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Western politics has developed a more nationalist character in recent years. In Europe populist parties claim to champion national interest against globalisation while in the US Bernie Sanders and Donald Trump have broken with the free trade consensus that has lasted since 1945.
Perhaps the most fundamental task facing economists is to measure the change in human welfare over time.
To get to a measure of spending power you need to measure incomes and prices over time. Incomes are relatively straightforward, prices less so. To gauge the changing standard of living you need to measure thousands of prices in constantly changing representative basket of goods and services.
Slow productivity growth is one of the biggest topics shaping current economic discourse.
It is hard to overstate the importance of productivity in driving improvements in living standards. Since 1850, UK GDP per head has risen 20-fold, transforming our standards of living. If productivity had remained flat over that period, GDP per head would only have doubled.
UK labour productivity rose at around 2% a year from the seventies but has stagnated since the financial crisis. British productivity now remains only slightly higher than its pre-crisis peak at the end of 2007.
The last Deloitte survey of UK Chief Financial Officers shows a further easing of the Brexit shock that hit corporate spirits last summer. The full report is available at:
CFO perceptions of external macro-economic and financial uncertainty have almost halved since last year’s EU referendum. Business optimism, which dropped to the lowest level in nine years last July, has risen to an 18-month high.
It is perhaps odd that despite gloomy news stories about the risks to growth the world economy is recovering. And this is a rare thing, a synchronised global recovery with activity strengthening in developed and emerging markets for the first time since 2010.
Leading indicators for growth are flashing green. Singaporean export growth, a barometer of global demand, has hit a two-year high. Chinese electricity consumption has rebounded.
Societies become richer by producing more goods and services from a fixed amount of labour and other inputs. The history of human material progress is the history of ever greater efficiency in production.
Since the financial crisis that process seems to have broken down. Productivity growth has slowed and, for many, wages have stagnated. Across the Western world policymakers and politicians are searching for ways of raising productivity growth.
Free trade helped power a dramatic rise in living standards in the West in the nineteenth and twentieth centuries. In the last three decades it has had a similar impact on the welfare of billions of people in emerging economies.
Yet in the face of a backlash against globalisation, free trade is arguably more at risk than at any time since the 1930s. Those who want to limit trade see it as a way of “bringing home” high-quality jobs and reinvigorating industry.
History has often illustrated the power of the maxim, coined by the French socialist thinker, Auguste Comte, that “Demography is destiny”. The post war baby boom helped drive growth in Europe and North America through the 1950s and 1960s. In the 1970s Asia enjoyed similar, population-driven, gains.
History also shows that Comte’s dictum could, more accurately, but less elegantly, be rendered as, “Demography and policy are destiny”. To realize the potential of an expanding population a country needs to invest in education and infrastructure, and to have sound government.
Switch on the TV news, follow Twitter or read a paper and it can feel like we are living in an era of high, perhaps unprecedented, uncertainty.
We certainly seem, over time, to have become more aware of uncertainty. Since the 1940s references in English language books to uncertainty, volatility, complexity and ambiguity have soared. The term Chief Risk Officer did not exist before the mid-1990s. Now CROs are an established part of many large companies. In the 1990s the US army War College coined the term VUCA in to describe an apparently new world of volatility, uncertainty, complexity and ambiguity.
Last week two of the UK’s leading economic forecasters concluded that Brexit is unlikely to cause a sharp slowdown in UK growth over the next three years. This is big news.
Last summer, in the weeks after the referendum, talk of the UK falling into recession was rife. Economists slashed their UK growth forecasts. By August economists expected GDP growth would fall away in the second half of 2016 as Brexit hit home. They saw the UK eking out meagre growth of 0.6% in 2017, the slowest since the recession in 2009.