A
recipe for economic growth
Former US treasury
secretary Lawrence H. Summers believes institutional reforms and significant
investment are required to push the world economy forward.
At a time of historically low interest rates and
nervousness about the outlook for global economic growth, why aren’t
governments investing more? In this interview with McKinsey’s Rik Kirkland,
former US treasury secretary Larry Summers urges policy makers to invest
aggressively in everything from infrastructure to education. Summers also
believes that in a world of rising inequality and rapid technological advances,
there is going to be a need for more progressive taxation. An edited transcript
of his comments follows.
Interview transcript
Reforming our
institutions
Confidence is the cheapest form of stimulus.
Governments need to recognize that fairness and inequality and sharing the
benefits of growth more widely are crucial issues going forward, but they need
to do it without invoking a politics of envy. That can be very debilitating to
business investment.
I think growth probably is going to be slower
in terms of aggregate GDP over the next 50 years than it has been over the last
50 years. We’ve already seen some trend toward decline and, if I had to guess,
that trend will persist. But that’s a reason why we’ve got to do all we can.
For example, if we’re not going to have as
much quantitative improvement to the labor force, we’re going to need
qualitative improvement. That goes back to issues of education—to issues of the
transition from school to work. We’re also going to need a much greater effort
at innovation. Science has more promise today than ever before, yet the
fraction of our resources being devoted to science has gone down in the United
States. That’s not how it should be.
There’s plenty of work in our society that
needs to be done: think about healthcare, think about education, think about
taking care of the aged. But whether we’ve got the social institutions that
will permit that work to get done is going to be a very large question. We’re
going to have to think in very fundamental ways about how our society changes
in response to technology, just as we have seen our society change in very
fundamental ways because of what came about in the Industrial Revolution.
We’re going to need to do more to protect
people from change. It’s going to be rarer and rarer for people to spend their
whole lives at a single employer. Employers are going to be less and less the
source of social insurance for people, and that’s going to need a larger public
role. We’re probably going to need a larger public role to accommodate the fact
that more of our economy is going to be in health and education than has been
the case traditionally. I suspect in a world of rising inequality, there’s
going to be a need for more progressive taxation as well.
Investment,
investment, investment
We need to focus on raising the demand for
capital and stimulating investment. That means more public-sector
infrastructure. If a moment when we can borrow money in the long term at well
below 2 percent, in a currency we print ourselves, is not the right time to fix
Kennedy Airport, I don’t know when that moment will ever come.
But this is not only a public-sector
investment issue. Taking oil around on trains is a 20th-century technology—and
not the last third of the 20th century. We need a far greater pipeline
infrastructure than we have now; we need a much more satisfactory broadband
architecture than we have now. We need a commitment to investment on a large
scale. It is absolutely essential to protect the environment, but that is no
reason why basic permitting decisions should take years and years to make.
We need to recognize that there’s a great deal
that needs to be regulated in the financial sector; there are important
problems that have not been resolved in the financial sector. But even as there
are important problems that aren’t resolved in the financial sector, we need a
more satisfactory flow of credit for housing, a more satisfactory flow of
credit to small and medium-sized businesses. That’s a particularly important
issue in Europe.
So it’s the promotion of both public and
private investment for growth that I believe is crucial if we’re going to push
the economy forward.
http://www.mckinsey.com/Insights/economic_studies/a_recipe_for_economic_growth?cid=mckgrowth-eml-alt-mgi-mck-oth-1502
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