We are constantly receiving alarming news on the state of the global economy. Insufficient growth, first in the industrialised world, and now in the emerging markets, writes Prince Michael of Liechtenstein.
Free markets brought unprecedented growth to world economies, especially since the 1980s. Living standards increased, and hundreds of millions of people globally were freed from poverty. In this context we have to acknowledge that free markets are based on a functioning market economy. It must not be confused with turbo capitalism based on a crony system such as has developed in Russia.
Unfortunately, this growth was followed by expansion of the public sector and a welter of regulations. Centralised economic planning began again to replace entrepreneurial spirit. Economic freedom was curbed and public spending soared. Curbing economic freedom reduced the entrepreneurial dynamic. The first remedy, to hide the decreasing dynamic, was to flood the economy with easy money.
The priests of planned economies do not allow criticism of their systems. It is considered heresy to have less state and less centralised control and planning to unleash the economy.
But some reason for the decline in the economy had to be found. The magic words to emerge are ‘secular stagnation’. This is a fate which has to be accepted - something which happens and about which nothing can be done.
According to the Financial Times secular stagnation is a condition reflecting negligible or no economic growth in a market economy. It refers to long-term stagnation caused by fundamental changes as opposed to cyclical stagnation which is short term.
This serves as a pretext or excuse to continue hobbling free markets and maintain central planning, government intervention and close to ideological economic theories as undisputed policies.
This ordered fatalism is toxic. Responsible politics should look at the real and underlying cause of our crisis. This is insufficient productivity overall in our economies. Innovation and competition are the very essence of the process.
The economy needs regulations and frameworks. But the regulations have become overbearing and inefficient. The result is that controlling sectors have expanded hugely and are now oversized. They are reducing overall productivity. The public sector is also growing constantly and is not productive in all areas.
Reducing the regulatory jungle, re-establishing a sounder relationship between the public and private sectors and allowing entrepreneurial freedom to flourish again could free us from the apathy of accepting ‘secular stagnation’.
This could create a new innovative climate.