## Editor's Letter — Productivity and Prosperity

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**Canonical URL:** [Editor's Letter — Productivity and Prosperity](https://www.imf.org/-/media/files/publications/fandd/article/2024/09/editor-letter-productivity.pdf)

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### Summary
- Productivity is foundational to sustained improvements in living standards: "The only way a country can raise its standard of living sustainably is to produce more with existing or fewer resources."
- There is "no consensus on how to reverse the broad slowdown in productivity growth seen across almost all countries over the past 20 years."
- Slower gains in total factor productivity explain "more than half the deceleration in economic growth since the global financial crisis," according to IMF analysis.
- This issue of F&D assembles research on causes of slowing productivity, how to counter the trends, and ways to spark economic dynamism.

### Key findings on the productivity slowdown
- The slowdown in productivity growth has been broad-based across almost all countries over the past 20 years.
- Total factor productivity—measuring how efficiently businesses turn capital and labor into output—has been especially sluggish and captures innovation and technology shortfalls.
- Another decade of weak productivity growth could "seriously erode living standards and threaten financial and social stability."

### Causes and drivers discussed
- Declining economic dynamism, notably in the United States, with potential global spillovers.
- Shifts in firm behavior as companies grow and dominate markets: they often move toward protecting market position rather than fostering innovation.
- The distribution of R&D effectiveness: increased US spending on research and development is not necessarily boosting productivity because small firms appear more innovative relative to their size and may use R&D resources more efficiently.

### Role of new technologies and AI
- New technologies and digital transformation, "notably artificial intelligence," have the potential over time to underpin a major surge in productivity (Michael Spence).
- For AI to reach its full economic potential, it "must be accessible to all sectors of the economy, and to companies large and small."

### Policy recommendations and measures
- Encourage more effective reallocation of resources away from low-productivity firms.
- Support smaller businesses and start-ups, not just large incumbents. Suggested tools include:
  - targeted tax credits,
  - grants for early-stage innovation,
  - workforce retraining,
  - policies that encourage competition and reduce barriers to entry for new players.
- Consider greater immigration to offset a shrinking workforce and stronger competition rules to encourage innovation by smaller, younger firms (Michael Peters).

### Perspectives and contributors
- Yale economist Michael Peters: analyzes causes of slowing productivity growth in the US and suggests immigration and competition policy options.
- University of Chicago’s Ufuk Akcigit: examines why increased US R&D spending isn't necessarily boosting productivity and highlights the relative innovativeness of small firms.
- Nobel laureate Michael Spence: assesses the productivity potential of AI and the need for broad accessibility across sectors and firms.
- Daniel Susskind: argues for renewed approaches to improve people's lives in the context of productivity-driven growth.
- Nobel laureate Edmund Phelps: envisions a productive society enabling "mass flourishing" from the grassroots up.

### Closing
- The editor hopes the assembled articles "stimulate fresh thinking and further the debate."

*editor-letter-productivity*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/09/editor-letter-productivity.pdf_