Was it all big one fun, Technicolor roller-coaster ride never to repeated? The economic growth of the past fifty years was awesome, at least in a historical context. Question is, was it a one-time-only, and are we destined to go back to the sluggish economic pace that the world experienced before then, and which is going to be nowhere near quick enough to lift incomes in the way to which many countries have become accustomed?
The debate over how fast the global economy can grow is a big one, and the answer is critically important. The consulting firm McKinsey is the latest to analyze the challenge in a new piece just released, and like everyone else, they acknowledge that we are at a crossroads in economic development. What it comes down to is this: there are only two ways to create economic growth. One is through people working, which is best facilitated when you have lots of young workers in relation to children and the elderly. The other is through productivity, or figuring out snazzy new ways to get things done. Given that most of the developing world is facing a rapidly aging population and mounting health care bills, it is the second path to expansion that we are going to be most reliant upon in the decades ahead.
McKinsey puts some numbers on the whole thing, figuring that global employment will grow by 0.3 percent annually over the next 50 years, in contrast to about 1.7 percent between 1964 and 2014. Assuming that productivity growth matches its average over the past half century (about 1.8 percent, which was pretty good) that will mean that global growth ends up 40 percent lower over the next five decades than it was over the last five. That is not a good thing if you are trying to raise incomes and standards of livings.
So how do you fix it? Well, not easily but the way you presumably could would be through raising productivity. That’s an annoyingly vague prescription, but in practice it means innovating through adopting new practices. McKinsey found that three quarters of that potential growth can come through just adopting existing best practices or catch up improvements, while the rest has got to come from finding exciting new ways to do things. If that sounds a little desperate (well, it does to me) we should remember that that is effectively what has happened over the past, so surely it can happen again.