Which Government Grew Britain the Fastest?

Asking the Wrong Question About the British Economy

Last week Andy Burnham, the UK’s soon to be Prime Minister, set out his vision for his prime ministership. Growth is a central target with the view that ‘we will never get growth up to the level Britain needs unless every single postcode in the land is set up to contribute to it.’ In his speech Burnham outlined how he believed that the UK had ‘not been run in the interests of the many’, focusing on the fact that the UK had ‘20 years of falling living standards’. In his view:

We need a new determination to raise living standards of every single person in this land. And we must accept that to do that, to fix the economy and the country, we need to change politics. And we need to do it now.

While it is welcome to see a prospective Labour Prime Minister focusing on growth, we have been here before. Labour was elected only two years ago on a promise to ‘kick-start’ economic growth, yet those plans have already stalled. Nor is this a new pattern: the growth plans of the Labour government elected in 1964 were similarly short-lived. This was a point I made in an article in The Conversation last year, the ‘British Disease’ was never fully cured nor diagnosed and it has reappeared in a more virulent form. Without a full assessment of the disease it will not be possible for politicians to solve it.

Writing in the Financial Times, Daniel Susskind argued that Burnham needs to learn the lessons of where Starmer went wrong on growth: under Starmer Labour focused more on distribution of the proceeds of growth but not growth itself. A similar point was made by Martin Wolf: the ‘Manchesterism’ vision of ‘good growth’ proposed by Burnham (which includes the quasi nationalisation of essentials (water, housing, and transport), reindustrialisation, and a focus on local government) will not address the fundamental problems of the UK.

I came to twentieth-century British economic history through Ireland. For the first half-century after independence, the Irish economy struggled, in part because it remained closely tied to an underperforming British economy. Ireland’s later turn towards Europe coincided with a remarkable economic transformation. But studying Ireland left me increasingly interested in the other side of that relationship: why did Britain, the birthplace of the Industrial Revolution, fall behind its European neighbours and struggle so persistently to regain its economic momentum?

Burnham’s diagnosis is that Britain needs to be ‘rewired’ but the longer history suggests a more fundamental problem. For more than half a century, successive governments have tried to accelerate growth, yet the same pattern of underperformance has persisted across parties and radically different policy regimes. That points towards an institutional problem rather than a simply partisan one.

Past growth performance

In his speech, Burnham said:

After 10 years of political turbulence since Brexit and 20 years of falling living standards since the 2008 financial crash, Westminster hasn’t been working for people and it hasn’t been working for a very long time. In fact, it is broken. And as a result, the country isn’t where it should be. It is stuck in a rut. And clearly, we can’t go on like this. My generation of politicians, including me, must take responsibility. We haven’t been good enough.

This reminded me of a recent assessment of Conservative rule from 2010 to 2024 as ‘14 Wasted Years’ (The Conservative Effect: 14 Wasted Years?). The phrase invites comparison not only with the thirteen years of Labour government under Blair and Brown, but with an earlier period of Conservative dominance: 1951 to 1964, famously denounced by Harold Wilson as ‘thirteen wasted years’.

When set against the record of post-war governments, the years 1951-64 appear economically impressive. They combined strong economic growth with relatively low inflation and unemployment (as shown in Table 1). This lends support to Harold Macmillan’s view that ‘most of our people have never had it so good’. By this he meant:

Go around the country, go to the industrial towns, go to the farms and you will see a state of prosperity such as we have never had in my lifetime - nor indeed in the history of this country.

By the standards of what came later, Wilson’s ‘thirteen wasted years’ look remarkably successful!

Table 1 GDP and GDP per capita growth, 1945-2024

_{Source: Bank of England, A Millenium of macroeconomic data and ONS (2024). Output per hour, UK.}

The longer view is more uncomfortable: growth has been steadily declining over the past 80 years. Figure 1 shows why the productivity story matters, GDP per capita growth fluctuates with the business cycle and major shocks, but the underlying path of total factor productivity is more troubling. TFP growth was relatively strong in the early post-war decades, weakened from the 1970s onwards, and has hovered around zero for much of the twenty-first century.

