CBI report from Davos

Trade, productivity and growth for everyone As we dig out our snow boots and warm coats, and prepare to join the World Economic Forum’s Annual Meeting in Davos, now is a time to focus our minds on global issues. We’re a few years into the global recovery, but the benefits are not being felt by everyone. Youth unemployment is over 50% in Spain and Greece. And in many of the advanced economies, while employment growth has picked up, real wage growth is lagging behind. Households aren’t feeling an improvement in their pockets.

In the United Kingdom, we are now enjoying a healthy recovery, with growth of around 2.5% expected this year; employment in the UK now stands at 30.8 million, a record high. But at the same time, the average household has seen its income drop by 6% in real terms since the financial crisis.

The key to addressing this is to improve productivity and skills, so companies can grow faster and pay their workers more. In the UK, while job growth has been strong, productivity growth has fallen 15% below its pre-crisis trend. There’s an urgent need to raise productivity, which is a crucial part of addressing living standards and promoting sustainable growth. Improving productivity is not just a UK issue but a global one — with slower but more balanced growth, China will need to keep focusing on innovation as it moves to a more services-led economy with the urban consumer at its heart.

The focus on productivity needs to go hand in hand with improving skills. As the new wave of innovation hits, jobs are becoming more skilled. By 2022, half of all jobs in the UK will need workers who have some form of higher education. But skills training shouldn’t stay within education — businesses need to focus on helping their people build careers. In the UK, one in three workers is still stuck in the lowest earnings group after 14 years in the job. That is not motivating for anyone. We all need a more modern approach to how we learn and progress in our lives and careers.

But most of all, it is important that we look outwards and not inwards. Innovation is higher in more open economies, according to 2013 research by the Centre for Economic Policy. Countries grow fastest when they trade with and learn from one another. There’s no doubt that China’s phenomenal growth has been driven, in part, by its ascension to the World Trade Organization and its success in moving up the value added chain.

With several large trade deals on the global agenda, there is a real opportunity to boost growth for everyone. An ambitious Transatlantic Trade and Investment Partnership could boost the UK economy alone by £10 billion every year. Reducing tariffs and boosting trade in services has tremendous potential. It’s important that we seize the opportunity and get the global economy kick-started.