Boom Boom - the Millennium Is Not Going to Be an Economic Joke; A Bank of England Guru Is Thinking of Ways to Engineer Long-Term Economic Growth, Reports Special Correspondent Alan Wheatley
Wheatley, Alan, The Birmingham Post (England)
Could the world mark the Millennium by embarking on a sustained period of high growth?
The weight of historical evidence says no.
Despite technological advances and an absence of major wars, growth in the 1980s and 1990s was slower than in the 1960s and 1970s.
But as high-flying Wall Street apparently discounts an infinitely rosy future and some US policy-makers muse about a possible revolution in economic conditions, Ms DeAnne Julius of the Bank of England's Monetary Policy Committee has been thinking about the policy settings needed to fuel a long boom.
In a paper written for the Organisation for Economic Co-operation and Development, she sketches three scenarios, each of which could deliver a quarter century of world growth well above the annual average of three per cent that has prevailed over the past two centuries.
"Even with fair geopolitical and technological tailwinds, the extent of policy change required to reach a higher global growth path is sobering," she said in her paper.
"None of these scenarios is easy to achieve. . . yet taken together, they suggest a set of policy priorities that can significantly raise the chances of a global Long Boom."
In the paper, prepared for a recent brainstorming conference organised by the OECD's Forum for the Future, Ms Julius said none of the scenarios should be regarded as a most likely forecast of growth as all are outside the grounds of historical probability.
"But as a thought exercise it is useful to have a target - say, 3.5 to four per cent annual average world growth for 25 years - to sharpen the focus on growth-enhancing policies," she said.
Under the first scenario, which she calls Growth Leader, the United States consolidates its economic and political leadership by harnessing its entrepreneurial spirit and technological edge to export the US social-economic and legal models.
Federal Reserve chairman Mr Alan Greenspan said last year that Asia already seemed to be heading down this road.
"My sense is that one consequence of this Asian crisis is an increasing awareness in the region that market capitalism, as practised in the West, especially in the United States, is the superior model," the US central bank chief said.
But Ms Julius said Europe and Japan would be in a far less comfortable position, being forced to respond to fierce US competitive pressures by slashing social overheads, reforming pension financing and cutting farm subsidies.
"All of these changes are growth-enhancing in the long run but they require wrenching political trade-offs," she said. "It is not an attractive scenario for most of the world, and its political feasibility is its weakest link."
In the Growth Shift scenario, the economic centre of gravity moves from the OECD area of 29 rich industrial nations to the emerging market economies (EMEs) in Asia and Latin America.
The shift is driven by the growing demand of ageing, richer OECD populations for services such as leisure and health at the expense of goods. A stagnant or shrinking workforce leads to wage inflation that prompts manufacturers to move new production in the EMEs. Asia in particular learns the lessons of the late 1990s crisis and re-emerges as a huge engine of growth.
All three scenarios depend on developing countries improving on the 3.5 per cent annual average growth they have notched up since 1974. But it is under Growth Shift that they do best: while annual growth in the OECD area slows to one per cent, it jumps in the EMEs to six per cent. …