Economic commentary these days is usually about inflation or recession, so let’s instead consider the outlook for growth once central banks get these challenges under control.
As things stand, there appear to be some worrying headwinds to growth. As most populations in advanced economies age, their labor force growth slows, so higher productivity per worker will be needed to compensate. But with reduced investment in physical capital, labor productivity is unlikely to increase rapidly without significant innovation, whether in work processes or products. While it initially appeared that an increase in telecommuting during the pandemic would improve productivity (by saving time and avoiding duplication of capital at home and in the office), many companies are rediscovering the value of having employees in the office at least part of the time.
Another headwind is coming from poorer countries, where lower-middle-class households have suffered immensely from the pandemic and now from food and fuel price inflation. Many children have missed more than two years of school and are likely to drop out, permanently compromising their earning potential and the skills base of the workforce in general. Meanwhile, de-globalization – through relocation, nearby relocation and friend-to-friend relocation – threatens to make it even harder for them to get a good job. In the longer term, weak demand in these countries will spill over to the developed world.
Unless the world finds new sources of growth, it will fall back into the pre-pandemic malaise of secular stagnation. But this time, the situation could be worse, because most countries will have limited fiscal capacity to stimulate the economy, and because interest rates will not quickly fall back to their pre-pandemic lows.
Fortunately, there are tailwinds that could kick in. While trade in goods seems to have reached its limits before the pandemic, trade in services still has not. If countries can agree to remove various unnecessary barriers, new communication technologies will make it possible to offer many services remotely.
If a consultant working from home in Chicago can meet the needs of a client in Austin, Texas, so can a consultant in Bangkok, Thailand. Yes, consultants from other countries may need to have offices in the United States to ensure quality or resolve complaints. But the overall volume of work that could be undertaken by global consulting firms would increase significantly, and at a much lower cost, if their services could be offered across borders.
Likewise, telemedicine has become increasingly feasible not only in psychotherapy and radiology, but also in routine medical diagnostics (sometimes aided by local equipment or a nurse practitioner). Again, global organizations (e.g. Global Clinic in Cleveland) could help reduce information and reputational barriers, allowing a GP in India to perform routine medical checkups for patients in Detroit – by referring them to specialists in Detroit if necessary.
The main obstacles to these trade in services are not technological but artificial. Naturally, authorities in advanced economies do not allow general practitioners in India to offer medical services without proper certification. But the problem is that most countries’ certification procedures are unnecessarily cumbersome. What if the world could agree on a common certification process for the work done by GPs? A country with unusual diseases could add an addendum to the exam for those wishing to practice there, but only if absolutely necessary.
A second problem is that national health insurance schemes generally do not pay for services from outside the country. But if the certification challenge has been met, there is no good reason not to, given the resulting cost savings.
A third barrier is that of data and privacy. No patient will be willing to share personal information or test results if they cannot be sure that the data will remain confidential and safe from misuse. In an era of geopolitical tensions and economic blackmail, meeting these terms requires not only a commitment from the service provider, but also assurances from the provider’s government that it will not violate the privacy of users. patients. Democracies that can enact strict privacy laws (including limits on the amount of data their own government can see) will be in a better position to take advantage of this trade than autocracies, where there are few controls over the government.
Imagine how much faster and more affordable it would be for a US citizen to contact a doctor if routine questions were outsourced. Developed countries would obviously benefit, but so would developing economies, as the revenue generated by their doctors would be used to employ more workers locally. Moreover, these doctors would be less likely to emigrate and they could use the same telemedicine technologies to provide services in remote areas of their own country. At the same time, specialists in advanced economies could offer more of their services to patients in developing countries without them having to travel to New York or London, as they do now.
But aren’t service providers in rich countries likely to resist the removal of barriers which, together with the difficulty of being competitive at a distance, have guaranteed them high salaries? Probably, but there will always be significant domestic demand for their non-current services. Moreover, if the barriers are lowered elsewhere, they will be able to serve much larger markets with specialized services with high added value. For this reason, an agreement on reducing barriers to trade in services between a wide range of countries will have a better chance of success than bilateral agreements.
Moreover, many more in advanced economies, including manufacturing workers who have borne the brunt of global competition, will benefit from cheaper basic services. As economic inequality within and between countries declines, global demand is also expected to strengthen.
Another potential tailwind for growth lies in “green” investments. Although Russia’s war in Ukraine has complicated Europe’s clean energy transition, much of the world’s emissions-heavy capital still needs to be replaced, and these investments could help revive the global economy.
To ease the transition, each country will need to put in place reasonable incentives for businesses and consumers, such as investment credits, emissions regulations, cap-and-trade systems or carbon taxes. Governments will also need to agree on a system for assigning responsibility to high-emitting countries (which are generally wealthy and less vulnerable to climate change), so that they can help finance the energy transition in low-emitting countries ( who are generally poorer and less vulnerable to climate change). more vulnerable).
The post-pandemic and post-inflation economic outlook is not all pessimistic. But there is still a long way to go to dismantle artificial barriers and take advantage of existing technologies.
Raghuram G. Rajan, former Governor of the Reserve Bank of India, is a professor of finance at the University of Chicago Booth School of Business and author, most recently, of The Third Pillar: How Markets and the State Leave the Community Behind (Penguin, 2020).
Source: Project Syndicate