Economy ‘at a menopausal moment’
Bank of England deputy sounds warning of a productivity slump ahead of ‘the next big thing’
BRITAIN’S economy is entering a “menopausal” phase after passing peak productivity, a Deputy Governor of the Bank of England has suggested.
Ben Broadbent compared the current slowdown in growth and wages to a lull at the end of the 19th century, when the height of the steam era was over but the age of electricity was yet to begin.
Today’s economy could be experiencing a similar trough as it passes the boom of the digital era and awaits the next big breakthrough, possibly with artificial intelligence.
In an interview with The Daily Telegraph, Mr Broadbent, who sits on the committee that sets interest rates, said financial experts used the “menopausal” metaphor for economies that were “past their peak and no longer so potent”. He said opinion was divided over the cause of Britain’s current productivity slowdown, which has lasted for nearly a decade and resulted in poor growth and stagnant wages. The knockon effect for governments is that the tax-take becomes static, meaning less money for public spending.
During industrial revolutions, technological advances increase the amount of wealth produced by each worker, driving economic growth. Over the past 10 years, however, productivity levels have been weaker than expected, forcing the Government’s spending watchdog, the Office for Budget Responsibility, to slash its predictions for economic growth last year. The OBR said low productivity growth would cause a £90billion black hole in the balance sheet by denting tax receipts.
Mr Broadbent said that something similar happened in the late Victorian era. Towards the end of the 19th century, British productivity “slowed pretty much to a halt” as it entered what he labelled a “climacteric” period.
The word “climacteric” is, according to Mr Broadbent, a term that economists have borrowed from biology and means “you’ve passed your productive peak”. It has the same Latin roots as “climax” and means “menopausal, but it applies to both genders”, he said.
Economists are still divided about what caused the stagnation in productivity growth at the end of the 19th century. Mr Broadbent believes it might have been the result of the economy pausing between the two great technological advances of the industrial period – steam and electricity.
The modern economy could be experiencing a similar phenomenon as we have enjoyed the productivity gains from the invention of the internet and are now awaiting the next big breakthrough – perhaps with artificial intelligence.
Modern societies expect to become more efficient and hence better off as their economies grow. But in recent years the amount of output being produced per working hour has levelled off. The economy continues to grow but mostly because the population is getting larger.
Interview: Business, Page 4