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Apr 15

Passports for Productivity Improvement?

April, 2017

Some say the ‘Productivity Puzzle’ is the result of a storm of problems affecting both supply and demand in G7 developed nations viz:

  • Supply: In the past, major technological advances (aka Schumpeter discontinuities) enabled quantum leaps in productivity levels – G7 nations would all adopt them and improve at about the same rate – now, without more significant advances (as Robert Gordon, US economist, suggests) and much of what does add value being offered for free, GDP and so national productivity levels have flattened out – most goods and services have kept on improving in quality but are being offered at the same or less unit prices

  • Demand: G7 populations have stopped growing significantly, some even falling, so demand for most goods and services has also stalled – also, most people in the G7 already have enough of the goods and services they need – they don’t want more cars, TVs or iphones but simply to replace them when better quality and latest versions are on offer – hence consumer demand has apparently stopped growing

Overall, therefore, it’s no surprise that G7 GDP and productivity growth are both suffering ‘secular stagnation’ according to Larry Summers, Harvard economics professor and ex US Treasury Secretary – and this is likely to persist for many more years

So, if G7 nations are to increase demand (i.e. GDP) as before, they must export more – sales directors and government ministers must dust down their passports and go find the extra demand needed from outside their home borders i.e. from the two thirds of the world that, so far, has been left trailing far behind

 

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