From Mr David Sawers.

Sir, Martin Wolf agrees with John Van Reenen that the UK’s economic performance suffers from inadequate investment in human and physical capital (“Britain’s economy should not go back to the future”, April 12). This conclusion derives from the work of the London School of Economics Growth Commission, of which Professor Van Reenen and Professor Tim Bresley are co-chairs.

But the conclusion does not follow from the evidence published by the Commission, which shows that low investment cannot explain differences in growth rates. Investment as a proportion of output has been lower in the UK than in France and Germany since 1970, while economic growth began more slowly but then became faster, after 1990, so that gross domestic product per person was higher in the UK than in France or Germany by 2007. Output per hour was still, however, about 25 per cent lower in the UK than in France, Germany and the US in 2011.

What is more, Prof Van Reenen and his colleagues suggest that around 70 per cent of international differences in GDP per person are attributable to differences in the performance of management. Qualitative rather than quantitative factors are therefore the more plausible explanations of differences in economic performance.

The only area where there is evidence of inadequate investment is road building, where there are many unbuilt projects that promise high economic returns. The Commission’s proposal for a superstructure of institutions to plan infrastructure investment is irrelevant to this issue. Privatising the road network, and financing it through user charges, is the only way of removing roadbuilding from political control. Any investment financed by the state will be controlled by ministers.

The Commission’s recommendations are less sophisticated than its analysis, and fail to separate the case for investment in human capital from that for investment in physical capital. Mr Wolf should have recognised the recommendation for more investment as repetition of the default advice of economists for more than 50 years – advice that has never been supported by careful analysis of the evidence.

David Sawers, Littlehampton, W Sussex, UK

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