Ideas For The Long Term

The slowing global economy occurs at a time when the social, political and economic institutions established by the West, including the World Bank, the World Trade Organization, the IMF, NATO and the U.N. are fighting for their credibility.

“The people in emerging markets have said, ‘Wait a second, the crises we are facing right now are largely coming out of the West,’” says Moyo. “Debt burden, political instability, the massive financial crisis—all of these problems come from the West. Might there be some other pathways in terms of ideologies that can generate long-term growth? There’s also a belief that income inequality could be a direct artifact of capitalism. Taken together, there’s a growing skepticism about democracy and market capitalism.”

Moyo argues that traditional global institutions are worth salvaging, but should be distanced somewhat from the Western political and economic models they were founded upon and incorporate more ideas from emerging market countries.
Western countries might also need to be more flexible with their strategies to foster growth and development, she says.
“Inequality is worsening in the U.S. and improving in China, and part of the reason is that in the West we tend to despise any form of government intervention,” she says.

Ideological strategies, like the implementation of free-market capitalism or command-and-control socialism or communism, are unlikely to restore economic growth on their own, she says.

Successful policy won’t stem from pitting free markets against command-and-control philosophies, or democracy against other forms of governance, she says. Solutions are more likely to come from blending both ideals, says Moyo.
“We need some sort of third way, if I can use that terminology. But what that looks like ultimately is up for grabs,” she says. “What is clear to me is that” ideology for ideology’s sake is the enemy of growth.

Western policy makers, public and private, are also bound by short-term concerns, she says. In the U.S., she says, legislators are constrained by their constituents via election cycles that force them to favor quick, temporary fixes to large structural problems that may be easier to pass than complicated, long-term solutions.

Companies are also constrained into short-term thinking by their shareholders, Moyo says. In the West, public companies are encouraged to plunge ever higher levels of cash into dividends and buybacks, she notes, just as technological disruption threatens their businesses.

“There are companies sitting on piles of cash, issuing dividends that far overreach their earnings,” she says. “That’s underscoring the concerns by a lot of corporations that they aren’t able to reinvest in a growth story. Then there are also concerns about public policy.”

Plans to enact tax reform that would repatriate offshore capital could put billions of dollars into the coffers of American companies, says Moyo, but much of that money could be paid out in dividends and buybacks, rather than invested in economic growth.

Moyo believes that none of the short-term proposals before U.S. policy makers address long-term concerns like technological change and changes in demographics such as an aging population and decreased fertility rates. It’s also unclear to what extent policies like increased infrastructure spending and tax reform will be able to stimulate growth, she says, noting that Japan spent $6.3 trillion developing its infrastructure during its lost decade, yet generated very little economic growth.

“The irony is that we do need infrastructure,” she says. “It’s the backbone of an economy. You have to be able to move things through ports and railroads and roads.” She points out that the American Society of Civil Engineers recently gave U.S. infrastructure a “D+” grade. “That does not comport with a developed country looking to increase its economic growth rate.”

In the short term, some sort of fiscal stimulus might be necessary to enhance productivity, but the long-term global economic headwinds loom large, she says.

It is critical that American policy makers invest in social policy and education to support long-term economic growth, says Moyo.

“We need policies to address all the economic factors like debt, income inequality, demographics and technology,” says Moyo. “You can’t fight on one factor alone. There’s an array of factors challenging the economy as a whole. While a fiscal stimulus and/or some form of tax package is necessary to me, it would be foolhardy to say it’s sufficient.”