Colin McLean is a director of SVM Asset Management

Fading economic growth, with policies almost exhausted, means that productivity is getting more attention.

But it is a tricky topic to grasp – compared with how easily everyone can weigh-in on tax and interest rates. Data is scarce and the turmoil of the last three years has undermined the reliability of some traditional measures.

Yet the trends over time paint a worrying picture for the UK; we underperform our neighbours and are doing little to change that. Improving our understanding of productivity and turning that into action may be the key to turning round national economic performance.

Over the last 15 years, the UK’s economic performance has lagged Germany, Sweden and Ireland amongst others. One factor has been negligible growth in innovation and broadly based productivity improvement. To the extent that banks lend for investment, too much seems to be on mortgage loans rather than lending for more productive capital investment. That practice has not just misdirected investment, but is likely a factor in high house prices, constraining labour mobility.

After a flood of capital investment in the 19th and 20th centuries – transforming productivity with infrastructure and manufacturing investment – the pace of new investment in the UK has slowed in the last two decades. In that span, UK productivity growth from capital investment was less than half the OECD average. Indeed, it appears the main factor in a productivity gap with France and Germany.

Britain also lags behind its competitors in adult technical skills, with vocational qualifications in the workforce running one-third lower than the OECD average. UK employers spend just half the European average on training, with much of that being informal or internal. Government spending itself cannot fix productivity, but it can lead other change such as incentives for capital investment and training. There is a case for tax policy to be more targeted, rather than simply viewing the issue as headline rates of company tax.

Productivity appeared to be boosted during lockdown, with cloud and mobile technology helping new ways of working. But as this is rolled onto hybrid working, at least some of that improvement has likely been given up. Measurement is difficult, but in the US it has been noted that productivity dropped sharply in the first half of this year. This may be linked to a material increase in anxiety and depression worldwide in the aftermath of the pandemic, combined possibly with some lingering impact from Covid itself. The gains from hybrid working may be overstated. Many people trying to use services delivered online or by phone believe that quality and effectiveness have been compromised.

Help for productivity could come from innovation. New technologies can improve efficiency and help a broad range of industries. For example, the capital investment made in alternative energy is creating cheaper clean energy. Historically, innovation has driven half of the UK’s productivity growth, but it is this factor that has held us back over the last decade. Despite the lead that many British universities have in research, companies apply a much smaller proportion of their earnings to research and development than the global average. We have not followed the trend of our competitors to increase investment in R&D.

The UK is suffering not just a growth crisis, but one of productivity. Adam Smith wrote that the true wealth of a nation was not found in its store of gold or silver, but rather in the productivity of its labour force. This remains a valuable insight – recently recognised when Scotland hosted the Global Ethical Finance conference. That refreshed Scotland’s contribution to understanding economic progress.

Ahead lies a possible revolution in work as artificial intelligence methods are implemented. But this opportunity is available to every nation – it may not offer competitive advantage. Without a step-up in training, innovation, R&D and capital investment, the UK might see productivity pick-up, yet still lag in growth. We should learn from our peers and create a framework for productivity to thrive.