Productivity when nothing stands still

By Jun Du, Managing Director at The Productivity Institute

The Prime Minister now chairs the National Economic Council from Manchester. Strategic decisions about devolution and local economic growth are moving out of Whitehall. The message is that growth cannot be built from the centre alone.

That message is right, but it leaves some difficult questions. How will growth be generated, how will its benefits spread, and how much of it will remain within the places creating it? These questions need evidence, and at present we do not have all the answers. These are the kinds of questions The Productivity Institute was built to address, here and internationally.

I took on the role of Managing Director of the Productivity Institute this week, and these are the questions I believe TPI must now address.

A different question

For many years, the UK productivity debate has been framed around a familiar question: why did the economy fall away from its expected growth trajectory, and what would help close the gap? That question produced an enormous amount of good research, including TPI’s own, diagnosing the gaps in management, skills, investment, innovation and institutional capacity.

But the frontier is no longer standing still. Trade relationships are being redrawn by geopolitical competition. Supply chains that took decades to build are fragmenting. AI is reshaping how firms organise, invest and compete. The energy transition is changing the cost structure of entire industries.  In this environment, we need to ask not only why the UK has fallen behind, but what enables firms, sectors and the wider economy to adapt as conditions continue to change?

This is an area where TPI is well placed to make a distinctive contribution.

“The frontier is no longer standing still.”

Two lenses on the same problem

Answering this question means considering both the UK’s domestic capabilities and its position in the global economy. Domestically, we need to understand how organisations build absorptive capacity and agility, how capital flows into productive investment, how people develop and deploy skills, and how places create the institutional conditions for adaptation. These are the familiar building blocks of productivity research, but they need to be understood under conditions of structural change, not steady state.

Internationally, we also need to ask whether the country’s productive structure is fit for purpose. What does it mean to be a mid-power, services-heavy economy in a world being restructured by industrial policy competition, trade fragmentation and technological disruption? What does economic resilience require of an economy that sources its intermediate inputs internationally and depends on overseas markets for scale? A growth strategy built around skills, infrastructure and devolution will be stronger if it is connected to a clear view of the UK’s international position. Recent work on the Manchester Model makes this point directly: the city-region’s economic success was international all along.

What TPI has built

Under Bart van Ark’s leadership, TPI became a recognised voice in the UK productivity landscape. The institute produced over 130 commissioned studies, established nine regional Productivity Forums, launched the Productivity Lab, and built a consortium of university partners working across the country. I am fortunate to inherit that strong foundation, and I want to build on it carefully.

We are already working with policymakers to develop evidence around the questions and problems TPI is best placed to address, framing our research around policy preparedness so that when decisions need to be made, the evidence is already in the room. That is the mode I want TPI to operate in. Not reacting to the policy cycle, but staying ahead of it, and helping shape which questions get asked in the first place.

“I am fortunate to inherit that strong foundation, and I want to build on it carefully.”

Where we are heading

It would be premature to set out a complete vision in my first week. My immediate priority is to listen to colleagues and partners, understand the work already under way and identify where TPI can add the greatest value.  There are, nevertheless, opportunities that I have already identified for TPI to contribute to current policy debates.

Investment and productive capacity.  The UK’s investment challenge goes beyond the well-documented shortfall in domestic investment. We need a better understanding of what attracts domestic and international investors to particular firms, sectors and places, and how the resulting benefits can be shared more widely. What drives investment decisions at the level of the firm, and why do those decisions vary so sharply across places, sectors, firm size and ownership structures? Understanding the conditions that actually shape where capital flows, across countries, not just within the UK, is where this research needs to go.

Human capital, skills and the workforce. An ageing population, persistent skills mismatches and rapid technological change are creating compounding pressures on the UK’s productive capacity. Firms that cannot recruit, retain or reskill the people they need will not adapt, regardless of how much capital or technology is available. Yet market failures in human capital investment mean that too few firms and too few places are making the adjustments the economy needs. The productivity of the health and care system itself is becoming inseparable from this question as the population ages, and TPI has an active research programme on it.

Technology adoption and absorptive capacity. The question is no longer whether AI matters but who is adopting it, how deeply, and with what effects on productivity and employment. Early evidence suggests the UK may not lag behind comparable economies in adoption incidence, but the productivity effects remain modest and uneven. The real question is what determines whether adoption converts into performance. Complementary workforce skills and organisational capabilities appear decisive. TPI is building the evidence to answer this through firm-level analysis and internationally benchmarked measurement of what firms are really doing and what makes adoption pay.

Growth transmission. When a priority sector or cluster grows, we need to understand who else benefits and how demand, income, knowledge and capital flow through supply chains, labour markets and institutions. Import content, foreign ownership and decisions by lead firms will all influence how much of the gain remains in the UK and whether surrounding places benefit. This is important to the Industrial Strategy’s place pillar and requires us to follow real economic flows at a fine geographical level, supported by better data infrastructure.

Trade, supply chains and global position. The UK’s productive future cannot be separated from where it sits in a restructuring global economy. Understanding how firms connect to global capital, knowledge and supply networks, and how trade fragmentation is reshaping those connections, is essential to any serious growth strategy.

Pull on any one of these threads and you end up back at the same question: can the UK adapt fast enough? Services, where the UK may genuinely lead globally, cut across all of them. And none of this work can be separated from the question of who benefits. That capacity is not equally held across firms, places or people, and understanding who is excluded from it is as important as understanding what drives it. Productivity growth that does not support inclusive growth will not be sustained.

“Pull on any one of these threads and you end up back at the same question: can the UK adapt fast enough?”

The work ahead

The coming months are an opportunity to consolidate what TPI has learned, strengthen the partnerships that set the institute apart, and begin the research these five directions demand. None of them will yield to a single discipline, a single dataset, or a single policy lever. These are difficult, interconnected questions, and answering them will require collaboration across disciplines, institutions and sectors. TPI has an important role to play in bringing that work together. We invite researchers, policymakers, businesses and funders who share these ambitions to help us shape this important work.