It was something of a surprise last spring when the UK government passed a budget with no explicit mention of productivity. After all, Chancellor Gordon Brown has made improving the productivity of the country’s workers the centerpiece of his plan for economic growth. By association, however, better productivity was very much there—as the intended outcome of further innovation.

In the United Kingdom, innovation is very much in fashion these days. Chancellor Brown has announced a ten-year review of scientific innovation. The Department of Trade and Industry has launched an innovation strategy for the entire country. And professor Michael Porter, in his review of UK competitiveness, stresses the development of more innovative products and services. The thread running through all these initiatives is the belief that innovation—as measured by increases in R&D and in the number of new patents—will clear the critical path to productivity growth in Britain. That is not our view, however. Of course these initiatives are worthwhile, but it is hard to see how they alone will close the productivity gap.

The failing of the United Kingdom, as compared with France, Germany, and the United States, is that Britons generate far less output for every hour on the...