Michael Spence is a Nobel Laureate in Economics, Distinguished Professor of Economics and former Dean of the Stanford University Graduate School of Business. He is a senior fellow at the Hoover Institution, serves on the academic committee of Luohan Academy, and is co-chair of the Advisory Board of the Asia Global Institute. Author of The Next Convergence: The Future of Economic Growth in a Multi-Speed World.
“A multi-speed economic recovery is now underway, reflecting large differences between countries in containment of the coronavirus, and in the acquisition and use of vaccines. But despite these differences in timing, there will soon be a cascading sequence of rapid recovery around the world.
Will we witness a transition to a completely different dynamic?
Branches of the economy that were closed due to the impossibility of functioning without unsafe human-to-human proximity will now (or soon) reopen. Businesses surviving pandemic shutdowns (many supported by financial programs) will expand rapidly on pent-up demand. Growth rates will rise for a limited period of time before falling back to normal levels. We will enter the post-recovery world sometime in 2022 (though for some it will come sooner than for others).
For investors, policy makers, businesses and households, the big question is whether and to what extent we will return to pre-pandemic growth patterns.
While there are many areas of uncertainty in the post-recovery economy, some industries appear poised for a period of extremely rapid growth. Particularly in sectors with a combination of technological capabilities, available capital and strong demand for new creative solutions, conditions will be very favorable for investment and start-ups.
The three candidates with the most growth potential.
Among the broad sectors with the most growth potential, the top three candidates are:
● application of digital technologies throughout the economy,
● biotechnologies (and their application in health care and not only),
● technologies that address various sustainability issues, especially those related to climate change .
Increased growth in this context means not only the growth of the sector, but also a high level of entrepreneurial activity and innovation, many new high-growth companies and large capital inflows that provide higher expected rates of return.
These areas are different, but also overlap, because they are determined more by science and technology than by results. All candidates are identified as key sources of sustainability - both for business and for society as a whole. This perception is reinforced by the pandemic and growing awareness of the impacts of climate change. Between this changing mindset and the forcible adoption of digital technologies during the pandemic, we are seeing an increased awareness of both the opportunity and the need for digitalization. And this is reflected in the high and growing demand for technological solutions.
Tech ecosystems are expanding in all countries.
In all three industries, years of research and innovation have resulted in powerful scientific tools and technologies that are becoming widely available to entrepreneurs and investors seeking to solve specific problems. At the same time, technology entrepreneurial ecosystems that were concentrated in just a few places have expanded around the world. An interconnected network of investors and entrepreneurs has emerged to exchange views, transfer technology and adapt to local conditions.
Startup "unicorns" once associated with Silicon Valley / the southern part of the San Francisco Bay Area in California, where the headquarters of international high-tech corporations are located and organizations involved in the development of new technologies are concentrated - approx. translator / and several other high-tech centers are now increasingly found in a wide range of developed and middle-income countries, as well as in unexpected sectors such as education. Entrepreneurial talent systems are taking root around the world.
This is partly due to the fact that governments have recognized the opportunities in these industries and stepped up accordingly. Pandemic-related financial programs have been far more aggressive than in the past. Commitments to invest in infrastructure (including digital), science and technology are growing not only in the US and China, but also in Europe in the digital, biotech and environmental sectors.
Moreover, it seems that policy makers understand that the lack of demand affects not only employment, but also incentives for the adoption of new technologies. Thus, most governments are keen to ensure that the economy operates at a high intensity without "headwinds" from the demand side, holding back growth and employment.
Digital transformation is the way to increase productivity.
Given these factors, there is a reasonable chance that the 15-year negative trend in aggregate productivity growth - and thus overall real growth - will be reversed. Powerful new general-purpose technologies are emerging that have become more widespread in previously lagging industries during the pandemic. This is very important because the growth of productivity at the aggregate level requires not only the ubiquitous availability of the necessary technologies, but also their wide distribution.
The introduction of digital technologies by small and medium-sized businesses and lagging industries is especially important. In India, part of the digital transformation includes equipping millions of small retailers and their associated supply chains with technology solutions, rather than being swept away by large enterprises, which can lead to major disruptions.
Income distribution is another key driver of productivity growth.
If the extra income continues to flow mainly to high net worth individuals and wealth holders, this could be good for asset prices but bad for demand and hence business investment and productivity.
In the US, President Joe Biden's budgetary plans (infrastructure investment, tax changes, and minimum wage increases) are designed to restore middle-income jobs and boost incomes for low- and middle-income families.
According to a recent study by the McKinsey Global Institute, digital transformation can be broad enough to significantly boost overall productivity growth. For example, innovation in primary health care delivery (a previously championed sector) is likely to be reflected not only in sector performance data but also in other important performance indicators, including overall health outcomes and quality and timeliness. help.
It seems that decarbonization / reduction of carbon dioxide (CO 2 ) emissions - approx. translator / will have a small or even slightly negative direct impact on growth and productivity. But in this matter, one should keep in mind the appropriate time horizons. Whatever the short-term effects of an expanded green investment program, the goal is not to improve productivity in the short or even medium term. Rather, it is about avoiding or reducing the risk of a massive negative performance shock in the long run. Thus, the present value of green investment can be very high, even if the impact on short-term productivity is small."