Figure 1 Trend UK growth and productivity by governing party

_{Source: Bank of England, A Millenium of macroeconomic data and ONS (2024). Output per hour, UK.}

The bigger problem, however, was Britain’s relative decline. Despite these robust growth rates in the 1950s, the British economy grew slower than its European peers during the ‘Golden age’, causing it to fall further behind. Standard growth theory predicts that, other things equal, initially poorer economies should grow faster as they catch up with the technological frontier. Yet the UK consistently lies below the fitted convergence relationship in each period shown in Figure 2. Despite its relatively high initial income in 1950, Britain grew more slowly than would be expected given its starting position, with this underperformance persisting from the Golden Age through to 2022. Moreover, while conventional convergence theory predicts that poorer economies should catch up with richer ones, it does not, by itself, predict that former leaders will be overtaken. Yet that is precisely what happened to Britain: a country at the technological frontier became a relative laggard. The British growth problem therefore appears not as the inevitable consequence of having been a rich, mature economy, but as sustained underperformance relative to comparable economies.

Figure 2 Economic Growth in Western Europe and Western offshoots, 1950-2022

_{Source: Maddison Project database}

Britain’s poor growth performance was mirrored by persistently weak productivity growth, measured by TFP, and the UK consistently lagged behind much of Western Europe and several western offshoots – see Figure 3. This was noted in the 1960s when a team of economists from the Brookings Iinstitute wrote a report (Britain’s Economic Prospects) on the UK economy and emphasised the low rate of TFP growth compared to the US and European countries. The contrast is particularly striking during the post-war Golden Age: between 1950 and 1972, British TFP growth was among the weakest in the sample, far behind the rapid productivity gains recorded across continental Europe. Nor does the picture fundamentally change as the time horizon is extended. Through 1989, 2006 and ultimately 2022, Britain remains clustered among the weaker TFP performers. Britain did not just grow slowly; it was unusually poor at generating the efficiency gains that sustain long-run improvements in living standards.

Figure 3 GDP per capita growth and TFP growth

_{Sources: Maddison Project database and Penn World Table}

The British Disease

By this point, blaming individual governments becomes difficult. Labour and Conservative administrations tried different combinations of demand management, industrial policy, privatisation, deregulation, and austerity; yet Britain repeatedly returned to the same problem.

George C. Allen offered one explanation nearly half a century ago: the disease was institutional. Allen argued that there were deep structural problems with the British economy, problems that went beyond ‘rewiring’. Allen was highly critical of the then fashionable Keynesian demand management approach to the UK economy that emerged in the immediate post-war era. With a swipe at the venerable economists of the day:

A reader of this book may be left wondering whether there’s not more than a grain of truth in the gibe that a country’s economic progress is in inverse proportion to the distinction of its economists.

Allen’s critique of British industrial policy was that successive British governments had been bad at ‘picking winners’. The most infamous is of course Concorde, but there were other notable failures, such as British Leyland. Successive governments have highlighted the need for investment but without considering the productivity of these investments. Burnham’s call for social housing illustrates the distinction. There may be strong social arguments for it, but its contribution to productivity cannot simply be assumed. In my own country, the late T. K. Whitaker in his 1958 Economic Development, called on the Irish government to overhaul economic policy; one aspect of this was to make a distinction between social investment and productive investment. It seems that a similar assessment is needed in Britain.

Allen’s argument was subtler than the familiar complaint that Britain simply failed to invest enough. He regarded inadequate capital as something of a red herring. More investment did not automatically produce higher productivity if capital was badly allocated, directed towards declining industries, or used to protect existing structures from competition, all of which could weaken TFP growth. Indeed, Allen questioned the direction of causality itself: successful growth could generate high investment rather than being the result of it. The problem was therefore not simply how much Britain invested, but whether its institutions were capable of directing resources towards their most productive uses.

Allen’s warning also applies to Burnham’s call for reindustrialisation. Britain had a long history of using industrial policy to defend the industries it already had, often keeping declining sectors alive rather than allowing new ones to emerge. Reindustrialisation is not much of a growth strategy if it simply means recreating yesterday’s economy. The harder question is whether Britain can shift resources towards new and more productive activities.

