Speaking to the House of Lords Economic Affairs Select Committee, Professor Diane Coyle warned that the economic fallout of Covid-19, including high unemployment among young people, could result in long run adverse consequences for productivity and the Government’s levelling up agenda.
The Select Committee is conducting an inquiry on the labour market impacts of Covid-19, and on Tuesday 10 November heard evidence from several leading academics on the “nature of the economic adjustment and policy prescriptions for building a sustainable recovery.”
Diane Coyle, the inaugural Bennett Professor of Public Policy and co-director of the Bennett Institute, said that it is now time to move from “reactive to more strategic responses” to the pandemic’s economic fallout, specifying long-term support for young people in education and entering the workforce to prevent long-term negative consequences for their career prospects, or ‘scarring’ effects (16:10:26). Professor Coyle also emphasised the importance of debt resolution for businesses taking out government loans, and for individuals who have been forced to borrow, warning that: “if we’ve got a debt overhang, the economy can’t start growing again.” (16:11:00).
Professor Coyle was asked to comment on whether the success of the recovery should also be measured in terms of job quality, income, and well-being, rather than just economic growth. In her response, she emphasised that though the crisis has highlighted the need to account for many factors affecting quality of life, which are also interrelated with issues of low growth. Therefore, while there remains a need to drive economic growth, both for the benefit of individuals who do not have enough money to live on, and for areas with low productivity and living standards, other factors are important for quality of life, such as high quality public services and access to green space (16:33:01).
Talking about the country’s Industrial Strategy, Professor Coyle also argued for the government to be more involved in steering the economy than it has been in recent decades, to help tackle future challenges (16:39:24). Drawing on her work in setting up the new Productivity Institute funded by the ESRC, Professor Coyle highlighted the challenges of coordinating actions and the impact on overall productivity. In particular, she criticised the poor organisation of government including over-centralisation, and a failure to co-ordinate policies when good outcomes depend on delivery at many levels of government and across many policy areas (16:40:25). Governments having the ability to provide clarity to enable the private sector to succeed in their investments, and government involvement via procurement can also reduce risk premiums for private sector firms, “crowding in” private investment (16:46:25).
Finally, Professor Coyle spoke on regional imbalances and ensuring that some of the country’s major cities outside London and the South East act as economic “powerhouses.” Improving productivity in these areas will be harder due to the unequal impacts of the pandemic. She ended by advocating for investments in public services and infrastructure to be tilted towards lower productivity and lower income areas of the country, and for the devolution of skills policy to better utilise local expertise and allow for variation in policy in response to area-specific skill shortages (17:00:20).
Professor Coyle was invited to attend the session alongside Baroness Shafik and Professor Jonathan Portes. The inquiry is accepting written submissions until Friday 11 December 2020.