No. 47, Fall 2024 – Symposia on Industrial Policy and Productivity and Climate Change and Productivity
The International Productivity Monitor (IPM) is the joint flagship publication of the Centre for the Study of Living Standards (CSLS) in Canada and The Productivity Institute.
Articles from the current edition of the IPM can be accessed below. Access to back issues from before 2021 as well as information on submission of papers for publication in the IPM can be obtained from the CSLS website. To receive publication information and updates from the International Productivity Monitor, please subscribe to our mailing list.
Number 47, Fall 2024
Editors’ Overview Andrew Sharpe (Centre for the Studies of Living Standards) and Bart van Ark (The Productivity Institute, The University of Manchester)
- The 47th issue of the International Productivity Monitor features two symposia: one on productivity and industrial policy, and the other on productivity and climate change. Each symposium includes three articles.
Symposium on Industrial Policy and Productivity
Could Domestic Industrial Policies, Even With Global Fragmentation, Revive Productivity? Catherine Mann (Brandeis University, Alliance Manchester Business School and Bank of England
- Many policymakers are using industrial policies more actively, while also pursuing policies tending to fragment global markets. Can this combination revive productivity growth? This essay starts with noting that an average productivity measure used to assess macroeconomic performance often masks important distributions of productivity outcomes, which matter economically, socially, and politically. It then reviews the frameworks that rationalise industrial policies and which derive the outcomes of global engagement. It then considers current empirical assessments of the effectiveness of industrial policies and current modelling work on the consequences of global fragmentation. It presents an overview of two new databases on detailed industrial policies as being deployed by policymakers. With regard to the question posed in the title, the answer is most surely ‘no’. First because the deployed industrial policies rarely match the framework rationalizations. Second because the majority of those policies further fragment global markets. Therefore, globalisation gains are being foregone while industrial policies are being mistargeted. That combination is not likely to revive productivity growth nor improve productivity distributions.
Productivity and Industrial Policy by Design: The UK Experience Diane Coyle (Bennett Institute, University of Cambridge and The Productivity Institute) and Ayantola Alayande (University of Oxford and The Productivity Institute)
- The number of industrial policy interventions and the scale of the public expenditure involved is on the increase globally. The United Kingdom has a history of churn with respect to industrial policies, and has largely been averse to policy activism in this area since 1980. This article presents case studies of three UK sectors– life sciences and pharma, financial services and the creative industries– arguing that despite the anti-activism policy rhetoric for much of the past four decades these have experienced sectoral industrial policies ‘by accident’, involving classic policy tools used without a strategic framework. Policies affecting business decisions cannot avoid having an impact; acts of omission are policy choices, just as much as positive decisions. We argue that, although counterfactual outcomes are necessarily speculative, productivity outcomes would be better if policies impacting key sectors of the economy were developed by design, due to improved policy co-ordination, derisking of investment and more effective realization of spillovers.
How Does Industrial Policy Impact Output, Hours and Productivity? The Canadian Experience Tim Sargent (Macdonald-Laurier Institute)
- The article looks at the Canadian experience with industrial policy, and whether those industries that have been the principal focus of industrial policy have performed better than comparable sectors. It outlines the history of industrial policy in Canada and examine the empirical performance of four sectors: steel mills, aluminium smelting, auto assembly and aerospace. It finds that while the aluminium industry has performed better than comparable industries in terms of output, total hours worked and productivity, the same is not true of the other three sectors, which have had a relatively disappointing performance. While the analysis cannot unequivocally prove that industrial policy impact positively or negatively on productivity growth, it acknowledges the possibility that performance could have been worse without such policies. The article also highlights that industrial policy can maintain higher overall productivity by supporting high-productivity industries, preventing their decline.
Symposium on Climate Change and Productivity
Climate Change and Productivity– An Exploration Dirk Pilat (The Productivity Institute and Valencian Institute of Economic Research)
- This article explores the links between climate change and productivity. It finds that while much debate has focused on labour and multifactor productivity growth, improving productivity in the use of energy and materials is crucial to achieving net zero and requires much greater emphasis in productivity analysis. Although complementary productivity measures are available, these have not yet become mainstream. Productivity measurement also needs to be improved. Mainstream economic studies have long significantly underestimated the damaging impacts of climate change on growth and productivity. At the same time, studies today may overestimate the long-term costs of policies to address climate change. Standard measures of productivity show few signs of a transition to more sustainable growth. Multi-factor productivity growth– the combined efficiency of factors inputs has been falling at the global level, and the transition to net zero will likely require large investments in resource-intensive fixed capital, and not just intangible and human capital. While energy and materials productivity are improving, global material use continues to grow rapidly. Moreover, although CO2 emissions have decoupled from GDP growth in many advanced economies, the current pace of decoupling is far below what is needed for net zero. The challenge for policy is how to design climate change policies to meet the global objective of net zero while limiting the impacts on productivity growth and living standards.
Using Ecosystem Accounting to Integrate the Environment in Measures of Multifactor Productivity Carl Obst (Institute for the Development of Environmental-Economic Accounting)
- There is increasing recognition of the relevance of integrating environmental considerations within standard macroeconomic measures including GDP and national wealth and, by extension to measures of multifactor productivity (MFP). A range of approaches to measuring environmentally adjusted MFP (EAMFP) have been developed over the past decade which variously adjust the measure of output or recognize explicitly natural capital inputs. This article summarizes the main approaches to EAMFP and discusses their merits from a national accounting principles perspective, identifying some concerns on potential double counting of environmental contributions and effects. It then considers the potential of ecosystem accounting as described in the System of Environmental-Economic Accounting (SEEA) Ecosystem Accounting to offer an alternative framing for integrating the environment into economy-wide MFP measures.
Eroding Natural Capital: An Alternative Explanation for the Secular Decline in Productivity Growth Christina Caron
- Labour productivity and multifactor productivity (MFP) growth rates have been declining in advanced economies for several decades, and the decline in labour productivity growth has extended to emerging economies over the past fifteen years. Global MFP growth has flatlined since 2007 in both advanced and emerging economies. While many explanations for these trends have been advanced, no clear consensus has yet emerged. However, the pervasive and persistent nature of the declines signals that factors of global scope and extended duration are likely implicated. This article presents an alternative explanation for declining productivity growth: that the erosion of natural capital has been occurring on a sufficiently large scale globally to exert significant and growing downward pressure on productivity growth. Accordingly, a fundamental transformation in the economic role of natural capital has taken place, from productivity accelerator to productivity decelerator. These effects have been obscured due to the absence of natural capital from conventional economic frameworks and production functions.
