By Graeme Roy

A poll by You Gov for the 2019 General Election found that around a quarter of voters saw the economy as one of the top three issues that would influence their decision at the ballot box.

Now, around half see the economy as one of the key factors in how they will vote on July 4th. It’s perhaps not surprising therefore that the main political parties have all made early pitches on the economy in the campaign. Ultimately, transforming the UK economy’s fortunes will require a turnaround in our lacklustre productivity performance.

The importance of productivity is something that almost all economists agree upon.

In the language of economists, productivity compares the value of goods and services produced with the amount of inputs used to produce those goods and services.

In the real world, think of the ‘value of goods and services’ in terms of our business’s annual sales performance, the quality of a product coming off a production line, or the level of health care that we receive. And of ‘inputs’ as the amount of hours we work or the effort that we put in. If we can create more value with the same (or less) work effort, our productivity improves.

As the means to creating value, productivity is crucial for growing wages, tax revenues and living standards. But since 2008, UK productivity has grown more slowly than in every G7 country besides Italy. As a result, average real wages in the UK remain stuck at close to 2010 levels. As the Institute for Fiscal Studies has highlighted, this lack of growth in wages “is unprecedented in the last two hundred years of British economic history.”

Over the last decade, thousands of pages have been written about the UK’s ‘productivity puzzle’. Politicians on all sides have promised wave after wave of new policy initiatives to tackle it. But still our performance lags.

The obvious question is why has productivity not improved? Is there something fundamentally wrong with the UK economy? Have our policy ideas simply been bad ones? Or have the policies ideas been the right ones, but delivery has been poor?

Late last month, colleagues from the Productivity Institute – a partnership of universities from across the UK, including Manchester and Glasgow – visited Scotland to offer their latest thinking.

One interesting reflection was that, for all we typically hear about how we need to better support the development of new technologies, cutting-edge innovation or fast-growing ‘unicorn’ businesses, many of the solutions to the productivity puzzle are likely to be relatively boring but no less important.

For example, their research shows that the UK’s weak productivity growth over the last decade hasn’t typically been because of the performance of our top firms. Instead, it’s been the result of weak productivity growth within our average and slightly above-average businesses. The best UK companies can compete with the best in the world but, compared to other countries, we have a larger number of - typically small to medium sized – businesses which should be becoming more productive but are not.

Turning the performance of these businesses around will be less about headline-grabbing innovation districts, high-end investment zones or generous tax-breaks.

Instead, it’s likely to have much more to do with improving the ability of the average UK business to adopt new technologies and ways of working; of having accessible and the right finance and skills; and from more effective business leadership and management.

It will also be about creating a stable and predictable tax and regulation environment and tackling the barriers that still prevent many talented individuals from starting and growing their own business.

Finally, it will be about building a more joined-up policy environment that avoids fragmentation that focuses more upon delivery rather than moving from one new idea to another.

After a period of political turmoil, and with potentially huge economic disruption from AI, climate change and our ageing population on the horizon, it can be fashionable to focus upon the next ‘big thing’. But if we’re serious about tackling the UK’s productivity puzzle at scale, and not just for a select few companies and sectors, then recognising the needs of the majority of UK businesses will be crucial.

Perhaps then we’ll see worries over the economy as less important an issue by the time of the next general election.

Graeme Roy is professor of economics at the University of Glasgow’s Adam Smith Business School