How To Exit Our Economic Era Of Slow Growth

Will slow growth rates persist in a global dynamic of 'secular stagnation?' Or will the IT revolution set off new bursts of productivity?

Workers assemble cars at a BMW factory in Germany. Some believe that technological progress has stagnated.
Workers assemble cars at a BMW factory in Germany. Some believe that technological progress has stagnated.
Jean-Marc Vittori


PARIS — Has painfully slow economic growth become our fate? A decade after the financial meltdown of 2007-2008, this question hangs over us, even after momentarily fading amid last year's global recovery. But now, the list of concerns is again expanding: Brexit, the Italian budget, monetary tightening in the United States, President Trump's protectionism, financial slides in Turkey and Argentina, German political fragmentation, the Saudis drifting off course, rising radicalism in Brazil and inconsistent economic performance in China.

Beyond the political uncertainties and growing inequalities that put pressure on demand, one must always consider growth's most potent engine: the efficiency of production. In France, one clearly observed progress in productivity at work in the 20 years preceding the crisis, at an annual rate of 1.3%. That has dropped to 0.9% since 2010, and a closer look reveals the break occurring in 2003-4. One finds similar shifts around the same time in neighboring countries.

Economists have been fiercely debating the origins of this disruption. Three researchers at the Bank of France, Gilbert Cette, Rémy Lecat, and the young and brilliant Antonin Bergeaud, are providing a hopeful sign in these generally less-than-cheerful debates with their new book, Le Bel Avenir de la croissance (Growth's Beautiful Future).

The IT revolution goes deeper than electricity.

One of the world's great productivity specialists, Robert J. Gordon of Northwestern University in Chicago, set the ball rolling five years ago with a pessimistic microeconomic proposition: that we have exhausted technical progress. The finest smartphone will never change our lives as much as the modern plumbing that brought water into our home, Gordon observes. Two economists from MIT in Boston, Erik Brynjolfsson and Andrew McAfee, replied in early 2014 with another microeconomic but optimistic argument: that IT innovations will unleash a tremendous wave of productivity. It is the perspective echoed in debates on AI's attendant hopes and anxieties over the future of work.

The debate is also macroeconomic. In 2013, former U.S. Treasury Secretary, Lawrence Summers, forwarded his own pessimistic argument. A former president of Harvard University, Summers believes we are in "secular stagnation," and an aging population in advanced countries is swelling savings. Investments, he says, are not enough to absorb this money, and interest rates, which assure equilibrium between the two, should be negative. And as this is not acceptable to savers, firms are not investing enough.

The Bank of France economists, however, state very cautiously an optimistic macroeconomic argument; the new digital wave could generate benefits as potent as those of electricity in the 20th century. Those are not yet here, but "historically, technologies have effectively needed decades to diffuse and be utilized in a fully efficient manner."


The Bank of France — Photo: Guilhem Vellut

Bergeaud, Cette and Lecat have even worked out the numbers. With secular stagnation, the annual growth rate in the next half-century will not exceed 1.5%, whether in France or the United States (though one might easily consider that figure excessive). In case of an effective technological revolution, the figure could more than double to reach around 3% a year.

At its core, however, it is not just about rates. These researchers insist there must be big changes to capture the benefits, and it will be hard to thrive in the digital revolution with a state structure and social contract dating from the time of heavy industry. The efficient use of "the most advanced technologies needs certain forms of organizational flexibility that are potentially thwarted by ponderous labor market regulations," they write.

Organizations must fully adapt to adequately profit from an industrial revolution. In the 20th century, industrialists built new factories to make full use of electricity. The destruction of World War II hastened movement in Europe, and both states and peoples created new institutions like social security.

In the 21st century, people will have to go much further by reinventing production, enterprise, social security, public intervention and education. The IT revolution goes deeper than electricity, and it is not just an external shock restricted to the physical realm. It impacts our internal capabilities — not just the way we act, but how we think. Inevitably, it must also be part of an ecological revolution. As for those people unable to adapt, their fate is to vanish from history.

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In Argentina, A Visit To World's Highest Solar Energy Park

With loans and solar panels from China, the massive solar park has been opened a year and is already powering the surrounding areas. Now the Chinese supplier is pushing for an expansion.

960,000 solar panels have been installed at the Cauchari park

Silvia Naishtat

CAUCHARI — Driving across the border with Chile into the northwest Argentine department of Susques, you may spot what looks like a black mass in the distance. Arriving at a 4,000-meter altitude in the municipality of Cauchari, what comes into view instead is an assembly of 960,000 solar panels. It is the world's highest photovoltaic (PV) park, which is also the second biggest solar energy facility in Latin America, after Mexico's Aguascalientes plant.

Spread over 800 hectares in an arid landscape, the Cauchari park has been operating for a year, and has so far turned sunshine into 315 megawatts of electricity, enough to power the local provincial capital of Jujuy through the national grid.

It has also generated some $50 million for the province, which Governor Gerardo Morales has allocated to building 239 schools.

Abundant sunshine, low temperatures

The physicist Martín Albornoz says Cauchari, which means "link to the sun," is exposed to the best solar radiation anywhere. The area has 260 days of sunshine, with no smog and relatively low temperatures, which helps keep the panels in optimal conditions.

Its construction began with a loan of more than $331 million from China's Eximbank, which allowed the purchase of panels made in Shanghai. They arrived in Buenos Aires in 2,500 containers and were later trucked a considerable distance to the site in Cauchari . This was a titanic project that required 1,200 builders and 10-ton cranes, but will save some 780,000 tons of CO2 emissions a year.

It is now run by 60 technicians. Its panels, with a 25-year guarantee, follow the sun's path and are cleaned twice a year. The plant is expected to have a service life of 40 years. Its choice of location was based on power lines traced in the 1990s to export power to Chile, now fed by the park.

Chinese engineers working in an office at the Cauchari park


Chinese want to expand

The plant belongs to the public-sector firm Jemse (Jujuy Energía y Minería), created in 2011 by the province's then governor Eduardo Fellner. Jemse's president, Felipe Albornoz, says that once Chinese credits are repaid in 20 years, Cauchari will earn the province $600 million.

The Argentine Energy ministry must now decide on the park's proposed expansion. The Chinese would pay in $200 million, which will help install 400,000 additional panels and generate enough power for the entire province of Jujuy.

The park's CEO, Guillermo Hoerth, observes that state policies are key to turning Jujuy into a green province. "We must change the production model. The world is rapidly cutting fossil fuel emissions. This is a great opportunity," Hoerth says.

The province's energy chief, Mario Pizarro, says in turn that Susques and three other provincial districts are already self-sufficient with clean energy, and three other districts would soon follow.

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