Opinion

The Missing Ingredients of Growth

By A. Michael Spence and Karen Karniol-Tambour

A. Michael Spence

There are several important items missing from the policy mix that cast a shadow over the realization of both full-scale productivity growth and a shift to more inclusive growth patterns.

Most of the global economy is now subject to positive economic trends: unemployment is falling, output gaps are closing, growth is picking up, and, for reasons that are not yet clear, inflation remains below the major central banks’ targets. On the other hand, productivity growth remains weak, income inequality is increasing, and less educated workers are struggling to find attractive employment opportunities.

After eight years of aggressive stimulus, developed economies are emerging from an extended deleveraging phase that naturally suppressed growth from the demand side. As the level and composition of debt has been shifted, deleveraging pressures have been reduced, allowing for a synchronized global expansion.

Still, in time, the primary determinant of GDP growth – and the inclusivity of growth patterns – will be gains in productivity. Yet, as things stand, there is ample reason to doubt that productivity will pick up on its own. There are several important items missing from the policy mix that cast a shadow over the realization of both full-scale productivity growth and a shift to more inclusive growth patterns.

Read the full article as published in Project Syndicate.

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A. Michael Spence is a William R. Berkley Professor in Economics & Business.