London Daily

Focus on the big picture.
Wednesday, Jan 14, 2026

How to Recover from Coronavirus

How to Recover from Coronavirus

John Mills summarises the key arguments from his new book ‘The Elephant in the Room’. The Coronavirus economic recession comes on top of a long-term economic growth rate which is much too low. The best way to correct this is for the UK to invest much more in manufacturing industry in the context of a more competitive exchange rate.
Economies across the West are struggling to recover from Covid-19. The problem is not just large reductions in GDP as a result of the virus although these have been bad enough. It is that western economies have been growing increasingly slowly in recent decades, providing them with a very weak starting point from which to recover from the coronavirus.

During the quarter-century between 1950 and 1975, economies in the West grew by an average of about 4% per annum. From 1975 to 2000 it was about 3% a year. For the first two decades of the twenty-first century it was around 2%. Now we seem to have slipped down to an underlying growth rate – even before Covid-19 – of barely 1%. This is not enough to lift average living standards. This is why the UK is faced with a real prospect of average disposable incomes in 2030 being less than they were in 2019 or even 2007 – a whole generation of wasted years

Why has this happened? A lot it has to do with the extraordinary state of economics as taught at schools and universities, advocated by think tanks and practised by policymakers. There is no clear explanation of what causes economic growth and no guidelines for making it happen. Productivity is almost static but because economists do not know why this is so, they accept near stagnation as being the new normal.

We need to do much better than this. A book I have written, The Elephant in the Room, published this month, sets out to explain what has gone wrong and what needs to be done to put things right. Here, in a nutshell, is what it says.

Economic growth is very largely generated by physical investment. Only some of sorts of investment, however, those clustered round technology, mechanisation, and the use of power, are capable of achieving big increases in productivity. Nearly all other types of investment in the public sector – on rail, road, schools, hospitals, public buildings and housing – do not contribute much to economic growth and nor does much in the private sector – on office blocks, shopping malls, projects such as new restaurants, IT systems and housing.

The categories of investment which do produce very high total – or social – rates of return of 50% per annum or more, often enhance output by much more. Social returns include including higher wages and salaries, a stronger tax base and often cheaper as well as better products, on top of the private returns in the form of profits. These sorts of investment are mainly found in the privately owned internationally traded light industrial sector and whether such investment is located within the domestic market or elsewhere depends very heavily on profitability prospects.

On average about 30% of manufacturing costs are for machinery, raw materials and components, for which there are world prices which stay the same in world terms whatever happens to the exchange rate. The remaining 70% covers wages and salaries, all overhead costs, and provisions for interest and taxation. Whether production – and especially new activity – is located in the home market or elsewhere depends on the rate at which all these costs are charged out to the world and this, in turn depends almost entirely on the exchange rate

Judged by this crucial criterion, sterling has been much too strong for UK manufacturing for a long time, and especially since the arrival of monetarism and neoliberalism in the 1970s and 1980s. In 1950, 25% of all goods manufactured in the world for export came from UK factories. Now less than 2% do so. Even if services – which are much less price sensitive, and where we have natural advantages in our geography, our legal system, our universities and the orientation of our workforce – are included, our total share of world trade has fallen from 10.7% in 1950 to 2.5% now.

Our lack of competitiveness has caused the UK massively to deindustrialise. Manufacturing as a percentage of GDP has fallen from almost a third as late as 1970 to less than 10% now. At about 17% of GDP, UK investment is a third lower than the 25% world average and the amount we spend on high powered investment is now close to the deprecation charged on existing assets No wonder we have a productivity problem!

The UK’s manufacturing decline matters for at least four inter-related reasons. Manufacturing produces better, steadier and more satisfying jobs than much of the service sector, with a more even spread of talent required. Swathes of the UK, particularly outside London and the South East do not have enough to sell to the rest of the world to pay their way and more manufacturing industry is much the best solution to this problem. We have a chronic balance of payments deficit and manufactures are much more likely to fill this gap than services Above all, increases in productivity are much easier to secure in manufacturing than in services where they are notoriously difficult to achieve.

So, what is the key to getting our growth rate up by, say, a cumulative 2% per annum, raising our overall annual expansion to 3% to 4% – about the world average? It is to use a sufficiently competitive exchange rate to make it profitable to site new industrial capacity in the UK rather than elsewhere and thus to trigger a big rise in investment, particularly of the most high-powered kind. We need to shift about 4% of our GDP out of consumption and into investment capable of generating 50% social rates of return 50% of 4% equals the 2% extra every year we need. If implemented now, this would make us 20% better off than we would otherwise be by 2030, in ten years’ time.

