The IMF’s regular publication ‘Finance and Development’ is free and an always good read. The September edition though is especially interesting so I’ve decided to highlight the best articles from it today. You can get a copy via the following link Finance and Development – September 2024.
The magazine focuses on a key issue for advanced (and would be advanced) economies. How to jump start productivity and innovation which is, presently and globally, in a bit of a rut.
The recurrent theme seems to be a problem with the world’s (mostly American) largest companies acting as innovation retardants and a misunderstanding by governments (and others) about the difference between more stuff and greater Total Factor Productivity (TFP). [They have a fun 2.5-minute basic tutorial on TFP here.]
Below are thumbnail summaries of six of the most pertinent pieces:
Total Factor Productivity – Robert Zymek, Economist in the IMF research department. It’s not how hard you work, it’s how smart. Define ‘smart’? TFP is the most reliable guide. Standards of living improvements can ONLY come from raising this, irrespective of the economy under discussion. TFP can be broken down into three parts: workforce productivity, resource allocation and international trade. That’s it. Advanced economies should give more thought on how to stop big firms stifling competition and getting more women/minorities involved.
We Must Place Our Hope in Multilateralism – Gordon Brown, former Prime Minister of the United Kingdom. The three pillars of the post Cold-War era world order, unipolarity, hyperglobalization and neo-liberal economics are collapsing. Countries now feel they can be swing-states and are forming dangerous liaisons. As business seeks to re-shore, friend-shore etcetera governments are getting more involved in the business of business [Bad!]. A power-based world order is replacing a rules-based one. On balance though, Mr. Brown is hopeful about future global cooperation.
Mass Flourishing and Economic Dynamism – Edmund Phelps, Nobel laureate and Professor Emeritus of Political Economy at Columbia University. Western economies enjoyed a spurt of innovation from about 1890, energized again after WWII up to about 1970, and then things start to peter out. We see this in growth of TFPs. What’s the problem, and what’s to be done? The problem is a decline in individualism, vitalism and self-expression that gave rise to the gains in the first place. A shift from ‘resilience’ back to ‘dynamism’ by planners might help.
America Must Rediscover It’s Dynamism – Michael Peters, associate professor of economics at Yale University. Between 1947 and 2005 labour productivity in the U.S. grew at 2.3% per annum. Since then the rate has fallen to 1.3%. This is a huge difference. Europe, over the same period has fared even worse. The big problem seems to be an absence of ‘creative destruction’ brought on by large corporations and shrinking populations. How do we fix this? Immigration is the only realistic fix for declining populations, and large corporations? A global effort to unbundle some of them would be a good start.
The Innovation Paradox – Ufuk Akcigit, the Arnold C. Harberger
Professor of Economics at the University of Chicago. Innovation can be propelled by R+D, right? Not if the R+D is focused on turf-defending efforts by big corporations. The problem is most acute in America where the proportion of innovators in the economy employed by big firms has risen significantly in recent years. There’s an issue with tax credits that accrue in relation to R+D spending which large companies are best able to utilize. The fix? Design better policies for small and start up enterprises.
We Must Change The Nature of Growth – Daniel Susskind, research professor at King’s College London and senior research associate at the Institute for Ethics in AI at Oxford. Economic growth is not always and everywhere a good thing. Especially as it brings along unhelpful side effects like environmental degradation and inequality. So? We need to revisit our antiquated system of intellectual property protection, we must increase [Good] R+D, reduce inequality and get more good minds into the mix and finally, employ new technology for more problem solving [Not making ever slicker video games!].
Good ideas all, and at least the problem is now widely acknowledged.
The fixes will take decades to progress though; but the journey of a thousand li and all that…
Happy Sunday.