WHAT do you get when you commission the world’s best-known and most prolific expert on competitiveness to report on your economy? The answer, we will see this week, is some encouragement alongside a certain amount of criticism.

Tomorrow, the Department of Trade and Industry will publish the long-awaited report by Professor Michael Porter of Harvard into Britain’s competitiveness. UK Competitiveness: moving to the next stage, was co-written with Christian Ketels and co-sponsored by the Economic and Social Research Council, at a cost of £50,000.

There’s a lot in it. Britain’s recent productivity growth of less than 2% a year has been weaker than in the three years before Labour took office, not a finding ministers will relish, though they could blame the economic cycle.

More fundamentally, the productivity gap in relation to competitors goes deep. Taking Germany, France and America, Britain is less productive in output per hour, in manufacturing, construction, distribution and financial and business services (a surprise). Our productivity triumphs are few and far between. Britain’s mining industry is very productive but has dwindled to a size that hardly matters. We have more productive farmers than the Germans.

Splitting the productivity gap into its causes, drawing on work carried out by the National Institute of Economic and Social Research, Porter finds Britain is behind on skills and investment — French workers have 60% more capital, those in Germany and America 25%-30%.

But the biggest difference, particularly when it comes to America, is in the “x-factor”, total factor productivity. American managers can take the same workers and machines and produce far more output than their British counterparts.

That partly reflects management weaknesses in Britain, particularly among middle managers, but it is also, the report says, down to the business environment in which they operate. As any good consultant does, Porter draws up a strengths and weaknesses table for Britain.

On the plus side is the economy’s openness to trade and investment, low regulatory barriers to competition and sophisticated capital markets, notably equity markets. But these are outweighed by weaknesses, including a “weak and deteriorating” infrastructure; poor workforce skills in spite of an improvement in international education rankings; poor access to debt markets, including the financing gap that holds back growing smaller businesses; low levels of research and development spending; big regional differences in the enterprise environment; and weak collaboration between, for example, business and universities.

Porter also comes close to agreeing with business that Britain is losing the competitive advantages Labour inherited from the Tory years. While quoting the Organisation for Economic Co-operation and Development that “the UK has the lowest level of product and labour market regulations” among its members, he also notes that “changing priorities in UK economic policy are perceived to threaten the achievement of the past two decades”.

That leads to his central recommendation, that Britain can no longer keep living off the Thatcher reforms that gave us low taxation and regulation, and flexible, largely de-unionised, job markets. The task now, he says, is to move on from a competitiveness agenda built on low costs, to one based on “unique value and innovation”. Quality and innovation will be the key to driving prosperity in the future.

The DTI, which is due to launch its innovation review, quite likes this message. Traditionally, Britain has been good at invention — from computers to cats’ eyes — but bad at innovation, making a commercial success of them. The aim is to make us much better at it.

The trouble is that every advanced country has this aim. How do you compete with the threat from China, which last year overtook Britain as the world’s fifth-largest exporter? By moving up the value chain, emphasising higher technology, and better quality products and services. Across the world, industry ministries are telling themselves the same thing.

Porter’s specific recommendations include reorientating management strategies towards innovation, a greater emphasis on regional policy to improve the business environment away from southeast England, a sustained commitment to public investment on the infrastructure and, as those who follow his work would expect, a drive to create many more local “clusters” of successful businesses operating in the same general field, such as Boston’s life-sciences cluster in America.