Where has all the growth gone?
It’s the biggest economic question that we face – not just in Britain, but throughout the world.
Ignore the stresses and uncertainties caused by Brexit, or Donald Trump’s trade war, or whatever the latest problem of the day is. The bigger picture is that the world just isn’t growing as quickly as it used to, or as it should be.
The great conveyor belt that used to carry the world’s population towards higher living standards – especially in emerging markets – is grinding ever more slowly.
The extent of the problem was brought home to me last week by Dr Dambisa Moyo, the respected economist and author.
She was delivering the first in a series of lectures commissioned by our think tank, the Centre for Policy Studies, on the theme of “Going for Growth”, addressing the rise of economic stagnation. (The lectures are supported by business leader John Mills, who will be delivering the next in the series.)
As Moyo points out, growth across the 15 largest emerging markets – home to 90 per cent of the world’s population – is falling below the seven per cent threshold required to double per capita income within a generation. In many cases, it is far lower.
This means that these countries are struggling not only to catch up with the west, but to accommodate the millions of people set to flood into the workforce over the coming years. India, for example, is adding a million people a month to its population. In Moyo’s home country of Zambia, half the population is now under 15. These people will soon grow up to need jobs.
As if the current situation weren’t bad enough, Moyo identified six headwinds that could put a permanent brake on growth.
Technology might be making us more efficient, but it also means that those jobs that are being created require better qualifications (especially in science and maths) than many workers actually have.
In terms of demographics, some countries are having to cope with a population pyramid heavy on old people and light on workers to support them – while many others face the challenge of accommodating the kind of demographic bulge mentioned above.
Income inequality within countries means that there aren’t as many people who are willing and able to spend. Resource scarcity, twinned with a rising population, means that there may not be enough drinking water or farmland to go around.
In developed countries, debt is increasingly a drag anchor on growth – in the US, each major class of debt (such as student loans and auto loans) is now over $1 trillion. Almost half of working Americans now say that they couldn’t raise $400 without selling something – partly because so much of their income goes to service that debt mountain.
And finally, productivity growth is sluggish not just in Britain (though our situation is particularly grim), but elsewhere too.
The riposte from some – particularly those Extinction Rebellion activists camped out in around London right now – would be “why worry about growth at all?”.
Well, as Moyo says, there are currently 1.2bn people without proper access to energy – even her relatively affluent parents back in Zambia suffer regular and crippling power cuts. Anyone who takes the view that growth doesn’t matter, she says, “should go and spend a summer in a rural part of Africa to see what they’re talking about”.
So what can we do about it? Moyo has several prescriptions, but one of her big ideas is that the government should learn the lessons of business.
What unites successful companies, she says, is a ruthless focus on the allocation of capital – ensuring that every marginal dollar that is spent is spent wisely.
Angela Merkel often bemoans the “7/20/50” problem – Europe has seven per cent of the world’s population, 25 per cent of its GDP, but 50 per cent of its welfare payments. Add in America, and the latter figure rises to 90 per cent – and is set to get higher as ageing populations demand ever more entitlements.
If they’re going to deliver better lives for our citizens, our governments need to focus ruthlessly on the kind of tax and spending decisions that grow the economy down the line – which means looking forwards rather than backwards.
We might also, Moyo suggests, copy Singapore by paying politicians City-style bonuses for delivering exceptional performance – but claw them back if things later turn sour.
Encouragingly, it does feel as though Britain’s new government is engaged in this kind of thinking. There’s been a newfound focus on supporting infrastructure – especially the kind that pays off economically – and last week saw a new initiative to develop solutions to our crippling productivity problems.
Pushing up growth rates will take sustained effort and bold solutions. Yet it is urgently necessary.
Otherwise, we’ll continue to squabble incessantly and counter-productively about who gets what share of the cake, rather than how to actually make it bigger in the first place.
Main image credit: Getty