The influential head of the International Monetary Fund (IMF) has called for governments to slash red tape in a bid to unleash entrepreneurs and stave off the threat of populists.
Christine Lagarde, the IMF’s managing director, said: “All governments should do more to unleash entrepreneurial energy.”
She added: “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.”
Weak productivity growth in the next decade could “undermine the rise in global living standards” and lead to populist disruptions, Lagarde said, adding that GDP in advanced economies would be five per cent higher if total factor productivity had followed its pre-financial crisis trend.
She said: “Slower growth could also jeopardize the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations.”
However, a big 40 per cent increase in private research and development would increase GDP by five per cent over the long term, according to IMF analysis.
Lagarde’s speech adds to a host of powerful economists calling for governments to look at ways of boosting productivity.
The growth in the average output per hour of workers in rich nations has lagged significantly since the financial crisis. Productivity in richer nations grew by only 0.76 per cent in 2015, according to the Organisation for Economic Co-operation and Development (OECD).
Lagarde said governments have a major role to play in boosting productivity, pointing to the reliance of smartphones on government-funded research in developing the internet, wireless networks and GPS.
She said: “Market forces alone will not be able to deliver that boost, because innovation and invention are to some degree public goods.”
Lagarde’s speech, delivered at the American Enterprise Institute, a conservative Washington-based think tank, pointedly aimed the call for increased government spending in education and infrastructure at the United States, at a time when economists are still awaiting more detail on the fiscal plans of President Donald Trump.