competitiveness global growth economy economic policymakers

techsuch May 9, 2021 0 Comments

5 trends in the global economy – and their implications for economicpolicymakersThe Global Competitiveness Report 2019 is a much-needed economic compass,building on 40 years of experience of benchmarking the drivers of long-termcompetitiveness and integrating the latest learnings about the factors offuture productivity.The Global Competitiveness Index 4.0 is organized into 12 pillars:institutions; infrastructure; ICT adoption; macroeconomic stability; health;skills; product market; labour market; financial system; market size; businessdynamism; and innovation capability. The index has a scoring system rangingfrom 0 to 100, with the frontier (100) corresponding to the goal post for eachindicator.Singapore is the nation closest to the competitiveness frontier. Among largeeconomies, the United States ranks highest and continues to be an innovationpowerhouse. Among the BRICS, China ranks highest. The lowest places in therankings are occupied by African economies who have not yet crossed thehalfway mark to the competitiveness frontier.The Index results and country scorecard are designed to help countries assesstheir performance against their own history as well as compare to others intheir region or income group. However, the report also tells us more aboutdevelopments in the global economy that policymakers, business and individualsmust understand and proactively manage.What are the top five trends in the global economy as revealed by the GlobalCompetitiveness Index 4.0 in 2019 and what are the implications forpolicymakers?1. The last 10 years saw global leaders take rapid action to mitigate theworst of the financial crisis, but this alone has not been enough to boostproductivity growth.Since the Great Recession, policymakers have kept the global economy afloatprimarily through ultra-loose and unconventional monetary policy. But despitethe massive injection of liquidity – the world’s four major central banksalone injected $10 trillion between 2008 and 2017 – productivity growth hascontinued to stagnate over the past decade.An over-reliance on monetary policy may have contributed to reducingproductivity growth by encouraging capital mis-allocation, with banks becomingless interested in lending to businesses, favouring firms that are not credit-constrained, and prioritizing fee-generating and trading activities instead.There is no compensability between the 12 levers of competitiveness– a soundfinancial system cannot compensate for poor physical infrastructure, just asICT adoption cannot compensate for the lack of an entrepreneurial andinnovation ecosystem. Countries must pursue all 12 avenues but create theirown sequencing strategy to balance and focus efforts, taking advantage ofcheaper capital and technology. As the adage goes, “fix the roof while the sunis shining”, and policymakers have a narrowing window before a predictedslowdown.2. With monetary policy running out of steam, policymakers must revisit andexpand their toolkit to include a range of fiscal policy tools, reforms andpublic incentives.Exclusive – and perhaps excessive – reliance on monetary policy has also meantthat fiscal policy has been largely underutilized, as reflected in a steadydecline in public investments globally. Despite the very low borrowing costs,the public sector has not stepped up investments (government expenditure as ashare of total gross fixed capital formation in the US was 18.3% in 1995, and15.7% in 2016; in France it was 21% in 1995 and 15.4% in 2016) – partly due,in some advanced economies, to concerns about the sustainability of publicdebt (public debt to GDP ratios have reached 237% in Japan, 121% in Portugaland 132% in Italy).If indeed “hysteresis” has permanently lowered the growth path, theninvestment-led stimulus could be an appropriate action to re-start growth instagnating advanced economies, especially fiscal policy that prioritizesinvestments in infrastructure, human capital, R&D and green procurement,complemented by structural reforms that make it easier to innovate and enableresponsible and inclusive businesses to thrive.3. ICT adoption and promoting technology integration is important butpolicymakers must in parallel invest in developing skills if they want toprovide opportunity for all in the era of the Fourth Industrial Revolution.While many advanced and emerging markets are embracing the new technologies ofthe Fourth Industrial Revolution, finding a balance between technologyintegration, human capital investments and the innovation ecosystem will becritical to enhancing productivity in the next decade. With the right skillsand training, workers can become the agents embracing, driving and realizingthe potential of technology, rather than