The connection between low productivity, inequality and public policy
Brookings and the Chumir Foundation for Ethics in Leadership conducted a study with the goal of understanding which are the factors that undermine economic productivity and fairness. Their evidence suggests:
- Market conditions and public policies—not technological innovation—are the cause of the less than potential economic performance;
- The same policies and conditions are responsible for the diminished economic performance and the increasingly uneven income distribution;
- The dominant causes have been deterioration in market competitiveness, reinforced by loosened regulation and intellectual property protection domestically and internationally; and
- Macroeconomic conditions of low interest rates and low-yielding investment discourage investments needed to get out of a negative cycle.
A granular look at how trade affects inequality – the role of intermediate goods
Basco and Mestieri show that trade in intermediates generates a reallocation of capital across countries that exacerbates world inequality in both income and welfare. In addition, they show that the combination of (i) trade in intermediate inputs heterogeneous in capital-intensity and (ii) the internal accumulation of capital generates within-country inequality. They also find that the change in within-country inequality has a U-shape in the level of productivity of the country i.e. inequality is exacerbated in the most and least productive countries. The most productive countries tend to specialize in the most capital-intensive intermediates and as a result they increase the weight of payment to capital in total income.
Trade and Inequality: The Effects of International Unbundling of Production
Authors: Sergi Basco, Martí ́Mestieri
From: Universitat Autònoma Barcelona, Northwestern University
What type of industrial policy is needed?
There is a strong case for government support to sectors that will increasingly rely on artificial intelligence. It is along this line of thinking that Germany plans to promote the production of such intermediate goods as electric-car batteries which could accelerate an industrial renaissance in Europe.
A sizeable electric-car industry in Europe would increase demand for labor and cause real per capita incomes to rise. And the more important battery cells are to the overall value of electric cars, the stronger the agglomeration effect will be.
The Case for Intelligent Industrial Policy
By: Dalia Marin – University of Munich