments – for example when founders wish to exit. The best financing solutions enable a company to continue its growth with strong governance and greater financial stability. Yet often the expedient solution offered by advisors is a lucrative sale that offers short-term riches to management followed by founder’s regret as the financial engineers drive out the creativity and the customer loyalty. Debenhams is one example.
Government can influence these choices. The 2016 Tomorrow’s Company report Promoting Long Term Wealth suggested how government could strengthen the availability of ‘patient capital’. This week’s controversy about Arm Holdings reminds us how much we need this.
Natural systems are best at surviving when they enjoy bio-diversity. The wealth creation system is no different. A diversity of corporate forms is a source of robustness. Business founders do not have to exit via IPO or private equity.
A 2018 research project led by the Employee Ownership Association with academic involvement from Cass and Manchester Alliance Business Schools with the involvement of all the major professional and trade associations across UK business found that:
‘more employee-owned businesses would improve UK productivity, enhance the resilience of regional economies by rooting jobs locally, and motivate more engaged employees through transparent and effective models of governance’
The productivity quest should also take us to the choices we make in education.
As one FT reader of the Arm story commented :
‘You don’t’ create a vibrant tech sector by location of stock market listings. The main factors ..are.. outstanding education facilities, ie excellent.. and well-funded schools and universities that attract teachers and students and researchers keen on trying out something new and exciting…’
Another (an electronics engineer) added:
‘Without (still) a strategy from primary school onwards on tech …we will stay in this backward rut are in …..we will become inferior to people with far superior tech strategies. Algorithms can be taught in preschool. Neat handwriting and all that is nice but you’d be hard pushed to find a post it note and a pen in todays paperless offices and factories
‘(Also) UK has introduced a dreadful killer of creativity in its insistence on measurable school outcomes and the downer on art, dance, music and creative writing. It is the excitement of the creativity in the designing that makes tech an exciting place to be. …Anyone emerging from our education system with the kind of creativity that makes my job so exciting and rewarding has done so despite a UK school education, and not because of it’
Government can achieve value for the taxpayer by better using its purchasing power. The Social Value Act allows the public sector to take account of the social and environmental aspects of value for money when making a purchasing decision. There is also now a methodology known as The Trust Test which helps firms bidding for public sector contracts to demonstrate their character and track record.
These – and many more ideas – can enrich our wealth creation future and thereby improve productivity. At the moment, not only do we have no agreement on that vision: the subject doesn’t even figure in our political debate.
Mark Goyder is Founder of Tomorrow’s Company and Senior Advisor to the Board Intelligence Think Tank. He is the author, with Ong Boon Hwee, of Entrusted – Stewardship for Responsible Wealth Creation, published by World Scientific in 2020.