What are the top five trends in the global economy as revealed by the Global Competitiveness Index 4.0 in 2019 and what are the implications for policymakers?
1. The last 10 years saw global leaders take rapid action to mitigate the worst of the financial crisis, but this alone has not been enough to boost productivity growth.
Since the Great Recession, policymakers have kept the global economy afloat primarily through ultra-loose and unconventional monetary policy. But, despite the massive injection of liquidity – the world’s four major central banks alone injected $10 trillion between 2008 and 2017 – productivity growth has continued to stagnate over the past decade.
An over-reliance on monetary policy may have contributed to reducing productivity growth by encouraging capital misallocation, with banks becoming less interested in lending to businesses, favouring firms that are not credit-constrained, and prioritising fee-generating and trading activities instead.
As the adage goes, “fix the roof while the sun is shining”, and policymakers have a narrowing window before a predicted slowdown.
2. With monetary policy running out of steam, policymakers must revisit and expand their toolkit to include a range of fiscal policy tools, reforms and public incentives.
Exclusive – and perhaps excessive – reliance on monetary policy has also meant that fiscal policy has been largely underutilised, as reflected in a steady decline in public investments globally. Despite the very low borrowing costs, the public sector has not stepped up investments – partly because of, in some advanced economies, concerns about the sustainability of public debt.
If indeed “hysteresis” has permanently lowered the growth path, then investment-led stimulus could be an appropriate action to re-start growth in stagnating advanced economies, especially fiscal policy that prioritises investments in infrastructure, human capital, research and development (R&D) and green procurement, complemented by structural reforms that make it easier to innovate and enable responsible and inclusive businesses to thrive.
3. Information and communications technology adoption and promoting technology integration is important but policymakers must in parallel invest in developing skills if they want to provide opportunity for all in the era of the Fourth Industrial Revolution.
While many advanced and emerging markets are embracing the new technologies of the Fourth Industrial Revolution, finding a balance between technology integration, human capital investments and the innovation ecosystem will be critical to enhancing productivity in the next decade.
With the right skills and training, workers can become the agents embracing, driving and realising the potential of technology, rather than being displaced by it. Investing in people can no longer be an afterthought – it is a fundamental building block of growth and resilience in the Fourth Industrial Revolution. Additionally, while scientific publications, patent applications, R&D expenditure and research institutions are all well-established aspects of developing innovation capability, they are not enough.
For good ideas to move through to commercialisation, a number of “softer” factors are equally important, such as the ability of companies to embrace disruptive ideas, the attitude toward entrepreneurial risk, diversity of the workforce and flat hierarchical structures in companies.
4. Competitiveness is still key for improving living standards, but policymakers must look at the speed, direction and quality of growth together at the dawn of the 2020s.
Sustained economic growth remains a critical pathway out of poverty and a core driver of human development and living standards. Yet, it is not enough on its own as we look towards solutions for the two greatest challenges of the next decade: building shared prosperity and managing the transition to a green economy.
Data in the report shows a marked rise in market concentration in advanced and emerging economies as well as growing income inequality.
When it comes to climate, of the 10 ecological factors that can destabilise the planet’s ecosystem, three have already exceeded their “limit”. The traditional prevailing view has been that equality or sustainability must come at the price of growth. We find the opposite to be true – a lack of shared prosperity and environmental sustainability corrodes productivity growth. Moreover, there is a clear moral case for focusing not just the speed of growth but also its direction (environmentally sustainable) and quality (generating shared prosperity).
5. It is possible for an economy to be growing, inclusive and environmentally sustainable – but more visionary leadership is needed to place all economies on such a win-win-win trajectory.
The perceived trade-offs between economic, social and environmental factors may emerge from a short-term and narrow view of growth but can be mitigated by adopting a holistic and longer-term approach to growth.
However, most countries have very different results on social and environmental factors for the same level of current competitiveness.
The low scores of most economies on the “future orientation of the government” measure indicates that economic policymakers are falling short of the expectations of their populations when it comes to building a new economy and society.
The latest Global Competitiveness Report shows us that the transition to a greener and more equal economy is not just possible but imperative for restoring productivity. The technologies of the Fourth Industrial Revolution offer us the tools to realise this vision. But there is nothing deterministic about this shift. Policymakers, business leaders and international multilateral systems have to work together to set a new direction and must now make bold and visionary choices to lead us to a win-win-win trajectory for growth, shared prosperity and sustainability.
Klaus Schwab, founder and executive chairman, World Economic Forum. Saadia Zahidi, managing director and head of the Centre for the New Economy and Society, World Economic Forum. A longer version of this article appeared in World Economic Forum.