Reforms to improve productivity needed to break out of the “new normal”
Despite substantive efforts to re-ignite recovery, global economic growth remains low and unemployment persistently high. The Global Competitiveness Report 2015-2016 calls for productivity-enhancing reforms to break with this pattern.
Seven years after the beginning of the financial crisis in 2008, its consequences are still being felt around the world. The recovery has been less robust, more uncertain and taken longer than many expected, suggesting a “new normal” of subdued economic growth, lower productivity growth and high unemployment. Recent geopolitical shocks – from the crisis in Ukraine to conflicts in the Middle East, terrorism and the migrant crisis – have added to economic difficulties.
Addressing constraints to growth on the supply side could go a long way to restoring growth. Through a systematic assessment of the drivers of productivity, the Report identifies priority areas for structural reforms.
Competitiveness drives resilience
The Report shows that competitiveness – understood as higher productivity – is a key driver of growth and resilience. The historic proportions of the economic crisis and the relative performance of economies since its onset in 2008 have shed light on how structural weaknesses can exacerbate the effects of, and hinder recovery from shocks.
During the crisis, the more competitive economies systematically outperformed the least competitive in terms of economic growth: they either withstood the crisis better or recovered more quickly. This result holds true at every stage of development.
For example, Switzerland, ranked 1st in the Report, has since 2007 experienced only a mild recession in 2009 and its unemployment rate has remained around 3% throughout the crisis. Meanwhile, Greece, ranked 81st, has seen its economy shrink by 25% and the jobless rate remains above 20%.
Leveraging the human factor
At the heart of an economy’s competitiveness is its capacity to leverage talent. High unemployment figures weigh heavily on societies, risking not only prolonged lower demand but also the de-skilling of a significant segment of the labour force and growing discontent.
This holds even truer in the post-crisis years, which coincide with a fundamental shift away from the traditional manufacturing industry while the widespread use of ICT is generating entirely new industries and disrupting others. Talent-driven economies are best equipped to adapt to the changes brought about by this tech revolution and to reap their benefits.
A tool for policy-makers
Growth recovery in unchartered territory will require recognizing that we need a shared assessment and understanding of the future sources of competitiveness. By reducing complexity and providing a tool to identify strengths and weaknesses and track progress, the Report serves to inform and support policy-makers, businesses and civil society in their development of a shared, long-term vision.
Beyond the vision, enhancing competitiveness is a complex and often protracted process that demands difficult trade-offs, careful consideration for sequencing reforms and room for calibration in changing conditions. Steering the course towards enhanced competitiveness requires vigilance and commitment from all stakeholders and throughout the process, for which the Report serves as a guide and monitoring tool.