Editor's Letter: Productivity and Prosperity

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Publication: F&D Magazine — Productivity and Prosperity
Author: GITA BHATT, F&D editor-in-chief
Date: September 2024
Opening quotation: “Productivity isn’t everything,” Paul Krugman wrote in his 1990 book, The Age of Diminished Expectations, “but in the long run it is almost everything.”
Central claim: Productivity is the foundation of prosperity; sustainable increases in living standards require producing more with existing or fewer resources.

Productivity is difficult to explain, difficult to measure, and difficult to improve.
Broad slowdown in productivity growth has occurred across almost all countries over the past 20 years.
Slower gains in total factor productivity account for more than half the deceleration in economic growth since the global financial crisis, IMF analysis shows.
Another decade of weak productivity growth could seriously erode living standards and threaten financial and social stability.

Total factor productivity (TFP) is especially sluggish; TFP measures how efficiently businesses turn capital and labor into output and captures innovation and technology.
Declining economic dynamism in the United States poses global spillover risks.
Small companies often drive productivity gains and are more innovative relative to their size; as firms grow and dominate markets they may shift toward protecting market position rather than fostering innovation.
New technologies and digital transformation, notably artificial intelligence, have the potential over time to underpin a major surge in productivity, but require broad accessibility across sectors and firms.

Increase immigration to offset a shrinking workforce (as part of measures to counter slowing productivity and declining dynamism).
Strengthen competition rules to encourage innovation by smaller, younger enterprises.
Encourage more effective reallocation of resources away from low-productivity firms.
Support smaller businesses and start-ups, not just large incumbents, through:
- targeted tax credits,
- grants for early-stage innovation,
- workforce retraining,
- policies that encourage competition and reduce barriers to entry for new players.
Ensure AI and new technologies are accessible to all sectors of the economy and to companies large and small to realize full economic potential.

Michael Peters (Yale): Causes of slowing productivity growth in the US; policy levers include immigration and competition policy.
Ufuk Akcigit (University of Chicago): Explores why increased US spending on research and development isn't necessarily boosting productivity; highlights the relative innovativeness of small firms.
Michael Spence (Nobel laureate): Argues AI and digital transformation can underpin a major surge in productivity if broadly accessible.
Daniel Susskind (King’s College London): Calls for a renewed approach to growth focused on improving people’s lives.
Edmund Phelps (Nobel laureate): Argues a productive society should allow people to enjoy “mass flourishing” from the grassroots up.

This issue assembles leading researchers to explain the withering of productivity gains, propose ways to counter these trends, and suggest how to spark economic dynamism.
Aim: Stimulate fresh thinking and further the debate on reversing productivity slowdown and sustaining prosperity.

Source: Editor's Letter: Productivity and Prosperity — GITA BHATT, F&D Magazine, September 2024.

Editor's Letter — Productivity and Prosperity
- Editor's Letter — Productivity and Prosperity (Markdown version)
- Editor's Letter — Productivity and Prosperity (PDF)
fd0924-productivity
- fd0924-productivity (Markdown version)
- fd0924-productivity (PDF)