Sluggish economic growth is one of the biggest policy challenges facing governments around the world. The context and solutions deployed may look very different, but tackling this must be a universal policy priority.
Newsletter from 10 May 2024
On Wednesday this week, the new leader of the Scottish National Party (SNP), John Swinney, was sworn in as the seventh first minister of Scotland. This came after Humza Yousaf resigned from the role at the end of April, having torn up the SNP’s power sharing agreement with the Scottish Greens, plunging the party into turmoil and leaving the nation’s governance in the lurch.
Mr Yousaf, who was in power for just over a year, faced a no-confidence vote after unilaterally deciding to part ways with the Greens. His successor – the third SNP leader in just over 12 months – faces a number of pressing economic policy challenges across areas of devolved responsibility, while also being aware of the looming UK general election (which must take place by January 2025 at the latest).
As Stuart McIntyre (University of Strathclyde and one of our lead editors) argues in his Observatory piece posted this morning, Mr Swinney must grapple with weak economic growth, uncertain public finances and an ageing population, all while managing Scotland’s transition to net zero.
His administration needs to continue pursuing ‘inclusive regional growth’ to ensure that Scottish firms and families are able to keep up with the rest of the UK.
Meeting these demands is a tough ask, but as Stuart concludes, ‘the broad policy stance is expected to remain similar’. It remains to be seen whether this will be enough for the nation to tackle its economic challenges or to keep the SNP in power in 2025 (or indeed with its current majority of Westminster MPs in Scottish constituencies).
The waters in the UK parliament are hardly calmer. Following disappointing local election results, the Conservative Party suffered a further blow this week when Natalie Elphicke, MP for Dover, defected to Labour during Wednesday’s prime minister’s questions (following in the footsteps of Dan Poulter, MP for Central Suffolk and North Ipswich, and after yet another by-election defeat, this time in Blackpool South).
But as with Scotland, whoever finds themselves in Number 10 (and, indeed, Number 11) next year will face a series of economic challenges. From stuttering productivity growth and crumbling public services to the housing crisis, the cocktail of policy issues leaves the chalice not just poisoned but overflowing.
Of course, the UK isn’t the only country facing challenging conditions. This was highlighted in a new article by Fernando Garcia and Lucila Venturi (both based at the Growth Lab at Harvard University) that explores the economic issues facing Argentina and its new president, Javier Milei.
Argentina is on the brink of economic collapse. Policy-makers in Buenos Aires and beyond face soaring inflation, long-run stagnant growth and rising poverty. Mr Milei – who took office in December 2023 – has a crystal-clear mandate: eradicate inflation and boost growth, whatever it takes.
But tough challenges require tough measures, and Mr Milei’s fiscal and monetary medicine will be hard to swallow. As Fernando and Lucila argue, ‘achieving low and stable inflation involves difficult trade-offs; implementation is challenging; and reforms often take time to bear fruit’. There will also be substantial political and legal hurdles to clear, with potentially tricky barriers to overcome in both Congress and the Supreme Court.
Difficulties aside, Fernando and Lucila end on a note of cautious optimism. They argue that Mr Milei’s proposed reforms are ‘the first time since the turn of the century that Argentina is purposefully addressing the deep-rooted cause of all its economic struggles’. Plans are in place and now it’s time to deliver – sound familiar?
Growth: both sides of the pond
Fernando and Lucila’s piece is our first article from colleagues at the Harvard Growth Lab – a research institution directed by Ricardo Hausmann. Here at the Observatory, we are increasingly working with its sibling organisation, the Growth Co-Lab, based in the School of Public Policy at the London School of Economics (LSE).
The Growth Co-Lab works at the cutting edge of economic growth and policy research, bringing together practitioners and economists to design and evaluate policies that can generate inclusive growth. Harvard and LSE have formed a collaboration to combine the policy expertise and academic research of two of the world’s leading academic institutions.
The Growth Co-Lab’s first project was in South Africa. This was a two-year policy engagement focusing on the formulation and implementation of policies to boost inclusive growth, with a particular emphasis on reducing unemployment. This project diagnosed the causes of the country’s challenges and worked with the domestic government and stakeholders to accelerate growth and include more citizens in the process.
More recent projects include a study that deployed the ‘growth diagnostics’ framework within Tanzania’s manufacturing sector to provide a better understanding of why the country has failed to achieve its industrialisation goals; and a project in Mozambique to identify policies that may unlock the country’s potential and accelerate inclusive growth.
Forthcoming projects comprise an updated analysis to inform reconstruction planning in Ukraine, leveraging the network built during the May 2022 Ukraine Reconstruction Forum. Hosted by the Growth Co-Lab, this meeting brought together key stakeholders to share ideas to inform different aspects of the post-war reconstruction agenda.
Another is the UK growth diagnostics initiative. This venture responds to a critical need to apply the Growth Lab’s methodology, previously successful in developing countries, to the unique economic landscape of the UK. As with Fernando and Lucila’s article on Argentina, perhaps there are important lessons that UK policy-makers can take from further afield.
Observatory news
- ESCoE annual conference (15-17 May). Next week we will be at the 2024 Conference on Economics Measurement organised by the Economic Statistics Centre of Excellence (ESCoE). As well as presenting work from the Economics Observatory data unit, we will have a sponsor’s stand. If you’re planning on attending, please come along and say hello.
- Devolution at 25 events (20 May and 21 June). To mark 25 years of devolution, we are running a series of policy-focused events. The first, on 20 May at the University of Strathclyde in Glasgow, will explore educational inequalities, how we can understand and measure them, and what polices help to close existing gaps. We’ll follow this with an event at Queen’s University Belfast on 21 June to dive into productivity challenges and the role that skills development can play in overcoming them.
- Festival of Economics (30 September-3 October). We’re delighted to announce that the Economics Observatory is taking on leadership of the Festival of Economics. Soon, we’ll be circulating the programme, but please do save the dates in your diaries. We hope to continue the amazing legacy of Bristol Ideas, which launched the festival 12 years ago with one of our lead editors, Diane Coyle (Bennett Institute, University of Cambridge). For more on the festival’s history, you can read the chapter written by our editor-in-chief, Romesh Vaitilingam, in Our Project was the City: Bristol Ideas 1992-2024 edited by the project’s long-serving founder director, Andrew Kelly.
