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Secular stagnation and low investment: breaking the vicious cycle – by McKinsey Global Institute. A
discussion paper.
Target audience?
Objective?
Aims to offer a preliminary view of the various forces at work in the face of secular stagnation: weak
investment despite ultra-low interest rates. To trigger discussion and receive feedback.
Research focuses on six themes: productivity and growth, natural resources, labour markets, the
evolution of global financial markets, the economic impact of technology and innovation, and
urbanization. Aim to provide leaders with facts and insights on which to base management and
policy decisions.
1. Graph to show investment collapse across various industry sectors in Europe – Eurostat
source, investment split data from European Commission AMECO
2. Declining investment in USA – capital formation as a share of GDP – from BEA Federal
Reserve Board
3. Slow growth and high depreciation are the real main drivers of low net investment in USA –
4. Leverage ratio in USA from 1950
5. Annual investment across sectors – also as % of GDP: McKinsey Infrastructure spend and
stock database
6. Infrastructure needs gap across the world - McKinsey Spend and Stock Database
1Global gap for 2016–30 calculated by adding negative values and multiplying up to USD
total and then dividing by cumulative world GDP. Without adjusting for positive gap, the
value is 0.2 percent. This has been calculated from a set of 49 countries for which data is
available for all sectors. This gap does not include additional investments needed to meet
the UN Sustainable Development Goals.
(Statistical agencies, including the Bureau of Economic Analysis in the United States)
It should have been useful for access to the data appendix (which is referred to but not available
online where this report was retrieved from)
Was the data fit for the purpose of illuminating what economic forces are, and triggering
discussion? “Face of stagnation” – orthodoxically worrisome tone, the analysts are posed to
provoke “a discussion” of how to address many fragile concerns associated with lacklustre
investment.
Perhaps using data to learn what other metrics may be associated with economic stability,
rather than comparing everything to GDP and accepting the growth of it for the axiom it is –
despite just one year prior to publication, publishing another report starkly named, “Is GDP the
best measure of growth?” “we welcome… new metrics of importance” “We urge the pursuit of
smart growth, rather than focussing on maximizing a single number”
Perhaps begin comparing against metrics for social stability, health, employment satisfaction –
measure these across history – not just GDP – to gauge what the “underlying forces” are in effecting
these too, and how sustainable those effects are or aren’t.
Cost of existing public works could be reduced by 40% is an effective but simple analysis, and
perhaps not as interesting as we might expect, as may policy makers are well aware of government
inefficiencies, pointing toward economic libertarianism as the model solution. This would free up
40% more capital for further public investment, procuring GDP. However, it may once again be
worth measuring the effect of privatization against metrics such as those noted above, to weigh up
whether it is truly cost-prohibitive to go down that path when tempered against other measures of
potential value erosion.
Another benefit of having included other metrics for measure, would be to begin quantifying all
those positive and negative externalities which are excluded from the market at large. The economy
has been and will continue to move into service and digital sectors, and is naturally evolving into a
‘sharing economy’. Perhaps these trends are two major reasons not measured in this report as
causes for low investment. They have described the economy as ‘stagnant’ while there is much value
– both positive and negative – excluded from their analysis. For example, measuring public benefit,
rewarding it, and incentivising it – could be a form of public investment – an investment in social
infrastructure. Capturing positive environmental externalities as well as negative ones – would spur
restorative ecological industries into life, monetised by those players who erode the commons so
tragically. There was talk about increasing capital tax and lowering income tax – without
acknowledging that upon scrutiny under other economic prosperity metrics such as these, “goods”
produced, turn out all to often to be “bads”. Perhaps some taxes should be awarded to those
transactionless goods produced, by analysing what the “bads” are and taxing them accordingly. A
more targeted and refined measure of taxing which is not so black and white.
Conclusion – did it achieve objectives? Useful for audience? Proud, or areas for improvement?