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![Page 1: 1 The role of Government in fostering competitiveness and growth Ken Warwick Deputy Chief Economic Adviser UK Department of Trade and Industry.](https://reader035.fdocuments.in/reader035/viewer/2022062517/56649ec05503460f94bcb949/html5/thumbnails/1.jpg)
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The role of Government in fostering competitiveness
and growth
Ken Warwick
Deputy Chief Economic Adviser
UK Department of Trade and Industry
![Page 2: 1 The role of Government in fostering competitiveness and growth Ken Warwick Deputy Chief Economic Adviser UK Department of Trade and Industry.](https://reader035.fdocuments.in/reader035/viewer/2022062517/56649ec05503460f94bcb949/html5/thumbnails/2.jpg)
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Structure of presentation
• Overall aim of competitiveness policy
• Role of Government• UK experience• Examples of policy interventions• Conclusion and discussion
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Overall policy aim
………to increase prosperity for
all…………• by driving up productivity and competitiveness
through:
– successful business;
– world class science and innovation; and
– fair markets.
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Prosperity for AllRelationship Between Objectives
• Main way the DTI pursues its vision of
‘prosperity for all’ through its aim of raising
productivity. But others factors also contribute,
e.g.
– Quality of the Environment.
– Distributional issues (e.g. regions and gender)
• Environmental and distributional improvements
can affect productivity.
– But they are also policy objectives in their own right.
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Role of government – key principles
• Government role limited but crucial• Set the framework:
– Stable macroeconomic environment– Establish and enforce property rights and
contract– Company, consumer and employment law
• Invest in assets where the market under-provides:– Public goods – basic science– Transport and other network infrastructure
• Correct market failures
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Classes of market failure
• Externalities• Barriers to entry• Imperfect information and
uncertainty• Public goods
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Framework for Intervention• Work with the grain of the market• Market failure rationale necessary
though not sufficient…• Allocate resources where most effective
– Where there are the biggest opportunities– Where Government has effective levers
• Research and evaluation needs to be used more systematically so limited resources used where impact is greatest
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Lessons of evaluation of DTI schemes
• Horizontal preferable to sectoral• Strength of scheme rationale is key• Promotion of collaboration brings
benefits• Additionality greater for SMEs• Support most effective for long-term,
innovative schemes, with strategic commitment
• Well specified schemes with clear objectives score best
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DTI Business Support Review• New business support system will:
– Have clear market failure rationale– Be more focused on investments to drive up
productivity– Focus on improved delivery & customer relationships
• Smaller range of products• Customer access through Business Links, DTI
relationship managers or delivery partners such as banks
• Improved monitoring and evaluation to ensure ongoing improvement in impact
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The UK experience
• UK Competitiveness: moving to the next stage, Porter and Ketels 2003
• Porter identified two periods of UK economic reform– 1980s framework improvement– 1990s/2000s – rebuilding the asset
base
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1980/90s – framework reform
• 1980s - Injection of market mechanisms– De-regulation, privatisation, labour market
reform• 1990s reform of macro environment
– Inflation targeting post ERM, independent central bank/fiscal rules post 1997
• Late 90s – Reform of competition policy, company law, corporate governance
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1990s/2000 Asset building
• Major investments in UK national assets– Science base– £180bn transport programme– Education (significant improvements
in literacy and numeracy)– Institutional reform
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How successful has it been?
