Political Economy of Growth and Institutional Reform

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It is widely accepted that the UK suffers from persistent weaknesses in areas that are crucial for medium to long-run economic prosperity. Amongst the starkest examples are aspects of human capital formation and investment in infrastructure.A long tail of poor achievement at the end of secondary education has been a defining feature of the UK school systems. A fifth of children in England on free school meals do not reach the expected maths level at age 7 and this proportion rises to a third by age 11.This sets the UK apart from several other advanced economies, and creates damaging effects for both growth and inequality.Vocational education and apprenticeships have been the object of continuing political attention and policy reform for decades. Despite these efforts, a longstanding feature of the UK skills system is its relative weakness in intermediate level training in comparison with some of its main competitors.Investment in infrastructure, especially transport and energy, is another area where enduring weaknesses have been identified. High levels of congestion are placing parts of the transport system under strain. Deteriorating energy generating capacity is raising fears that security of supply may not be ensured in the medium term.Since the 1990s, house building and development in certain areas of the UK has become a significant problem, with growth and redistributive implications. Evidence suggests it has led to increases in house prices and reductions in housing quality, increases in housing market volatility, and large transfers of wealth from the young and the poor to the old and the wealthy. In all of these areas, existing studies have concentrated on identifying and measuring the effects of policy inefficiencies, and proposing alternative policy arrangements. In other countries, research has started to shift from studying the relative merits of different policy alternatives, to studying the obstacles to the introduction of different sets of policies. In the UK, however, this type of research is still rare, and fundamental questions regarding the origins of inefficiencies remain unanswered. There has been little detailed analysis of the structures of incentives that lie at the foundations of long-lasting policy distortions in those areas. I.e. a systematic treatment of the political economy roots of these distortions is still largely missing. The same can be said of studies of the drivers of institutional reform, focused on the conditions under which welfare-improving institutional change becomes feasible. This project aims to fill these gaps, building on existing literature and giving policy makers and civil society a wider set of analytical tools with which to frame debates around institutional reform of growth-relevant policy areas. The project aims to achieve this by producing a detailed account of the political economy root-causes of structural weaknesses that hamper growth. This will involve an interdisciplinary research effort, bridging political economy and political science, to embed the analysis firmly in the idiosyncrasies of the UK macro-political system. This exercise will shed light on the institutional changes required to address those weaknesses and promote long-term growth. The final step is to investigate the constellation of forces that drive institutional change in politically-charged environments, such as those that surround skills formation and infrastructure investment.The analysis will draw on available evidence on entrenched policy dysfunctions in skills and infrastructure; political economy models, while seeking to explore their interactions with the Westminster parliamentary model; results from international empirical research looking at the conditions required to initiate reforms, their effective development and implementation; and new research on recent policy innovation in the UK, including changes in the governance of monetary, fiscal and competition policy.