Labour's pains: Britain's growth problem

This episode delves into the economic challenges facing Britain, focusing on the upcoming elections, the sluggish growth, and the pressing need for policy reform to rejuvenate the economy.

1. The British economy has experienced minimal growth since 2008, largely due to poor productivity.
2. The upcoming elections feature a lack of engaging economic discourse from both major parties.
3. Demographic changes and insufficient investment are significant factors in the economic slowdown.
4. Regardless of the election outcome, both parties face similar economic challenges, including the necessity to raise taxes or cut services.
5. Innovative and bold economic reforms are crucial to overcome the current stagnation.

1. Election Overview

The episode opens with a discussion on the British election's dynamics, including the leaders' debate performances and their impact on voter sentiment. Rosie Blore: "They both lack charisma and they both lack a strong agenda."

2. Economic Analysis

Economist Archie Hall provides a detailed analysis of Britain's economic issues, highlighting the role of demographics and productivity in the sluggish growth. Archie Hall: "Productivity growth has been very, very slow."

3. Policy and Growth

The focus shifts to potential policies and their implications for economic growth, discussing the challenges any future government will face. Archie Hall: "Growth really does need to rise, and we expect it to a little bit."

1. Understand the Economic Landscape: Stay informed about economic conditions and forecasts.
2. Engage in Political Discussions: Participate in discussions about economic policies and their impacts.
3. Support Innovative Policies: Advocate for and support policies that address key economic issues like productivity and investment.
4. Prepare for Fiscal Changes: Anticipate and plan for potential tax increases or public service cuts.
5. Promote Long-term Economic Planning: Encourage strategies focused on sustainable growth and development.

As Britain’s general-election campaign heats up, party leaders are vague on their economic plans. With growth so slow, how could the victor energise the economy? We visit the D-day beaches 80 years on, as war rages in Europe once again (10:19). And Venice’s new daytripper fee is designed to curb crowds. But putting a price on protecting beauty is proving controversial (17:42).

People

Archie Hall, Rosie Blore

Content Warnings:

None

Matt
Hi, this is Matt and Sean. From two black guys with good credit from a local business to a global corporation. Partnering with bank of America gives your operation access to exclusive digital tools, award winning insights, and business solutions so powerful you'll make every move matter. Visit bankofamerica.com banking for business to learn more. What would you like the power to do?

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Jason Palmer
The Economist hello and welcome to the intelligence from the Economist. I'm Jason Palmer. And I'm Rosie Blore. Every weekday we provide a fresh perspective on the events shaping your world.

It's been exactly 80 years since the most successful amphibious military assault in the history of warfare. We pay a D Day visit to the beaches of Normandy, a time and place of poignant reflection as once again war rages in Europe. And the city of Venice is. Well, it's just stunning, which is why so many people go. Authorities would like to stem that tide, so they're introducing a first of its kind day tripper permit.

Rosie Blore
We look at the plan and ask whether it has any hope of working.

First up, though, four weeks out from polling day, the british election is heating up. From the moment I got this job, Keir Starmer was telling me, call an election, call an election. And now that we've called an election, he's saying, oh, no, don't have an election, because I don't want to tell you what I'm going to do. Why is he called the election now? He's called it now because he knows, and I'll ask him this, he knows inflation is going to go back up.

He knows energy prices are going to go back up in the autumn. In a techy tv debate on Tuesday, the leaders of the two main parties squared off and laid out their plans for the country. We will introduce a modern form of national service, and I think it's going to be transformational for young people in our country, giving them the skills and opportunities they need to succeed in life. What I won't be doing, I won't be doing is sending you a national service, some sort of teenage dad's army. But neither Prime Minister Rishi Sunak nor Labour leader Keir Starmer came off particularly well.

Rosie Blore
They both lack charisma and they both lack a strong agenda. As a result, the sparring points were pretty immigration, the National Health service, and inevitably, the economy. The strange thing is, it doesnt seem to matter much what either of them says. The polls suggest Labour will trounce the conservative party, and barring a last minute collapse or a catastrophic polling error, Keir Starmer will be forming the next government. But with creaking public services and a sluggish economy, what could Labour actually achieve with power?

Archie Hall
UK economy is going to get better, but slowly. British growth has been only barely above zero, on average, since 2019. Archie hall is the economist's Britain economics correspondent. And things should get a bit better than that. We're expecting growth to pick up from here, but the government needs growth to get a lot better in order to make its fiscal forecasts work, in order to stop having to either borrow more money or raise more taxes, and that looks less likely.

