WASHINGTON • Living standards around the world could fall unless governments invest more in research and education that can help revive weak productivity growth, International Monetary Fund (IMF) managing director Christine Lagarde has warned.
Ms Lagarde said in a speech on Monday that the private sector alone will not be able to generate enough innovation to lift productivity to acceptable levels without government help.
Her remarks were accompanied by the release of an IMF study that found the 2008-2009 financial crisis and deep recession played a bigger role in slowing productivity than previously thought, stifling global demand and investment.
"Another decade of weak productivity growth would seriously undermine the rise in global living standards," Ms Lagarde told an audience at the American Enterprise Institute, a pro-business think-tank. "Slower growth could also jeopardise the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations," she added.
Economists, who see productivity gains as essential for sustaining higher wages and living standards, have struggled to explain a protracted slowdown in productivity growth since the early 2000s.
FINANCIAL, SOCIAL STABILITY AT RISK
Slower growth could also jeopardise the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations.
IMF CHIEF CHRISTINE LAGARDE, sounding an alert on weak productivity growth.
Ms Lagarde said the post-crisis recession has left a "permanent scar" on output per worker and total factor productivity, a broad measure of innovation that includes both labour and capital inputs.
"We estimate that, if total factor productivity growth had followed its pre-crisis trend, overall GDP in advanced economies would be about 5 per cent higher today," Ms Lagarde said. "That would be the equivalent of adding another Japan - and more - to the global economy."
She said all governments should do more to unleash entrepreneurial energy, including cutting barriers to competition, investing in education and providing tax incentives for research and development.
"One thing is clear: we need more innovation, not less. Market forces alone will not be able to deliver that boost, because innovation and invention are to some degree public goods."