New LSE report says Labour’s economic record was “strong” and “not due to bubbles”

A new LSE report says Labour’s economic performance was “strong”, and was “not due to ‘unsustainable bubbles’ in finance, property, oil and public spending”.

A new report published today offers something of a revisionist history of Labour’s economic record.

The research from the LSE’s Centre for Economic Performance argues that the UK’s economic performance was “strong during the period of Labour government” and that this was “not due to ‘unsustainable bubbles’ in finance, property, oil and public spending”.

The report authored by CEP Director, John Van Reenen, his colleague Anna Valero, and Dan Corry (Visiting fellow at Southampton University, Chief Executive of New Philanthropy Capital and a former economic advisor to the Labour government) concludes:

“Relative to other major industrialised countries, the UK‟s performance was good after 1997. The growth of GDP per capita – 1.42% a year between 1997 and 2010 – was better than in any of other “G6” countries: Germany (1.26%), the US (1.22%), France (1.04%), Japan (0.52%) and Italy (0.22%)… in 2010, the UK had a level of GDP per capita 17% higher than in 1997; over the same period US GDP per capita had grown by 14%.

“The UK’s high GDP per capita growth was driven by strong growth in productivity (GDP per hour), which was second only to the US, and good performance in the jobs market (which was better than in the US). The UK‟s relative economic performance appears even stronger in the years prior to 2008 before the Great Recession engulfed the developed world.”

The productivity performance is set out in this fascinating graph which compares the Labour period with the previous Thatcher / Major government, and similar periods in the EU, US and France:

The graph shows:

– Productivity was marginally higher under Labour than under the Conservatives;

– Productivity under Labour was better than in France or the EU but fell behind the US;

– Financial services only made up 14 per cent of the total productivity gains (ie 0.4 percentage points from 2.8 per cent overall growth); and

– Business services and distribution were much more important sectors and made up more than half of the gains.

On The Staggers, Gavin Kelly of the Resolution Foundation sets out some interesting questions about what the report is missing including references to the UK’s ongoing trade imbalances, the weakening link between GDP growth and the gains going to low-to-middle income Britain, and Labour’s poor projections of tax receipts which caused the current deficit.

In relation to the current debate on economic policy, the report argues that “there is a room for a Plan B, slowing down the pace of fiscal consolidation” and calls for temporary cuts in VAT or National Insurance tax and public investment in schools and roads.

But longer term, the authors argue for a “Plan V” growth strategy requiring:

“Complementary policies relentlessly focused on sectors where the UK has comparative advantage and where there is likely to be strong growth in global demand.”

The report is launched tonight at an LSE event chaired by the BBC’s Evan Davis and featuring all three authors.

See also:

OECD: The economic indications are not good for GideonAlex Hern, November 15th 2011

Osborne has put Britain in an economic death spiral: Here’s how to break outWilliam Bain MP, November 14th 2011

Osborne’s refusal to increase demand leaves young unemployed without hopeTony Dolphin, November 14th 2011

UK set for among slowest growth in EUWill Straw, November 11th 2011

Economic Update – November 2011Tony Dolphin, November 11th 2011

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