The global economy has had a number of difficult years, and the outlook for the near future does not look much better. Most observers agree that the current quagmire is not just a protracted but ultimately cyclical challenge. It is a sign that the growth recipes of the previous decade have either failed or lost their effectiveness.
In large parts of the OECD, growth had been fueled by easy money, driven by a financial sector unleashed by prior deregulation and monetary policy that did not step into the way. This period is now decisively over. Macroeconomic stabilization is the focus of today, and is sorely needed to get economies back into balance. Whether it will be best to achieve this through front-loaded austerity programs or a more growth-oriented medium-term policy approach is in itself a complex and controversial debate. But it is, either way, ultimately a remedy for past ills, not a recipe for future growth.
Many other countries, especially among the emerging economies, have benefited from opening up to globalization, serving markets abroad and creating new ones at home. Countries with deposits of natural recourses have prospered, too, benefiting from the growth in the global economy. But both now face, at best, slowing growth rates. Emerging economies need a growth strategy that moves beyond exports based on cheap labor or increasing capital intensity. And natural resource exporters need diversification to overcome the economic and political pitfalls of their narrow economic base.
It is easy to identify the need for a new growth model; the hard part is to describe what it should be. Economic research offers some answers (beyond explaining why the past approach has failed). First of all, there is broad consensus that what matters most is productivity. Locations are prosperous when they provide conditions for doing business that are productive both in the sense of enabling workers to generate value and mobilizing a large share of the available workforce to participate in the economy.
Second, there is quite a lot of agreement on what types of policies are conducive to better economic performance: open markets, modest inflation, robust institutions, including property rights, and investments in human skills make the list for a large majority of experts. There are other candidates as well, and there is a wide-discussion on which of these factors matter most and which are endogenous rather than ultimate drivers of performance. But still there is significant agreement on what is generally good policy.
Third, however, there is an increasing realization in the academic community that looking for one set of policies, or even worse one policy, as the general answer is ultimately the wrong approach. Policies need to be right given the context in a specific location. And for that, knowing what works ‘on average’ across countries is useful, but not sufficiently specific. Increasingly, then, the question has become how to correctly identify what a specific location should do to enable higher prosperity.
Fourth, practitioners have started to point out that knowing what to do is not enough. What differentiates successful from less successful places is the ability to implement action. Successful implementation, it turns out, is a complex result of convincing the right people to act in a coordinated way; it is not just a matter of getting an external advisor to come up with the right analysis.
What to do, then, and how to get it done? The experience from countries at all stages of development suggest that a new model of public-private dialogue is critical to give the right answer to these questions.
Let us start with the diagnostics. In many situations, there is wide disagreement as to the current status of the economy. Having a shared ‘language’ helps, even when different groups focus on different types of information. The competitiveness framework, rooted in the focus on productivity and capturing a broad range of macro- and micro-economic factors, does provide such a language. But often it is not a different conceptual framework, but differences in the perceived data that is crucial. A large number of surveys indicate that business leaders and political leaders often have widely diverging assessments about the competitive realities in their country. With such different views on what is, how can one expect a productive debate on what should be done? No one has the complete picture, but together the public and the private sector can arrive at a more realistic view on where their location stands.
Following the analysis, decisions need to be taken on what actions to prioritize. Here again, the fragmented nature of the policy dialogue typical today has a clear cost: Governments select what they think has the most beneficial impact on the economy, but lack sufficient understanding of market dynamics to correctly assess impact. Private sector interest groups push at the same time for specific benefits or actions, but fail to concern themselves with overall budget limits or the impact on the wider economy. Everyone is entitled to his or her private interests, but decisions that drive sustained growth require a joint focus on the common good.
Ultimately, decisions have to be implemented to have an impact. Governments tend to have an oversized assessment of what the tools that they control can achieve. Often, however, real change only happens if many individual decision makers, in companies, in universities, and in many others private and public organizations that government doesn’t directly control, make complementary choices about what to do. Implementing a national growth agenda is a team effort, not a government policy.
The global debate about prosperity-enhancing economic policy is at an important inflection point. There is increasing consensus on what good policies are. But there is also a growing realization that to get to the right policies in a particular location, the process is crucial. An emerging new model of private-public collaboration is a critical element of such a more effective process, leading to better diagnostics, decision-making, implementation and ultimately more sustainable growth.
Dr. Christian Ketels is the President of The Competitiveness Institute (TCI) and leader of Michael Porter’s research team at the Harvard School of Business' Institute for Strategy and Competitiveness.
This article was originally published in the special annual G8 Summit 2013 edition and The Official ICC G20 Advisory Group Publication. Published with permission.
Photo: Daniel Horacio Agostini (cc).
