The world has never been wealthier. Over the past two decades, if one looks at the global economy through the lens of a corporate balance sheet, net worth has more than tripled. However, the world’s ballooning wealth has been driven largely by low interest rates and a flood of money into real assets, particularly real estate, rather than investment in productive stuff like digital infrastructure, renewable energy, and affordable housing. To put it very crudely: since the financial crisis, cheap money from central banks has driven up prices for land and buildings instead of being invested productively.

Since the 2007-2009 financial crisis, global productivity growth has stagnated. Lower productivity growth has led to lower wage growth; as the International Labor Organization (ILO) puts it: “Sustainable wage growth over long periods is only possible when there is significant productivity growth”. For some countries, the picture is even bleaker; the Organisation for Economic Co-operation and Development (OECD) reports that, for several of its members, even modest productivity growth has been decoupling from wage growth for decades, meaning a shrinking share of GDP has been going to labour since the 1990s.

What do our readers think? We had a comment from Bruno, pointing out that “productivity in the West has not increased in the last decades, despite all the technological developments”. How can Europe escape this trend and start building a high-wage, high-productivity economy?

We also had a comment from Yannick, who worries that interest rate hikes in response to rising inflation could hurt young people (and young homeowners in particular). What impact might interest rate rises have on the economy?

To get a response, we put both these comments to Jan Mischke, Partner and Research Leader on Europe at the McKinsey Global Institute (MGI) during an interview with Friends of Europe. You can see his responses in the video at the top of this post.

How can Europe build a high-wage, high-productivity economy? What impact will interest rate rises have on the economy? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!

IMAGE CREDITS: BigStock – (c) manpeppe
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10 comments Post a commentcomment

What do YOU think?

  1. avatar
    EU-Reform Proactive

    I would go along with:

    “To put it very crudely: since the financial crisis, cheap money from central banks has driven up prices for land and buildings instead of being invested productively.”

    Then- why would one turn to all these “policymakers and experts” for advice when they are the cause of helping the millionaires to become billionaires or “crudely said”- to pervert the system where the already rich are destined to become stinking rich?

    First in the EU (not Europe) firing line should be the EZB comrades, their unworkable strategies, the so-called experts, all Banksters and the lobbyists.

    The DE/FoE/EU dares to seek advice from those who are legally excluded to give sensible advice- except one becomes a lawyer & joins the infamous club!

    Knee jerk response: fire most of these high flying Banksters, reduce the number of experts and introduce real- not fake- direct democracy. The many expert voices can be ventilated through referendums- because, we are told we are all equally “accountable”- like one expert, one Bankster, one billionaire- One Vote!
    Genuine scientists excluded.

    Any Problem with that?

  2. avatar
    catherine benning

    How can Europe build a high-wage, high-productivity economy?

    The individual Western world is getting poorer not richer. Look back to what the average working family used to be able to expect to amass in their working lifetime.

    In WWII, one of the poorest times our people had to live through, yet their lifestyle looks more comfortable all round than young people can expect today.. The financial pie has been devoured in a way, unseen since the middle ages, by a few not seen since the Victorian period.

    This gives a little insight into how much the working classes have ben robbed.

    Three women leave jail, yet, look at their standard of living expectation. Their clothes alone are well made to a standard hard to find anywhere today. Their interiors, even the poorest of them not living in the shite hole people are expected to endure today. The food, the restaurants and what they offer as a service. Their hair regularly looked after at the coiffure.. The cleanliness. Just look back to yesterday and compare with the slum like lifestyle we have on offer today. Is there a chance an average person leaving university can afford a mortgage or even a room in todays ‘New World Order?’

    https://www.youtube.com/watch?v=wJzzDzPFOqI&ab_channel=brianhurley

  3. avatar
    Yannick

    Hello? Do what Scandinavia does. Denmark’s tax rate for the highest income bracket is 65%. That pays for a lot of stuff. Trickle down does not just happen: we need to design it into the system. Slovakia’s public staff is paid below living rates (500eur / month), but the highest tax is 22%. The solution is very simple, but is often playing against collusion between decision makers and the rich.

  4. avatar
    Крис

    The world has never been wealthier but it has never been poorer too. What a paradox. Only an economically illiterate person would believe that as the rich get richer the rest gets richer as well. The more important questions are what we must NOT do in order to build a modern economy. We must no continue with the current economic model which is totally outdated and doesn’t work. As a beginning we must abolish the 8-hour workday. It used to be a good innovation for its time but right now it’s not effective anymore. You simply can’t build a 21st century economy with a 19th century working concepts. Simple as that.

    • avatar
      Joe

      Would you shorten the length of the working day or increase it?

  5. avatar
    Olivier

    No Asia grows 3 time faster than Europe and USA 2 times faster than Europe. EUROPE is decadent…

  6. avatar
    Tristan

    Trickle-down is one of the big lies neoliberals have told.

  7. avatar
    Francis

    Open up borders to the east ‘ for easier trade

  8. avatar
    Крис

    Abolished the 8-hour workday once and for all! You can’t build a successful 21st century economy with working concepts from the 19th century. This torture over working must stop.

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