Rosie Blore
Archie, just step back for a second. Why is Britain's economy so, so sluggish? If we knew that, we'd be in a much better position to tackle it. One breakdown that I find helpful is kind of looking at the demographics, then looking at productivity. And on the demographic side, a real challenge for Britain now is the fact that population is aging and the fact that a lot of the free wins that we had on demographics, things like pulling more women into the workforce over time, have now mostly been realized.

Archie Hall
And so you can't grow by growing your workforce and getting more people doing jobs. That leaves you productivity. That leaves you getting the people that you do have working more efficiently, producing more things. And the struggle Britain has had is that since 2008, productivity growth has been very, very slow. Economists cite many reasons why productivity growth has slowed down.

It's worth saying it slowed down in many countries, not just Britain, the United States, Germany and France. But the slowdown has been particularly marked in Britain. And one decomposition of this that some economists have done that I found helpful suggests that although every country saw a big decline in what's called total factor productivity, so effectively, the notion of how good your technology is, how efficiently and effectively you can combine labor and capital, Britain's seen a particularly strong decline in investment. So our companies, our governments, are just creating fewer things. We're talking computers, machinery, infrastructure and so on, that allow workers to work more efficiently.

And there's many, many reasons behind that. But that's one place where Britain's particularly struggled. Normally, the economy is quite a big deal in elections, but this time, no one seems to want to talk about it very much. So I'm interested in whether you think it's actually playing much in terms of moving the polls. Yeah, the economy, it's both a presence and an absence in the election, in a very strange way.

I mean, you can't explain the fact that the conservatives are 20 points or so behind in the polls without talking about the economy. There's obviously political factors there as well. But the fact that people are just not feeling themselves getting richer, feeling more squeezed, feeling the economy looking tougher and tougher suffer is a huge part of that. And the notion that real wages have barely increased in the past 14 years is pretty central to lots of the messaging. At the same time, the political dispute and the campaign and the issues really feel quite detached from the economy.

So on the conservative side, there's been a big focus on hot button generational culture war issues, trying to fend off Nigel Farage from the right, things like conscription or cutting taxes on pensions. And on Labour's side, there's a notion the economy really matters. They'll tell you that growth has been a problem, but a vagueness on all of these issues and what they call a small target policy. They're trying to avoid creating any leeway for the Conservatives to attack them whatsoever on the kind of classic left right issues where they worry they might get in trouble in terms of raising taxes, a bigger state, that sort of thing. And to keep it very loose, very vague, and really focus on the Tory record and a lot less on what they'll do.

Rosie Blore
So vagueness or lack of talking about the economy doesn't mean it doesn't exist. Tell us what sort of challenges lie ahead for the future government. Many. And it's important to say these challenges are actually very similar, regardless of who wins the election. There was a lot of talk in the leadership debate recently about the fact that taxes would have to go up under labor, but exactly those same pressures apply for the Conservatives as well.

Archie Hall
And in order to fund public services, in order to not have to borrow a tremendous amount of money, in order people's lives get better, growth really does need to rise, and we expect it to a little bit. There are some real kind of drags on growth that should recede from here. So the immediate effect of Brexit is mostly now passed. The immediate effect of the energy crisis as well, is receding, as is the effect of very, very high interest rates to the bank of England. So all that should add up to a good push to growth.

But the issue Britain has is that productivity growth, the ability to make more with the same amount of labor, fell off a cliff after 2008 and never really increased. And so getting growth from here requires increasing that productivity growth that Britain has struggled to do for incredibly long time. And if we don't get there, then the fiscal implications in terms of borrowing, increasing, or having taxes having to rise, with the government not being able to provide public services get quite worrying. So growth is central. It hasn't happened for a while, and Britain really needs it.

Rosie Blore
From here, it sounds like Britain needs some creative solutions, which I know is usually code for we've got no idea what to do. What are some of the things that they could be doing? The nice thing about the british economy in some way is that there are some very, very obvious policy failures that are really quite bad for growth. And the reason they're still there is because they're very compelling political reasons why a lot of those failures exist. But on the economic side, there is a lot that could be done.

Archie Hall
The first area where we frankly don't expect to see very much progress is on Europe. I mean, making serious progress on deeper integration with the EU would be great for the british economy. It would probably knock GDP up by a percentage point or two, just independently. And Labour mostly seems very unlikely to move seriously on there. There's questions internally about what their stance is.