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All Hands on Deck: Why Future Prosperity Requires a New Model of Public-Private Collaboration
August 7, 2013
The global economy has had a number of difficult years, and the outlook for the near future does not look much better. Most observers agree that the current quagmire is not just a protracted but ultimately cyclical challenge. It is a sign that the growth recipes of the previous decade have either failed or lost their effectiveness.
In large parts of the OECD, growth had been fueled by easy money, driven by a financial sector unleashed by prior deregulation and monetary policy that did not step into the way. This period is now decisively over. Macroeconomic stabilization is the focus of today, and is sorely needed to get economies back into balance. Whether it will be best to achieve this through front-loaded austerity programs or a more growth-oriented medium-term policy approach is in itself a complex and controversial debate. But it is, either way, ultimately a remedy for past ills, not a recipe for future growth.
Many other countries, especially among the emerging economies, have benefited from opening up to globalization, serving markets abroad and creating new ones at home. Countries with deposits of natural recourses have prospered, too, benefiting from the growth in the global economy. But both now face, at best, slowing growth rates. Emerging economies need a growth strategy that moves beyond exports based on cheap labor or increasing capital intensity. And natural resource exporters need diversification to overcome the economic and political pitfalls of their narrow economic base.
It is easy to identify the need for a new growth model; the hard part is to describe what it should be. Economic research offers some answers (beyond explaining why the past approach has failed). First of all, there is broad consensus that what matters most is productivity. Locations are prosperous when they provide conditions for doing business that are productive both in the sense of enabling workers to generate value and mobilizing a large share of the available workforce to participate in the economy.
Second, there is quite a lot of agreement on what types of policies are conducive to better economic performance: open markets, modest inflation, robust institutions, including property rights, and investments in human skills make the list for a large majority of experts. There are other candidates as well, and there is a wide-discussion on which of these factors matter most and which are endogenous rather than ultimate drivers of performance. But still there is significant agreement on what is generally good policy.
Third, however, there is an increasing realization in the academic community that looking for one set of policies, or even worse one policy, as the general answer is ultimately the wrong approach. Policies need to be right given the context in a specific location. And for that, knowing what works ‘on average’ across countries is useful, but not sufficiently specific. Increasingly, then, the question has become how to correctly identify what a specific location should do to enable higher prosperity.
Fourth, practitioners have started to point out that knowing what to do is not enough. What differentiates successful from less successful places is the ability to implement action. Successful implementation, it turns out, is a complex result of convincing the right people to act in a coordinated way; it is not just a matter of getting an external advisor to come up with the right analysis.
What to do, then, and how to get it done? The experience from countries at all stages of development suggest that a new model of public-private dialogue is critical to give the right answer to these questions.
Let us start with the diagnostics. In many situations, there is wide disagreement as to the current status of the economy. Having a shared ‘language’ helps, even when different groups focus on different types of information. The competitiveness framework, rooted in the focus on productivity and capturing a broad range of macro- and micro-economic factors, does provide such a language. But often it is not a different conceptual framework, but differences in the perceived data that is crucial. A large number of surveys indicate that business leaders and political leaders often have widely diverging assessments about the competitive realities in their country. With such different views on what is, how can one expect a productive debate on what should be done? No one has the complete picture, but together the public and the private sector can arrive at a more realistic view on where their location stands.
Following the analysis, decisions need to be taken on what actions to prioritize. Here again, the fragmented nature of the policy dialogue typical today has a clear cost: Governments select what they think has the most beneficial impact on the economy, but lack sufficient understanding of market dynamics to correctly assess impact. Private sector interest groups push at the same time for specific benefits or actions, but fail to concern themselves with overall budget limits or the impact on the wider economy. Everyone is entitled to his or her private interests, but decisions that drive sustained growth require a joint focus on the common good.
Ultimately, decisions have to be implemented to have an impact. Governments tend to have an oversized assessment of what the tools that they control can achieve. Often, however, real change only happens if many individual decision makers, in companies, in universities, and in many others private and public organizations that government doesn’t directly control, make complementary choices about what to do. Implementing a national growth agenda is a team effort, not a government policy.
The global debate about prosperity-enhancing economic policy is at an important inflection point. There is increasing consensus on what good policies are. But there is also a growing realization that to get to the right policies in a particular location, the process is crucial. An emerging new model of private-public collaboration is a critical element of such a more effective process, leading to better diagnostics, decision-making, implementation and ultimately more sustainable growth.
Dr. Christian Ketels is the President of The Competitiveness Institute (TCI) and leader of Michael Porter’s research team at the Harvard School of Business' Institute for Strategy and Competitiveness.
This article was originally published in the special annual G8 Summit 2013 edition and The Official ICC G20 Advisory Group Publication. Published with permission.
Photo: Daniel Horacio Agostini (cc).
