By Paolo von Schirach
November 4, 2013
WASHINGTON – How much economic growth is “adequate”? Who knows, really. The answer depends mostly on societal expectations that emerge from a national consensus. For instance, in China an annual growth rate of “only” 7% to 7.5% % a year may be highly problematic. The Beijing leadership needs strong growth in order to keep social peace. Indeed, while hundreds of millions of Chinese have been lifted out of poverty thanks to the pro-growth reform process that was launched by Deng back in 1978, hundreds of millions (in a population of 1.4 billion) have yet to benefit. So, 7% may not be good enough to manage expectations.
Slow growth
In the more mature US scenario many economists argue that we are really slipping behind, because we have settled on 2% growth, while the historic post war norm used to be 3%. The difference between 2% and 3% is of course huge. In Europe there is almost no debate. Diminished expectations are the norm. The end of a protracted Eurozone contraction has been saluted as a triumph, even though the recovery is small and uneven.
In Europe no growth is alright
Indeed, in Spain, a feeble growth rate led by a few exporters is heralded as a major achievement, even though just a handful of manufacturers cannot possibly grow enough to absorb a staggering 26% unemployment rate. In Italy Istat, the national statistics bureau, is offering the hopeful forecast that in 2014 the economy should grow by 0.7%. Again, yet another triumph. Think of that, almost 1%! Yes, except that for 2013 the Italian economy is projected to experience a 1.8% contraction. But, cheer up, unemployment is going to be 12.4% while private consumption will decline by 2.4%.
Diminished expectations, mediocre policy-makers
As I said, this is our new understanding of what a “recovery” is. Diminished expectations may be alright for politicians running for re-election. They can point to tiny steps as major accomplishments and get away with it. But later on, with the benefit of hindsight, historians will label these policy-makers for what they really are: unimaginative leaders who were at the helm and could do nothing better than manage a historic decline.