A New Model for Economic Growth

Last week, I was  very busy travelling for Dublin to  Bonn, from Bonn to London  where I  saw my daughter Juliana who lives there,  then by  train to Paris, and finally back home on Friday night.

In Bonn I attended an event organised in conjunction with the EPP Congress. I took part in a panel discussing transatlantic relations, with special reference to innovation in the economic field. I have put my own speech up on the  website below  this posting.

My good friend  Elmar Brok MEP also  spoke. He  emphasised cooperating to protect  intellectual property  so  that  European businesses who invest huge sums  in new products and processes  do not have  all their  work undermined by  competitors who  steal their designs and  brands and  can undercut  them because they  have  not had to expend  anything on  research. He also  praised  risk taking  quoting  Woody Allen  who said that if  you  do not  fail from  time  to time , it is a  sign that  you are not  doing  very much.

There was a very interesting panel on telecommunications . It was claimed that huge new investments will have to be made if the network is to  keep up with demand....350 billion dollars in the US alone. At the EPP event, I also met Michel Barnier, who is about to take on a very important  economic role in the European Commission, and  the  Vice Prime Minister of Ukraine, Hryhoriy Nemyria.

In Paris, I spoke at the French Institute for International Relations (IFRI).   One of the questions addressed was whether we had yet discovered a new post crisis model for economic growth. I concluded  that it  will be  difficult to find a new  economic growth model, until the imbalances that  led to the  crisis have  first been  eliminated.

A Stimulus that prevents  an over rapid economic decline  may be  justified and necessary, but it is an anaesthetic , it is  not a  cure. The cure is to eliminate the imbalances  that led to the  crisis. One of these imbalances is the continuing undervaluation of the Chinese currency, which continues to  cause a  misallocation of  global resources.

The artificially large  amount of Chinese  savings, caused by the  undervaluation of the currency, initially led to  a bubble in  consumer  debt in  the  US, Spain, Ireland  and  some  other  countries. Now  that that  bubble is painfully  deflating,  the  savings are  going  instead into  a new bubble  of  borrowing by western Governments  at  low interest  rates.  It is too easy for Governments to borrow at these rates.  But as soon as the savings are  brought  home  to China, interest rates for  Governments  will rise, as happened in the  1980s. Then our problems will be far more  severe than they are today.

My own strong view is that a new  growth model must involve

1.     radically  raising the retirement  age  so that  our pension and healthcare costs  do not overwhelm    us, and

2.     investing   in early childhood education so  that we no longer have  up to  10% of  children  emerging  from  our school system  without the  abilities they will need to survive in  the modern high tech world.

There were a number of other interesting ideas at the IFRI Conference and I will come back to them in future  postings on this site.