FRANKLY I see no constructive purpose in attempting to examine and analyse the various economic "policies" put forward by any of the political parties for this week's UK general election.

 

While there has been a great deal of talk about which taxes might go up or down and what changes might be made to public expenditure in different areas, including largely unspecified welfare payments, there has been no real debate from any of the participants as to how they propose - through one grandly acclaimed 'plan' or another - to raise the rate of growth in the economy.

This is a clear gap in the debate on deficit reduction, as faster growth means a more rapid increase in revenue streams for government and some dampening of the upward pressure on expenditures. Faster growth makes it easier and less painful to control the public finances.

From the economic evidence of the post-recession period it is self-evident that faster growth would have to come via more rapid productivity growth - an area where the UK and Scotland have lagged for a decade or so. More rapid productivity growth would be a universal positive, reducing pressure on the public finances and permitting some combination of greater affluence - higher GDP - and a more equitable society via distributing benefits disproportionately to disadvantaged groups. As Paul Krugman, the Nobel prize-winning economist has explained: "Productivity isn't everything, but in the long run it is almost everything."

Productivity growth has disappointed compared to previous periods for the UK; and also against our peer group of nations.

Various measures exist, but reasonable estimates (by the Conference Board) show "total factor productivity" falling in each of the past three years and remaining below levels at the time of the banking-induced recession. In prior decades UK productivity had risen by about 1.75% per year. This dramatic downward shift in productivity performance has made a huge difference to economic performance in terms of output, but also to the state of our public finances and indeed to earnings across our economy.

Going forward there tends to be an assumption that performance will "revert to the norm"; in other words that this dip in productivity performance is a temporary "blip" and that future performance will be more like the longer-term average than recent experience. A steady shift back to higher productivity is built into the models manipulated by the Office for Budget Responsibility (OBR) for the UK economic and financial forecasts used by the Chancellor and his Treasury. In Scottish Government forecasts regarding future budget deficits in different scenarios, again an assumption of a marked improvement in productivity is incorporated.

At the back end of last year the OBR calculated that an immediate reversion to the norm of the 1980s on productivity would solve the UK's public finance problems without any need for further cuts in public expenditure. That would of course be a tremendous boon to us all. However, the converse was that if productivity was to remain in the doldrums, then the tax increases and public expenditure cuts required to balance the books in any reasonable timeframe would be far more than any party has even contemplated in this election campaign.

A major problem, however, is that nobody is clear why our productivity performance has been so weak post the mid-2000s or how performance can be enhanced going forward. Productivity tends to be related to improvements in technology and the efficiency of production, including benefits from innovation, as well the quality of the labour force (higher skill levels well utilised), enhanced business investment and improved management. We know that the quantity of labour used in our economy has increased in recent years - the very welcome reduction in unemployment and increase in numbers employed. But these increases in the quantity of hours worked have not been matched by any evidence of improvements in quality. Such GDP growth as we have experienced has been due to the impact of more hours worked, rather than any increase in output per man hour. Sustainable growth for any extended period cannot be achieved on this basis.

The Office for National Statistics has started detailed investigation of this productivity conundrum, which is also being closely explored by economists at the Bank of England. We cannot expect definitive answers, certainly not soon. Meantime all efforts must be made to encourage changes in the underlying basis of economic and business activity that should tend to work to increase output per unit of labour input. That means continuing to enhance skill levels and the application of these skills across the economy; seeking more business investment - another area of huge recent disappointment - and working to ensure such investment is aimed at innovation and greater efficiency of production; facilitating the deployment of the results of high quality research and development to foster technological change; and focusing on management skills to encourage best use of skills and capital investment.

Unless and until productivity improves UK and Scottish economic performance remains at risk. The latest data for UK GDP showed a slowdown of growth in the first quarter of 2015 to a mere 0.3%. We remain unduly dependent upon private consumption.

As the economists at fathom put it: "It is supply rather than demand that determines a country's sustainable rate of growth. And supply, as measured by labour productivity, is going nowhere."

Jeremy Peat is visiting professor at the University of Strathclyde International Public Policy Institute