On Wednesday, Rachel Reeves will publish the Government’s Spending Review, outlining the financial settlement for the coming three years. At this final stage in the process, she might consider lessons from an unlikely source: the US President. In recent months, Donald Trump has taken to trashing areas of deep US strength that were taken for granted so completely that they were invisible to most. Trump has done Reeves a favour, by paving paradise and putting up a parking lot. His actions are a reminder of the importance of investing in the unseen infrastructures that enable prosperity.
The British Academy has just published a series of papers exploring what might pull the UK out of its long period of low productivity. The UK has powerful legal, financial, cultural and scientific institutions, but we’re not good at organising the economy around our greatest strengths. We have a large population of skilled workers, for example, but they are unevenly spread and mismatched across regions. We do not make the most of our institutional, human and physical capital.
Reeves has an opportunity to invest in these strengths and to make the UK more prosperous over the long term. In the US, the government is currently experimenting with the opposite approach. Trump has taken an axe to America’s historic strength in research by attacking universities including Harvard, and cutting or freezing research funding. R&D is one of the drivers of long-term prosperity, and the US will be poorer as a result in the medium term.
By many measures the UK already punches above its weight when it comes to R&D, particularly in universities. Reeves needs to continue investing in this long-term source of growth, and also find a model for the universities where much of this research is conducted to be financially stable. The Government has recently focused on heavy investment in advanced or “frontier” technology but a significant share of innovation in the UK’s services-dominated economy is not especially high-tech. We innovate well through the humanities, social sciences and the arts, in processes and services, as well as we do in cutting-edge technology.
Trump has also reminded us of the dangers of unpredictability. A country whose word cannot be relied upon will suffer economically – even if it is currently the dominant power. The UK faces rather different challenges to the US on the global stage, in that we are not large enough to act unilaterally or bilaterally, nor are we still a member of a major economic bloc. But our deep roots in multilateralism mean we have an opportunity to become the world’s most dependable broker. We have an historic role in shaping the major international organisations and we have substantial knowledge of global institutions and international legal norms and practices. In turbulent times this institutional infrastructure is something in which we should invest, with a strategic narrative that the UK economy remains open to the world.
Our relatively stable political landscape, strong institutions and low levels of corruption are not just part of the furniture – they are a source of comparative advantage in an increasingly turbulent world. The openness of our economy is an opportunity to attract and develop human capital. We have a valuable infrastructure of knowledge and finance that is well equipped to support and commercialise innovation.
The UK government has struggled in its first year to find a positive narrative, to move beyond dealing with a difficult economic inheritance. The public knows we have an economy that has suffered long-term stagnation and that we face mounting geopolitical uncertainty. The Spending Review should be couched in a narrative of investing in the UK’s comparative strengths and its deep assets, in the infrastructure that is needed to help secure longer-term growth and resilience. If she can do this, the Chancellor might be even able to say that despite the tight economic circumstances, it is the Biggest, the Best, and the most Beautiful spending review ever.
[See also: Rachel Reeves should fear the bond market vigilantes]
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