Must-Read: Michael Spence, Danny Leipziger, James Manyika, and Ravi Kanbur: Restarting the Global Economy

Must-Read: Michael Spence, Danny Leipziger, James Manyika, and Ravi Kanbur: Restarting the Global Economy: “The global economy is not working properly…

…aggregate demand must be expanded, the gap between excessively large pools of capital and huge unmet infrastructure needs must be bridged, and… the distributional downside of rapid technological advances and global integration must be addressed. Change will come only when a global vision is put forth, coupled with political will…. The challenges represented by these mismatches intersect and interact, and play out differently in the short, medium and long term. One normally thinks of aggregate demand deficiency as a short-term challenge of the business cycle, but the current mismatch at the global level has lasted more than seven years…. Deficient labour demand, as the result of weak aggregate demand overall, either lowers wages or causes unemployment if wages are rigid–worsening the distribution of income in either case. This trend towards greater inequality will only worsen as the consequence of long-run trends in labour-displacing technologies….

These three self-reinforcing mismatches are an indication not only of market failure, but also of the failure of governments to address the challenges they pose…. Three areas of concerted public action–boosting global demand (with an emphasis on investment and essential services), unblocking the flow of surplus funds towards unmet investment needs, and mitigating rising inequality–are mutually reinforcing. The analytical arguments behind them are strong. Public policy solutions are possible to deal with many economic challenges if political consensus can be achieved on tackling them, both nationally and globally. What is needed is global vision and political will that can make them a reality and thus restart the global economy so it can meet its potential on growth and on distribution.