Increase Productivity or Risk Fall in Living Standards, IMF Says

Governments should work on increasing productivity or risk a drop in living standards, the head of the International Monetary Fund said in a speech to a conservative think tank in Washington.

Christine Lagarde, managing director at the IMF said that if productivity growth had followed the pre-2008 crisis trend, overall GDP in advanced countries would have been higher by 5 per cent today. “That would be the equivalent of adding another Japan—and more—to the global economy,” Lagarde told the audience at the American Enterprise Institute.

“Another decade of weak productivity growth would seriously undermine the rise in global living standards. Slower growth could also jeopardize the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations.”

To improve productivity growth, Lagarde said countries should allow more entrepreneurs to grow by reducing bureaucracy, investing more in education, and tax breaks for research and development field. “IMF analysis shows that, if advanced economies were able to ramp up private R&D by 40 percent on average, they could increase their GDP by 5 percent in the long term,” said Lagarde.

Lagarde emphasised the importance of education in solving “dignity deficit”. “We estimate that in advanced and emerging economies, the slowdown of educational attainment has lowered labor productivity growth by 0.3 percentage points annually since the 1990s,” said Lagarde. “Indeed, education and training are the key policy actions to raise both productivity growth and reduce inequality.”