Which brings us to nub of the matter: how do we increase trade and productivity, given that productivity is the thing they claim the whole schemozzle is about. There is one simple and single policy which will do both. One policy which will increase British productivity simply by allowing more trade.
This policy is so simple that even the Treasury (yes, that’s our Treasury, the one in London) was able to get right, even when being run by George Osborne. As they set out in their analysis of Brexit repercussions:
“The benefits of trade in terms of increasing productivity are well understood… greater openness to trade creates a larger market which the most productive firms expand to serve. Openness also increases competition between firms, enhancing the incentives for domestic firms to innovate or adopt new technology… It increases returns on investment, and encourages UK firms to make greater use of new technologies, either by improving the quality of inputs, or through the more effective adoption of technological innovations. Greater openness to trade also increases consumer choice and reduces prices. Lower trade costs give consumers access to cheaper imported goods and competition reduces the price of domestically-produced goods.”
In plain English, it is the competition from imports which forces British firms to buck up their act and become more productive. So here is how we improve British productivity: we move to unilateral free trade. No barriers to imports, no tariffs, just the same regulation as domestically produced items.
British industry, facing the stiffest competition from the best in the world, would be forced to meet global standards of productivity. So the best industrial policy would be to stop trying to have an industrial policy about what we can and can’t buy from beyond Britain’s borders – and the rest should take care of itself.
Tim Worstall, “The best industrial strategy for Britain is not to have one”, CapX, 2017-01-23.
December 6, 2018
QotD: The best “industrial policy” is not to have one at all
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