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15.09.15

UK productivity threatened by ‘structural weaknesses’ in government - IfG

Productivity and growth in the UK are being put at risk by a series of “persistent” policy issues that the current model of governance and existing institutions are unable to solve, a report by the Institute for Government (IfG) has found.

The core issues is a lack of inadequate investment in infrastructure, such as railways or airport expansion, aligned to a lack of capacity to meet future energy demand and provide affordable housing.

This is met by insufficient skills in the economy as a result of poor educational achievement in schools and inadequate vocational education.

In the report, IfG describes how policymaking bears institutionalised roots due to uneven political representations in Westminster, meaning policies are made based on the interests and preferences of a few – thus resulting in poor policy responsiveness.

Report author Miguel Coelho determined that the performance of the Westminster model is “less than ideal”, resulting in “a number of structural weaknesses that damage the country’s prospects for future prosperity”.

He said: “These weaknesses are built right into the very institutions that shape big policy decisions. Without significant institutional innovation, we risk locking the economy into a poor system of skills and infrastructure for many years to come, which will place a heavy burden on future prosperity.”

Coelho added that, compared to other countries, the Westminster model “amplifies the weight of swing voters” in marginal electorates, which can then strongly affect political outcomes such as turnout and public spending allocations.

He added: “Secondly, single-party governments alternating in power facing relatively few ‘veto players’ pose exceptional challenge to the formulation of credible policy commitments over the long term.

“Third, an intensely partisan and adversarial political environment creates incentives for parties and legitimate interest groups to misrepresent/manipulate information strategically, with the purpose of scoring political points or advancing private interests.

“Fourth, among the relatively narrow set of policies that the UK political system devolves to the local level, there are cases (most notably housing policy) where localism creates problems of political representation.”

He argued that to solve inequalities in infrastructure decision-making, the UK needs to create a ‘policy forum’ where those affected by specific investments are encouraged to take part in informed discussions about alternative options and the trade-offs they incur.

The author also attributed housing market constraints – proven by steep increases in house prices countrywide – to “peculiar features” of the English planning system and the institutional environment in which it operates.

To solve this, the UK should look to international examples to consider a “more balanced approach” to planning that is based to greater input from local communities.

But he said that change may be on the horizon, as reform could be triggered by the “current crisis” and subsequent perception shifts about the inner-workings of the housing market and how the government should intervene in it.

Shifts could allegedly come about by a continued decline in homeownership, which would, in turn, rebalance the political influence of different groups that could come to adopt more “expansionist” housing policies.

Coelho concluded that long-term prosperity lies in the UK’s capacity and flexibility to create or alter institutions rapidly to address or prevent policy issues.

In regards to infrastructure, this would mean creating processes and bodies that adopt “deliberative approaches” to policymaking. In housing, it would require an overhaul of the planning system so it can cater to the interests and needs of nationwide homeowners.

But he said: “None of these changes are easily implementable since…there are powerful political economy forced acting against them. Judging from past experience, both national and international, the outlook for institutional reform, in general, is not very promising.

“It often takes profound crises or technological disruption to prompt institutional change. Occasionally reform comes from incremental changes, but these tend to be protracted and can go in unexpected directors. In other instances, reform involves structural shifts in the beliefs/ideas of the electorate, which are, by definition, rare events that sit largely outside the ability of the governments to influence.”

However, he said there are other past experiences that could offer positive examples as to how the UK can address its “institutional weakness”, particularly by making way for innovative base-level changes stemming from party-political battles.

Coelho added: “Rather than looking at the problems associated with individual projects, and looking at housing policy or transport development as separate issues, we must take a step back to consider the pressures and incentives that shape the way policy is made in these areas.

“Only then can we reform flawed institutions, address these deeply rooted problems, and ultimately, ensure the UK is able to realise its full potential for economic growth.”

(Top image c. Westminster)

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