Give Rachel Reeves's plan for UK growth a chance | Mohamed El-Erian

Pity Rachel Reeves, the chancellor of the exchequer. Before she had even got through her highly anticipated “growth speech” on 29 January, criticism flooded social media and the airwaves. Her approach is too scattered, some said, and too reliant on measures whose impact will be felt only over the long term. Some programmes run counter to the government’s environmental commitments, others said, and they are not evenly distributed across the UK. It is all too expensive. The Ryanair chief executive, Michael O’Leary, even went so far as to declare publicly that Reeves “hasn’t a clue”.

Don’t get me wrong: the speech was not perfect. But perfection is not possible under the UK’s current economic and financial conditions, and to pursue an elusive optimum would be to make the perfect the enemy of the good. Moreover, Reeves’s speech did succeed in five areas.

First, it reinforced the message that the government will go “further and faster” to boost growth – its “number one mission”. Second, it laid out several specific efforts – including planning reforms, reducing overregulation and improving the use of pension fund surpluses to increase domestic investment – to ease constraints on existing growth engines.

Reeves also focused on the need to promote new drivers of growth, such as by creating a European “Silicon Valley” in the corridor linking Oxford and Cambridge, thereby scaling up these research hubs and the startups that draw on their breakthroughs. She wants to improve the UK’s trade relations to expand its available markets and attract more foreign direct investment. And, finally, she recognised that trade-offs are inevitable when pursuing a far-reaching reform agenda.

Such a multipronged approach is what the UK needs to break out of decades of insufficient investment, lagging productivity, disappointing growth and shrinking growth potential. Reeves’s growth agenda is about enabling the private sector to invest, create jobs and expand. It is also about avoiding the 1%-of-GDP cut in public investment that was on the table last year.

Of course, success will depend on whether the chancellor’s words are urgently translated into action. The various elements of her plan must be executed simultaneously and in an accountable fashion. That will require a well-coordinated, whole-of-government approach to “hardwire growth into all decisions in the cabinet”, as Keir Starmer put it before her speech.

True, even if the government can meet all these requirements, its strategy may still lack some important elements. But many of Reeves’s critics fail to acknowledge the scale of the challenge and how she is stepping up to it. The UK has underinvested for decades and now faces serious growth and budget constraints.

According to a widely cited study published by the Institute for Public Policy Research last year, “the UK has had the lowest level of investment in the G7 for 24 of the last 30 years. The last time the UK was ‘average’ in the G7 for total investment was in 1990.” The result of this chronic neglect is a staggering cumulative shortfall of £1.9tn. Just imagine how different things would look if the UK’s level of investment had been merely average.

Given such poor investment performance, any government would need time and luck (especially with respect to external economic factors) to turn things around. The lack of budgetary space leaves the government with no single measure, no magic bullet, to deploy. Even the best growth-oriented policy package would have to comprise a wide variety of measures. Implementation was always going to take time, even if it did not require a broad range of public-private partnerships.

Ultimately, the Starmer government’s growth mission will fail if it does not secure the buy-in of companies and households alike. The currently low level of business and consumer confidence is a major headwind to stronger growth, better budget outcomes, and higher inflows of foreign direct investment. It is why the government pivoted from its gloomy talk about the economy to statements about economic performance “turning around”.

For the same reason, it is counterproductive – even dangerous – for politicians, media commentators and economists to be so quick to trash Reeves’s speech, especially when they have no feasible alternative to offer. That is also why it is unhelpful to reduce the multifaceted growth strategy to the third runway at Heathrow airport, the item that is attracting the most attention.

In March 2008, I co-authored a paper, “Growth Strategies and Dynamics: Insights from Country Experiences”, with the Nobel laureate economist Michael Spence. One of our findings was that successful growth strategies hardly ever specified every step in the policy journey. Indeed, it is almost impossible to do so. Instead, policymakers defined their destination, embarked with only an initial set of measures, focused on implementation, and remained open to course corrections as more information came in. What they did not do was fail to get off the starting block because the strategy was imperfect, incomplete, or would take too long to bear fruit. They gave growth a chance. The UK needs to do the same.

Mohamed El-Erian is the president of Queens’ College at the University of Cambridge and a professor at the Wharton School of the University of Pennsylvania