Could this be done? Yes, it could. This is what counties all over the world, rich and poor, regularly do. Could the mindset among UK politicians, academics, think tanks, the media and public opinion be altered to make the changes we need possible? That is a different issue. Time will tell. But if we don’t, the economic, social political and international risks of another decade of stagnation may be much greater than those involved in getting our exchange rate down to a competitive level. Faced with recovery from Covid-19, the challenge to make Brexit a success and the urgent need to get our economy rebalanced to perform better, we need to be brave.
Newsletter

Related Articles

0:00
0:00
Close
UK Intensifies Arctic Security Engagement as Trump’s Greenland Rhetoric Fuels Allied Concern
Meghan Markle Could Return to the UK for the First Time in Nearly Four Years If Security Is Secured
Meghan Markle Likely to Return to UK Only if Harry Secures Official Security Cover
UAE Restricts Funding for Emiratis to Study in UK Amid Fears Over Muslim Brotherhood Influence
EU Seeks ‘Farage Clause’ in Brexit Reset Talks to Safeguard Long-Term Agreement Stability
Starmer’s Push to Rally Support for Action Against Elon Musk’s X Faces Setback as Canada Shuns Ban
UK Free School Meals Expansion Faces Political and Budgetary Delays
EU Seeks ‘Farage Clause’ in Brexit Reset Talks With Britain
Germany Hit by Major Airport Strikes Disrupting European Travel
Prince Harry Seeks King Charles’ Support to Open Invictus Games on UK Return
Washington Holds Back as Britain and France Signal Willingness to Deploy Troops in Postwar Ukraine
Elon Musk Accuses UK Government of Suppressing Free Speech as X Faces Potential Ban Over AI-Generated Content
Russia Deploys Hypersonic Missile in Strike on Ukraine
OpenAI and SoftBank Commit One Billion Dollars to Energy and Data Centre Supplier
UK Prime Minister Starmer Reaffirms Support for Danish Sovereignty Over Greenland Amid U.S. Pressure
UK Support Bolsters U.S. Seizure of Russian-Flagged Tanker Marinera in Atlantic Strike on Sanctions Evasion
The Claim That Maduro’s Capture and Trial Violate International Law Is Either Legally Illiterate—or Deliberately Deceptive
UK Data Watchdog Probes Elon Musk’s X Over AI-Generated Grok Images Amid Surge in Non-Consensual Outputs
Prince Harry to Return to UK for Court Hearing Without Plans to Meet King Charles III
UK Confirms Support for US Seizure of Russian-Flagged Oil Tanker in North Atlantic
Béla Tarr, Visionary Hungarian Filmmaker, Dies at Seventy After Long Illness
UK and France Pledge Military Hubs Across Ukraine in Post-Ceasefire Security Plan
Prince Harry Poised to Regain UK Security Cover, Clearing Way for Family Visits
UK Junk Food Advertising Ban Faces Major Loophole Allowing Brand-Only Promotions
Maduro’s Arrest Without The Hague Tests International Law—and Trump’s Willingness to Break It
German Intelligence Secretly Intercepted Obama’s Air Force One Communications
The U.S. State Department’s account in Persian: “President Trump is a man of action. If you didn’t know it until now, now you do—do not play games with President Trump.”
Fake Mainstream Media Double Standard: Elon Musk Versus Mamdani
HSBC Leads 2026 Mortgage Rate Cuts as UK Lending Costs Ease
US Joint Chiefs Chairman Outlines How Operation Absolute Resolve Was Carried Out in Venezuela
Starmer Welcomes End of Maduro Era While Stressing International Law and UK Non-Involvement
Korean Beauty Turns Viral Skincare Into a Global Export Engine
UK Confirms Non-Involvement in U.S. Military Action Against Venezuela
UK Terror Watchdog Calls for Australian-Style Social Media Ban to Protect Teenagers
Iranian Protests Intensify as Another Revolutionary Guard Member Is Killed and Khamenei Blames the West
Delta Force Identified as Unit Behind U.S. Operation That Captured Venezuela’s President
Europe’s Luxury Sanctions Punish Russian Consumers While a Sanctions-Circumvention Industry Thrives
Berkshire’s Buffett-to-Abel Transition Tests Whether a One-Man Trust Model Can Survive as a System
Fraud in European Central Bank: Lagarde’s Hidden Pay Premium Exposes a Transparency Crisis at the European Central Bank
Trump Announces U.S. Large-Scale Strike on Venezuela, Declares President Maduro and Wife Captured
Tesla Loses EV Crown to China’s BYD After Annual Deliveries Decline in 2025
UK Manufacturing Growth Reaches 15-Month Peak as Output and Orders Improve in December
Beijing Threatened to Scrap UK–China Trade Talks After British Minister’s Taiwan Visit
Newly Released Files Reveal Tony Blair Pressured Officials Over Iraq Death Case Involving UK Soldiers
Top Stocks and Themes to Watch in 2026 as Markets Enter New Year with Fresh Momentum
No UK Curfew Ordered as Deepfake TikTok Falsely Attributes Decree to Prime Minister Starmer
Europe’s Largest Defence Groups Set to Return Nearly Five Billion Dollars to Shareholders in Twenty Twenty-Five
Abu Dhabi ‘Capital of Capital’: How Abu Dhabi Rose as a Sovereign Wealth Power
Diamonds Are Powering a New Quantum Revolution
Trump Threatens Strikes Against Iran if Nuclear Programme Is Restarted
×