Growth Blues – St. Gallen SymposiumLeave a Comment
Growth is this year’s focus topic of the St. Gallen Symposium. To get speakers, talents, and ‘outsider’ HSG students alike in the right mood, we join in singing the melancholic melody of global economic perspectives.
Global growth has the blues. And just like most troubled lyrics of good blues, it’s the repeating that generates the suffering: “Backwater rising, Southern peoples can’t make no time – I said, backwater rising, Southern peoples can’t make no time – And I can’t get no hearing from that Memphis girl of mine. – Backwater rising, Southern peoples –” You get it…
Modern-day economic messages are quite similar, even though they’re transmitted with much less smoky voices: Literally every single time we open the newspaper and some representative of some institution has presented a new forecast for economic growth perspectives, it sure as hell was revised down. Again and again. When the International Monetary Fund recently published its regular forecast, not only had the past year greatly missed the growth expectations, but projections over the subsequent three years are significantly lower than at the same event a year earlier. In the “recovery” phase after the Great Recession, this downward revision has almost become systematic both in so-called “advanced” economies as well as developing and emerging markets, which is shown in the pictures below. Or to stay with the blues: “backwater rising” in the IMF’s language is called “subdued demand”, Southern peoples are in fact also Northern peoples and that “Memphis girl of mine” we’re so puzzled about could be that barrel of cheap crude oil: Many wish it had not called back.
Okay, maybe the metaphor is pushing its luck a bit too much, but the message is clear: Global growth makes no headway, and it consistently disappoints our already low expectations. The tricky thing about growth rates is that if it disappoints once, it is very hard to catch up with the expectations about the level of GDP once made because the base is simply lost. Downward revisions are not temporary, but have permanent implications for our standard of living. And because the high uncertainty about future prospects curbs our perception of the future and investment with future returns, we’ve lost decades of prosperity since the Great Recession.
There are well-founded arguments that growth as we know might actually not return. Comparing GDP growth rates of many industrialised countries reveals a downward trend in the rates of growth in the post-war period. Back in the sixties and seventies we knew growth rates even China is dreaming about today and they are cut by two thirds if you compare average annual growth since the change of the millennium (including two short but painful recessions).
Economists, forecasters and panel participants usually look at country GDP – what matters for people is output per capita, where growth has been slower and fell even more rapidly. In fact, Swiss growth rates in the past decade have only been positive because the “masses” of women and foreigners joined the workforce. Output per hour worked, however, did not grow at all. The amount of accumulated debt, the demography of our societies and the way our social security system is designed, the high mobility of capital to cheap labour but low social mobility within our societies, it all does not act in our favour. And knowing that most of the gained output has been distributed among consumers very unequally does not exactly increase the trust people have in the economy.
There’s still a remainder of a question mark to this story because most curves of forecasters still point upwards at some point. But knowing that forecasts rely on data from the past but we have to deal with nothing else but the future, we should at least think about it: If declining or missing growth is a permanent phenomenon, why do we still use our monetary policy instruments as if it was temporary, and inject money into circulation where obviously investors do not know where to put it? Is it realistic, or is it just wishful dream of the 20th-century people currently in leading positions that this will spur economic activity?
“For a new wave of growth”, as the symposium organisers put it, innovation is evidently key, but what about the fear that the industry 4.0 will rather destroy than create jobs – what is growth good for the “greater good” if it makes people worse off? What’s the chance your job can be sufficiently and efficiently done by a robot by the time you graduate? (If you want an algorithm – a robot – to take a guess, try here. By the way, “symposium participant” has yet to be put on the list, and I couldn’t find “leader of tomorrow” either.)
You and the smart minds at the St.Gallen Symposium might agree or not, but I get the impression that “growth” is too often defined as “more of the same”. For some reason, people like being in the hamster wheel, running from 8 to 5 (or 10, if they are consulting hamsters) in order to achieve the X percent plus of revenue, profits, or GDP. This is in sharp contrast with developments in the economy described above, which we should try to anticipate and debate the consequences for the way we study, work, or invest. Is a social system that is designed within the paradigm that everybody works or should work still opportune? Or should we design new ways to organise our communities, care for individuals, encourage entrepreneurs or stabilize the financial system. Why does nobody claim a 2 percent growth goal of happiness, of communal well-being?
What are our economic prospects and how do we secure them? Questions after questions which are discussed by this year’s participants of the St.Gallen Symposium, rightly, fortunately and hopefully controversially so. And for all those (who get inside) and feel the blues, there’s a solution (or three, for the sake of repetition): One scotch, one bourbon, one beer.