The Great Reversal

What we are witnessing in Europe, and what may loom for the United States, is the exhaustion of the modern social order. Since the early 1800s, industrial societies rested on a marriage of economic growth and political stability. Economic progress improved people’s lives and anchored their loyalty to the state. Wars, depressions, revolutions and class conflicts interrupted cycle. But over time, prosperity fostered stable democracies in the United States, Europe and parts of Asia. Present economic crisis might reverse this virtuous process. Slower economic expansion would feed political instability and viceversa. This would be historic and ominous break from past. It’s this specter that hovers over the U.S. election and entire developed world, though it need not come true. Modern economies, especially United States’, possess great recuperative powers. The democratic traditions are strong. Still, a reversal can’t be excluded, because most advanced countries face slower economic growth, even if (hardly certain) they successfully navigate the fallout of the global financial crisis. Semi-stagnant societies can’t meet all expectations for jobs, higher wages and government benefits. Political institutions then lose legitimacy. Europe could foretell this dismal spiral. Demographics alone suggest slower economic growth. The aging of United States, Japan and most European countries reduces labor force growth, because there are fewer new workers compared with retiring workers. In United States, average labor force growth is now reckoned by the Congressional Budget Office at 0.5% a year, a third of its post-1950 average. Elsewhere, prospects are worse. In Germany, labor force is barely growing; Japan, it’s declining. In the short run, a slowing labor force cushions unemployment. In long run, it reduces economic growth. From 1950 to 2011, U.S. economic growth averaged 3.3% annually, divided roughly equally between an average labor force increases of 1.5% annually and productivity gains of 1.8%. (Productivity, efficiency, generally reflects new technologies, better management, more skilled workers.) With the labor force increasing more slowly, the pace of potential U.S. economic expansion would drop to 2.3% annually, assuming that productivity gains stay the same. Unfortunately, that’s an iffy assumption (…..) Economic progress, progress that people can feel and that feeds hope and optimism, favors political stability. If progress shrinks or vanishes, stability may suffer. People lose faith and feel betrayed. The role of economic growth in advanced societies is increasingly to satisfy the many claims from different groups. People can (or think they can) pursue their self-interest without harming common good. When the system reduces or rejects many of those claims, as is now happening in Europe, pursuit of self-interest becomes more contentious and destructive. What’s happening in America is different in degree, but not in kind, from what’s occurring in Europe. Stalled economic growth there is straining political system’s ability to meet all expectations. People take to the streets; extremist parties expand. To avoid Europe’s fate, we should reduce people’s claims on the system and strive for faster economic growth. That’s the lesson. If we ignore it, history may slip into reverse.



Acerca de ignaciocovelo
Consultor Internacional


Introduce tus datos o haz clic en un icono para iniciar sesión:

Logo de

Estás comentando usando tu cuenta de Cerrar sesión / Cambiar )

Imagen de Twitter

Estás comentando usando tu cuenta de Twitter. Cerrar sesión / Cambiar )

Foto de Facebook

Estás comentando usando tu cuenta de Facebook. Cerrar sesión / Cambiar )

Google+ photo

Estás comentando usando tu cuenta de Google+. Cerrar sesión / Cambiar )

Conectando a %s

A %d blogueros les gusta esto: