The Chancellor of the Exchequer announced recently that the Government would present a Productivity Plan with the July Budget. Many experts have discussed the UK productivity puzzle – why has UK productivity lagged behind leading-edge economies such as the USA or Germany since the major worldwide recession in 2008?
One such commentary is the London School of Economics’ Growth Commission. The LSE Commission discussed the impact of past expansion of higher education as a reason for the catch-up in UK productivity improvement in the 1980s, and stressed the importance of research and innovation.
So if productivity is a puzzle, then higher education may have a number of the jigsaw pieces that could make a difference. But what can and should we do more of?
Why productivity matters
First, what is productivity and why does it matter? Expert definitions vary. But, in essence, it is the effort needed to produce economic output, or Gross Domestic Product (GDP).
Since the credit crunch in 2008 we have seen global interest in the issue of increasing economic growth. But productivity is about how competitively an economy produces GDP: more efficient economies will produce more for less, and so increase their trade and investment, be able to pay higher wages, and improve their living standards.
The basic ingredients of productivity are efficient use of labour and capital, as well as innovation, the ability to find new ways to do things and new things to produce. It is important to our economic future, but also to our wellbeing as a nation – our enjoyment in our work, our leisure, the quality of our public services, and how far prosperity includes all parts of society.
The role of higher education
So how can higher education help improve UK productivity? One thing it can do is develop ideas about economic trends, issues and solutions and advise policy-makers.
This is one form of knowledge exchange already reflected in the LSE Growth Commission, which was in part supported by HEFCE’s HEIF funding. The LSE report identified that around a third of the difference between UK productivity and its competitors was related to business management practice. So there is a role here for business schools and higher education departments of leadership and management.
There is also clearly a place for research and innovation in science, technology, art, design and other creative disciplines. All produce new ideas and technologies, and widen their adoption across economic sectors. All improve the economy’s ‘absorptive capacity’ or its ability to adopt skills, capabilities, ideas and technologies from elsewhere.
The UK also needs more business investment and innovation. The UK Research Partnership Investment Fund is one HEFCE-managed scheme that has successfully addressed some aspects of the productivity puzzle by increasing research and development partnerships between universities and the private sector, and encouraging long-term co-investments.
Our support for knowledge exchange through HEIF and the inclusion of impact in the Research Excellence Framework have also encouraged and supported partnerships that can lead to productivity gain. A search on the REF impact database highlighted 214 case studies from 29 out of 36 units of assessment that referenced productivity in some.
The general improvement in education of a country can be a vitally important spur to improved productivity. As well as the development of highly productive graduates and postgraduates, the LSE Commission identifies wider roles for universities in the overall upskilling of the nation.
Working in partnerships with schools, playing a part in ways to escalate skills, and new vocational developments like degree apprenticeships, are all means to improve the country’s productive human capital.
Universities also raise aspirations among disadvantaged individuals and communities – the focus of Student Opportunity funding. This makes the overall economy more productive by using all talents and bringing the benefits of greater productivity in terms of greater prosperity to a wider spectrum of society.
HEFCE support for universities as ‘anchor’ institutions in their local areas is also a means to address disparities in productivity across the country.
A smart and stable sector
Finally HEFCE can play a part in productivity as a smart and stable regulator. The LSE Commission concluded that productivity can be nurtured best in an environment that provides continuity and stability and supports strong institutions – such as universities – with linkages to other important actors, such as businesses and public services.
The systems HEFCE has in place to assess the quality and impact of research through REF, which drives our QR funding, and our support for linkages with industry through HEIF, are all part of important frameworks to support productivity gain in the wider economy.
Overall the LSE Growth Commission favoured ‘putting a premium on systems that celebrate and encourage entrepreneurship, innovation, opportunity and discovery’. This is in the DNA of universities, and the hard thing for higher education is to decide where we can focus more to help solve the productivity puzzle.
Over the next months, HEFCE is supporting a conversation about productivity involving the experts who understand the challenges, and those with perspectives on how higher education can help.