## Editor's Letter: Productivity and Prosperity

## Source details

**Canonical URL:** [Editor's Letter: Productivity and Prosperity](https://www.imf.org/en/publications/fandd/issues/2024/09/editor-letter-productivity-and-prosperity-gita-bhatt)

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## Bibliographic details
- Authors: GITA BHATT
- Published: September 3, 2024

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### Overview
- 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.

### Key challenges and empirical findings
- 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.

### Drivers and sectoral dynamics
- 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.

### Policy recommendations and areas for action
- 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.

### Contributions highlighted in this issue
- 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.

### Call to action
- 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.*

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## Content in this bundle

- **Editor's Letter — Productivity and Prosperity**
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- **fd0924-productivity**
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  - [fd0924-productivity (PDF)](/-/media/files/publications/fandd/article/2024/09/fd0924-productivity.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/fandd/issues/2024/09/editor-letter-productivity-and-prosperity-gita-bhatt_