IMF warns of threat to global stability from productivity slowdown
Policy makers worldwide must take urgent action to reverse a slowdown in global productivity growth that could undermine living standards and threaten social stability, the head of the International Monetary Fund (IMF) has warned.
In a speech to the American Enterprise Institute in Washington yesterday, Christine Lagarde said investment in education, incentives to boost research and development (R&D) and measures to cut red tape were needed to boost productivity growth, which has remained sluggish since the 2008 financial crisis.
Lagarde said over the past decade there had been “sharp slowdowns” in output per worker and ‘total factor productivity’ – a measure of innovation – with productivity growth dropping to 0.3% from a pre-crisis level of 1%.
She said the IMF had calculated that overall GDP in advanced economies would be about 5% higher today if growth had followed its pre-crisis trend. “That would be the equivalent of adding another Japan – and more – to the global economy,” she said.
Another decade of weak productivity growth would “seriously undermine the rise in global living standards”, Lagarde warned. “Slower growth could also jeopardise the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations,” she added.
Lagarde said all governments around the world needed to do more to “unleash entrepreneurial energy” to reverse recent productivity trends.
“They can achieve this by removing unnecessary barriers to competition, cutting red tape, investing more in education and providing tax incentives for research and development,” Lagarde said.
“High-quality public investments in education and training, R&D, and infrastructure, including in the United States, could help provide those signals, catalysing private investment while boosting productivity and economic potential. Similarly, signals about tax policy can enhance predictability for investors,” she added.
Lagarde singled out “more and better” education as an overriding priority for governments, citing IMF estimates that a slowdown in educational attainment in many economies, both advanced and emerging, had lowered labour productivity growth by 0.3 percentage points since the 1990s.
“Education and training are the key policy actions to raise both productivity growth and reduce inequality,” Lagarde concluded.
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See also:
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About Ben Willis
Ben Willis is a journalist and editor with a varied background reporting on topics including public policy, the environment, renewable energy and international development. His work has appeared in a variety of national newspapers including the Guardian, Daily Telegraph and Times, as well as numerous specialist business, policy and consumer publications.
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So according to the head of the International Monetary Fund, one of the ways to address the slowdown in global productivity growth is for Government to remove unnecessary barriers to competition.
But the fact of the matter is that, the single most important factor that inhibits productivity growth worldwide is the ill-considered actions of Government itself – as it goes about its business of procuring assets for public use.
In the UK, it is Government policy to convene Industry Awareness Days to relay the details of each individual defence equipment procurement programme to industry – and has been for decades now.
However, far from serving as a forum for conveying the Ministry of Defence’s requirements to military equipment manufacturers and offering them an alluring prospect of networking with like-minded people with common interests, Industry Awareness Days (instigated and hosted by MoD) have become nothing but a gathering of the great-and-the-good (on overheads) from competing firms where talk, in huddled groups, immediately turns to how to carve-up the product market, snuff-out new market entrants, subvert the competition process, contrive to nullify its use altogether or fix prices!
A much more effective way of transmitting MoD’s requirements to all-comers in the defence manufacturing industry is through the vehicle of a carefully constructed and worded invitation to tender whose formal release marks the start of the multiple-phase, winner-takes-all competition and concludes with down-selection of the single Defence Contractor for the final Manufacture, In-Service Support & Disposal phase.
If ITT recipients need to take on first-tier Supply Chain partners for dissected workshare parts of their Technical Solutions, then they should be chosen through open competition, on the basis of best value for money – not at a gathering where price-fixing is on the agenda!
The Government would do well to heed the words of Adam Smith, the Scottish philosopher and economist who wrote in The Wealth of Nations (1776) that “…… people of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.
Adam Smith goes on to say “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary”.
Not only does this ill-considered action illustrate the complete failure of Government policy when it comes to spending taxpayers’ money, but it also reinforces the view that people in the pay of the State haven’t got a clue about what it is that drives the behaviour of for-profit organisations in the free market – not least, because they have not spent a single day of their lives in the Private Sector!
@JagPatel3 on twitter