Global policymakers should take action to address the factors holding back innovation and the spread of technological advancements, as weak productivity growth could erode living standards and lead to financial and political instability, the International Monetary Fund Christine Lagarde said Monday.
“Another decade of weak productivity growth would seriously undermine the rise in global living standards,” Lagarde said in a speech at the American Enterprise Institute.
“Slower growth could also jeopardize the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations.”
Lagarde pointed out that productivity growth began slowing in many advanced economies even before the global financial crisis. If total factor productivity growth had followed its pre-crisis trend, overall GDP in advanced economies would have been 5 percent higher now, she noted.
“So, leaning back and waiting for artificial intelligence or other technologies to trigger a productivity revival is simply not an option,” Lagarde said.
She urged global policymakers to take action to address issues such as population aging, slowdown in global trade and the unresolved legacy of the global financial crisis in some major economies.
Citing an IMF Staff discussion note, also released on Monday, Lagarde said the legacy issue was a crucial factor.
“Unlike normal economic slowdowns, deep recessions leave permanent scars on total factor productivity,” she said.
Lagarde also said that market forces will not be able to deliver the productivity boost as innovation and invention were to some degree public goods.
She urged all governments to do more to unleash entrepreneurial energy by removing unnecessary barriers to competition, cutting red tape, investing more in education, and providing tax incentives for research and development.
The IMF Chief also stressed on the importance of giving targeted education programs, skills training and employment incentives to lower skilled workers.
“Education and training are the key policy actions to raise both productivity growth and reduce inequality,” Lagarde said.
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