Allen’s broader point was an institutional failure. Many of the institutions Allen criticised proved remarkably durable, and some features of Britain’s governing culture appear even more entrenched today. In a short note, I compared the educational background of the British Prime Ministers in my lifetime (conveniently after the publication of Allen’s pamphlet!); I also did a brief comparison of the educational background of the permanent secretaries of the civil service. What makes this interesting is how it compares internationally. Dan Wang argues that China has historically been governed by engineers, while the United States has been governed by lawyers. The UK appears closer to the American model, although perhaps with an even stronger emphasis on humanities and social science degrees than legal training.

Allen was not making the crude argument that Britain would grow faster if only more politicians had engineering degrees, his concern was more about where status and talent flowed. British industry struggled to attract what he called ‘first-rate ability’, while the professions, universities and civil service competed successfully for elite graduates. The degree tables prove nothing by themselves, but the persistence of the pattern is striking.

Table 2 UK Prime Ministers and University Degrees

Table 3 UK Permanent Secretaries and University Degrees

Allen’s most provocative argument was historical. Britain had avoided the ruptures that transformed many of its competitors. There had been no revolution and, unlike Germany or Japan, no defeat in 1945 followed by wholesale reconstruction. Britain won the war and largely kept its governing and economic elites. Institutions formed in an earlier age survived into the post-war economy. In Allen’s telling, political stability came at an economic price: the institutions that had helped drive Britain towards modernity had themselves failed to modernise.

Was the British Disease cured?

The ‘British Disease’ seemed to have been tamed but there is no consensus as to why this happened. Nick Crafts argued competition ‘cured the British Disease’, this was driven somewhat by the supply side reforms of the Thatcher era. This increased competition came after membership of the European Economic Community and British proposals to improve the single market; post-Brexit this treatment has partly been reversed. Another view by Henry Phelps Brown was that Britain struck black gold and it became a net energy exporter, but this was only a temporary fix and Britain returned to being a net importer after 2005. George Allen argued for a complete overhaul of British institutions, particularly universities where there should be greater emphasis on business education.

The view that I put forward in the Inclusive Wealth of Nations is that Britain benefitted enormously from a resource boom after the discovery from North Sea Oil. In fact, oil is never mentioned in Nick Crafts’s otherwise excellent book Forging Ahead, Falling behind and Fighting Back. In the nadir of the British Disease, Britain needed an IMF bailout to support sterling. After North Sea came on stream it was able to repay the IMF loan. The Financial Times even ran with a headline ‘From the IMF to the North Sea’.

My more fundamental point is that Britain failed to manage its inclusive wealth. The proceeds of North Sea oil, which accounted for around a quarter of economic growth in the early 1980s, were not converted into other forms of capital. Educational attainment continued to lag behind comparator countries and, unlike Norway, Britain never established a sovereign wealth fund to preserve part of the windfall for future generations.

This raises an awkward possibility: perhaps the British Disease was never cured at all. Thatcher’s reforms mattered, but they coincided with an extraordinary resource windfall. North Sea oil eased the external constraint, strengthened the public finances and contributed substantially to growth. Britain then spent the proceeds rather than converting a temporary depletion of natural wealth into lasting financial, produced or human capital. The symptoms improved, but the underlying disease remained.

Is Burnham right, ‘Will it be different this time’?

Burnham said that, ‘It is time for Whitehall to accept that growth cannot be ordered from the top down. Instead, it can only be nurtured from the bottom up.’ Burnham may be right that growth cannot be ordered from Whitehall but that is only part of the problem. For more than half a century, governments of both parties have promised to restore growth and they have tried radically different policies, but they repeatedly run into the same constraints. Before prescribing another cure, Britain needs to understand why the disease keeps returning.

The irony is that the smaller economy I originally studied partly escaped Britain’s orbit by changing its economic institutions and looking towards Europe. Irish policymakers increasingly recognised the limitations of the British growth model and looked to see what they could learn from more successful European economies. Britain, meanwhile, has spent much of the same period debating how to restore a growth model that was already in decline.