There's also worries that Europe might not be willing to negotiate so soon after just finishing an incredibly complex series of negotiations. And the things Labour does want to do on Europe are helpful, but pretty small bore. So we're talking things like helping companies move workers across international borders, things like making it easier to have food pass across borders with fewer checks, things like make it easier for musicians to tour. I mean, things are very nice and very helpful, but if you're thinking about the aggregate british economy, you aren't really going to move the needle. Thinking back to 1997, when Labour was elected at that point, they had all sorts of pledges about public services and funding, things that they had been wanting to fund for years, but they also had economic growth behind them.

Rosie Blore
They had low inflation. This time, as you've just laid out, the situation is much gloomier economically. If labor wins in July, what are they actually likely to do in practice? The difference in 1997 certainly is very much alive when you look at labor policy. I mean, the fact they're not pledging these huge spending increases, the fact they are being so cautious, reflects the recognition the economic environment is different.

Archie Hall
And there are ways to be bold without spending money. Planning will be one, and there are several others. One analogy that I find helpful, or interesting, at least in looking at this, is comparing the approach that Keir Starmer took in 2020, when he was running to be Labour leader, with potentially what might happen afterlay wins the election, if the polls are indeed right. And Kirstammer ran an incredibly cautious and measured leadership campaign before embarking on a bold and frankly, quite ruthless reimagining and reshaping of the Labour party, putting people who supported his key ideas in key places. And the idea that Starmer might be doing a similar thing and proposing something fairly modest, frankly fairly vague, and then once he's in power, doing something much more sharp and kind of strong and radical is certainly an option.

On the other hand, that'd be much easier for Labour if they built the public consensus now. And one of the dangers of the cautious and frankly quite timid approach they're taking in the election is they're not necessarily forming a public mandate to take the bold action that they may want to take. But whoever wins, navigating these challenges and getting british growth back onto a decent path is going to be incredibly challenging. Thank you so much, Archie. Great to talk to you.

Thanks for having me on. It's been fun.

Jason Palmer
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The allies have complete control of the air and cover the surface forces as allied troops pile into landing trap hit the coast from Cherbourg to L'Aal. As they prepare to move in, 500 warships lay down a withering barrage. More than 150,000 allied troops arrived in Normandy on June 6, 1944. Sophie Petter is our Paris bureau chief. And 9000 of those were killed or wounded within the first 24 hours.

But the Allies were on their way to Berlin. Didier, or Gourgues, as it came to be known in France, was a turning point in the allied campaign to push back nazis on the western front, to liberate France and to defeat Hitler's Germany in 1945. His tremendous attack on the fortified coast split the german high command. When they finally decided on action, it was too late. Joe Biden, Frances Emmanuel Macron, Ukraine's Volodymyr Zelenskyy are all among the leaders who will attend the 80th anniversary commemoration today to celebrate the veterans.

Sophie Petter
Those who fought on and survived d Day are today around 100 years old, and the first plane of 66 of them arrived in Paris at the weekend to cheering french well wishers at the airport. Most of them were in wheelchairs and it will probably be the last decennial commemoration when veterans are in attendance. And what's the mood like in Normandy about now? Well, people are getting ready for days of commemoration events in Normandy. There are about 600 that are going to take place in villages all over the region.

And you can see on the motorway there have been convoys of vintage american jeeps. There are american flags that are in place. Not just american, obviously, canadian, british and other allied nationalities. And this is really adding to what I think has already become such a big tourism industry for Normandy. In 2023, there were nearly 22 million people who visited the landing beaches.

That's just the beaches themselves, a 90 kilometer stretch of the five landing beaches, and over 3 million of those were either american or british. So you have now an array of both sort of memorabilia and people planting flags in their gardens, as well as all the museums and official sites. There are actually 123 three official museums or sites in and around the landing beaches. And I know that you yourself have been a Normandy tourist recently. What did you see?

Well, I went up to have a look at the preparations for the celebration. Obviously, this has been going on for months and months, and I was there a few weeks ago, and you've got a real range of sites that are preparing for visitors. I mean, some of those are just single sites. There was a german bunker or a rocket launcher that launched what was known as the Doodlebug. And then there's the museum in Caen, which is a big memorial museum, which looks peace in a much sort of broader context.

And there are dozens of war cemeteries, german cemeteries, as well as those of fallen allied soldiers. And I think for anglo american visitors, and there are a lot of them in Normandy at the moment, the D day tourism is really about reflecting on the sacrifice and on the heroism of those who landed on the beaches 80 years ago. A few weeks ago, I went on a tour of Omaha beach and some of the other landing sites around Normandy. It was a very windy day, so. You have today it's a particularly low tide.