being displaced by it. Investing inpeople can no longer be an afterthought – it is a fundamental building blockof growth and resilience in the Fourth Industrial Revolution. Additionally,while scientific publications, patent applications, R&D expenditure andresearch institutions are all well-established aspects of developinginnovation capability, they are not enough.For good ideas to move through to commercialization, a number of “softer”factors are equally important, such as the ability of companies to embracedisruptive ideas (on this aspect Germany is 7th with 63.1 points while Italyis 98th with 39.6 points), the attitude toward entrepreneurial risk (UnitedStates is 2nd with 75.9 while France is 55th with 52.9 points), diversity ofthe workforce (Canada is 5th with 76.4 points; while Japan is 106th with 50.7points) and flat hierarchical structures in companies (Denmark is 1st with82.4 points and South Korea is 85th with 53.0).4. Competitiveness is still key for improving living standards, butpolicymakers must look at the speed, direction and quality of growth togetherat the dawn of the 2020s.Sustained economic growth remains a critical pathway out of poverty and a coredriver of human development and living standards. Yet, it is not enough on itsown as we look towards solutions for the two greatest challenges of the nextdecade: building shared prosperity and managing the transition to a greeneconomy. Data in the report shows a marked rise in market concentration inadvanced and emerging economies (business leaders assessment of marketcompetition over the past 10 years decreased by 15% in the US and 12% inGermany) as well as growing income inequality (for example, the share ofincome of top decile over the past 10 years grew from 43% to 47% in the US,from 36% to 41% in China and from 32% to 35% in Germany).When it comes to climate, of the 10 ecological factors that can destabilizethe planet’s ecosystem, three have already exceeded their “limit”. Thetraditional prevailing view has been that equality or sustainability must comeat the price of growth. We find the opposite to be true – a lack of sharedprosperity and environmental sustainability corrodes productivity growth.Moreover, there is a clear moral case for focusing not just the speed ofgrowth but also its direction (environmentally sustainable) and quality(generating shared prosperity).5. It is possible for an economy to be growing, inclusive and environmentallysustainable – but more visionary leadership is needed to place all economieson such a win-win-win trajectory.The perceived trade-offs between economic, social and environmental factorsmay emerge from a short-term and narrow view of growth but can be mitigated byadopting a holistic and longer-term approach to growth. Some economies arealready succeeding in doing so, for example, Sweden, Denmark and Finland havenot only become among the world’s most technologically advanced, innovativeand dynamic economies in the world, they are also providing better livingconditions and better social protection, are more cohesive, and moresustainable than their peers at a similar level of competitiveness.However, most countries have very different results on social andenvironmental factors for the same level of current competitiveness. Forinstance, on the environmental front, while Sweden and the United States’ bothscore above 80/100 on competitiveness, Sweden increased its reliance onrenewable energy by 13% over the past 15 years while the US by only 3%;similarly, on the social policy front, although Denmark and the United Kingdomare at comparable levels of competitiveness, it takes two generations for alow-income individual to achieve the mean income in Denmark, and five years inthe UK. The low scores of most economies on the “future orientation of thegovernment” measure indicates that economic policymakers are falling short ofthe expectations of their populations when it comes to building a new economyand society.The latest Global Competitiveness Report shows us that the transition to agreener and more equal economy is not just possible but imperative forrestoring productivity. The technologies of the Fourth Industrial Revolutionoffer us the tools to realize this vision. But there is nothing deterministicabout this shift. Policymakers, business leaders and internationalmultilateral systems have to work together to set a new direction and must nowmake bold and visionary choices to lead us to a win-win-win trajectory forgrowth, shared prosperity and sustainability.Written byKlaus Schwab, Founder and Executive Chairman, World Economic ForumSaadia Zahidi, Managing Director, World Economic ForumThe views expressed in this article are those of the author alone and not theWorld Economic Forum.

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