• UK now has GDP per head similar to Germany, France, and above EU average
• Recent performance largely driven by labour market – highest employment in G7
• Productivity performance in 1990s still lags US and EU
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Breakdown of UK Growth
-4%
-2%
0%
2%
4%
6%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
GVA Grow th due to Productivity (per w orker)
GVA Grow th due to Jobs
Source: ONS
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UK Productivity gap is longstanding
0
20
40
60
80
100
120
140
160
180
200
1870 1913 1950 1973 1979 1989 2000
US
France
Germany
Note: 1870 - 1973, Maddison (1991). 1979-1999, DTI calculations using OECD data
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What Drives Productivity?• The Government has identified five
drivers of productivity:
– Innovation– Enterprise– Skills– Investment– Competition
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Michael Porter on the UK
Source: Porter and Ketels (2003)
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Innovation - strong sciencePapers and citations per head of population (UK = 100)
0
20
40
60
80
100
US France Germany
Papers per head
Citations per head
Source: OST (Period: 1995 – 2000)
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Innovation - weak R&DBusiness R&D per worker
0
200
400
600
800
1,000
1,200
US Germany France UK
1995 US Dollars (PPP)
1990 1995 2000
Source: OECD
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Enterprise – numbers involvedPercentage of Workforce engaged in Enterprise
0%
2%
4%
6%
8%
10%
12%
US Canada Italy UK France Germany Japan
Source: Global Entrepreneurship Monitor 2001
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Enterprise - ease of setting up a business
0 10 20 30
US
Germany
UK
France
Japan
Italy
05,00010,000
Minimum cost to establish (euros) Minimum delay to establish (weeks)
Source: OECD (1998)
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Skills – performance lagsSkills account for part of the
gapRelatively poor literacy and numeracy
‘Gap’ at intermediate level
Perception of weak management performance
Source: UK Competitiveness Indicators 2002
0%10%20%30%40%50%60%70%80%90%
100%
France Germany
SkillsCapitalTFP
Adults with literacy and numeracy skills at the lowest levelSelected OECD country comparison, 1997
0
10
20
30
40
50
Poland
Irish
Rep
ublic UK US
New Z
ealan
d
Switzer
land
Belgium
Austra
lia
Canad
a
Ger
man
y
Nethe
rland
s
Sweden
Per cent of adult population
Percentage of adults w ith literacy skills at the low est level Percentage of adults w ith numeracy skills at the low est level
Source: Literacy Skills for the Know ledge Society, OECD
Business executive perceptions of quality of managementG7 comparison, 1996-2002Average survey score, 0-10 scale
0
2
4
6
8
10
USA Germany Canada France UK Italy Japan
1996 & 1997 2001 & 2002
Source: IMD
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Investment - capital stock by sector
0 50 100 150 200 250
Mining
Gas, Electricity & water
Manufacturing
Construction
Distributive trades
Financial & business services
P ersonal services
US France Germany
Relative Capital per hour worked (UK = 100)
Source: NIESR, 1999
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Competitive markets - Business Environment
1998-02 2003-07
Netherlands 2 1
Canada 3 2
USA 1 3
UK 4 4
Germany 15 13
France 16 16
Italy 23 23
Japan 27 26
EIU Competitiveness Ranking November 2002
0
2
4
6
8
US UK Germany France
Survey Score (0-10)
1996 & 1997
2001 & 2002
Business Perceptions of How Government Supports Competitiveness
Source: IMD Source: EIU
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Accounting for the Gap by Factor
Source: Porter and Ketels (2003)
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EU productivity lags US….
0
50
100
150
200
250
US
Austri
a
Belgium
Denm
ark
Finlan
d
Franc
e
Germany
Greece
Irelan
dIta
lyLux
Nethe
rland
s
Portuga
l
Spain
Sweden UK
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As does TFP
0
50
100
150
200
250
US EU Austria Belgium Denmark Finland France Germany Greece Ireland Italy Lux Neth Portugal Spain Sweden UK
ProductivityTFP
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Assessment
• UK framework conditions are supportive
• But more needs to be done to build assets– Increase factor accumulation
• And combine assets together better– TFP and innovation
• This is common across the EU
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Latest data encouraging
0
20
40
60
80
100
120
140
1997 1998 1999 2000 2001 2002
US France Germany
Productivity per worker (UK = 100)
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Role of government – recap• Indicators provide a useful way of benchmarking UK
performance on the ‘drivers’ against other countries.• But they do not necessarily indicate where policy
interventions will be most effective.• Preference for market-based solutions:
– Identify market or institutional failures– Ensure that interventions help to correct for that failure
• Government has a key role in setting the macroeconomic, institutional and regulatory framework in which business operates.– And improving public sector productivity.
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The role of Government in fostering competitiveness
and growth
Ken Warwick
Deputy Chief Economic Adviser
UK Department of Trade and Industry