So you can see. I was taken around by Gwen Pierre, who's a tour guide there. He said to me something that was quite interesting, which is that american visitors often expect to find the beaches almost frozen in time. Have they seen them in movies? You can see some remains over there.

What you have in the water, there are still things. Most of it have been shaved up for the fishermen to avoid having troubles. In reality, when you're there, children are playing, there are dogs on the beach. There are horses. There are sailing boats and in France, the point he made to me was that people have learned to live with the battlefield, so people don't feel that this is unusual, but some of the visitors are a little bit taken aback.

Jason Palmer
And so for people outside France, why do you think it is that D Day taps into such a deep fascination, even after all these decades? Part of it's obviously the sheer military scale and the ambition. It was just such an extraordinary event. The most successful amphibious military assault in the history of warfare. Nearly 7000 allied ships and landing craft took place.

Sophie Petter
Troops from 13 countries. We sometimes forget how many other countries were involved. And the combined air forces flew over 14,000 sortie to cover the landing strike. Along 100 miles of the french coast to cut off the great parts of Marseilles and Toulon. There were 18,000 paratroopers who were dropped behind enemy lines in the air, spearheading the invasion.

Hundreds of transports carry paratroopers, forces ready to drop from the sky. Besides the story of sacrifice that is captured in all the Hollywood films, the French have a slightly different approach to D Day. Obviously, it was an incredibly important event in the story of the liberation of France. That goes without saying. But it was also a more complex picture, partly because Normandy landings were just one element that led to the liberation of France.

Sophie Petter
There were also landings in Provence, for example, as well as the fact that for the French it brings back some darker memories of what happened with collaboration, whereby some of the French who were working for the Gestapo at the time, for example, were responsible for rounding up some of the resistance members who were then shot on the morning of June 6 in Caen by the Gestapo. So you have this complicated, darker memory that the French are also having to deal with and confront and wont be hidden during these commemorations. Well, with all that in mind, then, what will the commemorations be like this time around? Well, there will be some very specific french commemoration events. President Macron will speak about the resistance movement and people who collaborated with Nazi Germany.

But I think what we're really going to be blown away by today is the international memorial event at Omaha beach. And that's where there will be the veterans present. There will be a sense of gratitude and thanksgiving for this extraordinary sacrifice that we have such difficulty really comprehending. The symbolism of the ceremonies today, I think will be all the more poignant for the fact that you have Zelenskyy present and that war continues to rage in Ukraine and that America has played such an important role both in the landings 80 years ago but also currently in supporting Ukraine against Russia. So I think the question that will be on a lot of people's minds is how far can we take it for granted?

There is huge thanksgiving for what America did 80 years ago and for what America is doing in Ukraine today. But also that nagging sense that perhaps Europe can't take America for granted. Sophie, thanks very much for your time. Thanks, Jason. It's always a pleasure.

Max Norman
Venice has never been more full or more empty. Max Norman is a culture correspondent for the Economist. In 2022, the population of the island city dropped below 50,000 for the first time. That's down from 175,000 in 1951. But as residents leave, tourists flow in.

Up to 30 million people visit each year, mostly for day trips. I actually lived in Venice for more than a year, and I went back to visit recently. I can confirm that it was really crowded and chaotic. But in spite of it all, it still has this charm that keeps you coming back the day visitors, it's not clear to me exactly what they do. They rarely visit the cultural sites.

They seem to just walk around more than anything. Only around 360,000 go to the Accademia museum, which is one of the city's central art museums. Officials complain of what they call hit and run tourists. They come only for a few hours, maybe leave a little rubbish behind, and then go home. So the city has introduced the tourism equivalent of a parking meter.

It's an access fee of €5 to day trippers. It's the first city in the world to do so.

Jason Palmer
So how did this idea even come about to get a tourist parking meter installed? It's something they've been discussing for years, really. And it almost happened right before COVID But then, of course, they needed every help they could get to get things back to normal. Finally, though, the fee was approved last September after long debate about how to curb over tourism. There was also the looming threat by UNESCO to place the city on its so called blacklist of endangered World Heritage sites, which is something that the city didn't want.

Max Norman
The other factor that's happening here is that the so called special law for Venice, which is a federal law that has been in place for decades, that offers millions each year in funding to the city for its preservation, is set to expire. Any source of revenue is welcome. But also I think there's a bit of a move here to get a bit of attention and to signal to the world that the city is serious about managing over tourism. So how does it work then? It gets some turnstiles added the turnstiles.

It's funny that you mentioned that turnstiles have been this sort of mythical bugbear. Residents say, what, are there going to be turnstiles? And no, there are no turnstiles. What happened was on April 25, a trial period began. They're going to try this scheme on 29 peak tourist days over the course of the summer at various points around the city, transit hubs like the Santa Lucia train station.

Stewards in fluorescent vests basically will stop you as you come out of the train station and check to make sure that you've registered, either to pay the fee or to request an exemption. If you haven't paid, they'll help you pay it. And there's actually a little booth there at the train station where you can go and sign up and do it at a little kiosk. If you're found in the city in one of the spot checks that's happened, you risk paying a fee of up to €300. So it's a tourist shakedown from the sound of things.

Well, that may be one way of characterizing it. I mean, what's interesting, though, is that the city officials are very clear that this is actually not about making money, it's about regulating tourism. So the scheme is actually projected to lose about €2 million this year because startup costs will actually be greater than the revenue that's collected. That's, of course, just a projection, but that's in the official city budget. The vice mayor of tourism, whom I spoke to, Simone Venturini, was really insistent that this is meant to be a disincentive on peak day to encourage the day tripper to maybe think about coming on another day.

Venice's mayor, Luigi Bruniato, describes this fee as a risky, bold experiment to change the culture of tourism in Venice and, of course, to collect more data about who's actually coming and when. And what about Venetians themselves? Are they going to be glad to see this implemented or no? Opinion's pretty divided. Many, many people that I spoke to were skeptical of the fee, if not openly hostile to it.

Everyone says that something needs to be done about tourism. It really has a strong impact on the lives of the residents who remain. But people don't like the sound of a ticket, basically to the city. So the city's opposition parties tried to scuttle the plan, and it's also been unpopular on the national level. Italy's minister of tourism voiced her disapproval.

Critics argue that it turns the city even more into a theme park, and it actually isn't that effective for addressing the heavy impact of tourism. When I was there a few weeks ago, on that opening day, I even saw a few hundred people protesting against the initiative.

They held signs. One read, no ticket for Veniland. They were very vocal, but, of course, the city had given them a permit to protest, conveniently out of sight from the train station where most of the tourists were arriving. Do you think it will act to curb tourism, or at least during peak times? The short answer is no.

In its current iteration, there are a number of issues. The first is the city has stated that there will be no cap on the number of visitors, so anyone can come if they're willing to pay the €5. The other thing is that the number of exemptions is really vast, and anyone from the Veneto region is exempt. Anyone, quite reasonably, who has already paid a hospitality tax at stay in a hotel is exempt. Anyone who works or studies in Venice is exempt.

The other thing is that it's only from 830 in the morning to 04:00 in the afternoon, which means that you can just come after four and it's no issue. So it's a lot of administration and actually a relatively small percentage of visitors who will actually be affected by it. It seems to be more symbolic than anything. Of the 113,000 people who were registered to visit on April 25, which I should say is a major national holiday in Italy, 86% were exempt. So if I had hopes to visit Venice and find it less crowded than the last time I was there, I'm going to be disappointed.

Jason Palmer
You reckon? I'm afraid so. It looks like Venice was known for hundreds of years of its history as the most serene republic, because it was independent, it was largely peaceful. But it looks like this fee is not going to restore that serenity, I'm afraid. I spoke to a number of tourists who said that the fee wouldn't stop them.

Archie Hall
You know, if it's a small tax to help preserve that and keep the. Congestion down, yeah, I think I would. Be willing to do it. I think people are going to come anyway. I think €5.

I think people would be happy to pay. Oh, yeah. When I was researching this story, I was struck by how little data there was about tourism. There's no precise number of visitors. So one thing this will do, theoretically, is on the days it's implemented, it will give them an exact number of visitors.

Max Norman
It will give them precise information about where they're coming from, because they need to register their names and addresses and so on. The other thing it will do, which is significant in a city that has a big black market, is that it will flush out unregistered tourist rentals. And finally, it will help administrators prepare for particularly busy days. But in the end, I think its safe to say that Venice will still be flooded with visitors. This ticket really cannot stop the deluge.

Jason Palmer
Thanks very much for joining us, Max. Thank you.

Thats all for this episode of the intelligence. Let us know what you think of the show. You can get in touch@podcastseconomist.com dot we'll see you back here tomorrow.

Janice Torres
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