Dambisa Moyo - How the West was Lost

Dambisa Moyo’s talk at the RSA available here focuses on some of the long term structural problems facing Western Economies in general and the USA in particular. She argues that there are three crucial ingredients in economic growth - better capital, the quantity and quality of the workforce plus improvements in productivity

When it comes to capital, the US economy is said to be on a path to unsustainable debt close to 90% of GDP whereas China has an incredibly low debt to GDP ratio and $1 billion per day interest income from their $3 trilion of foreign exchange reserves.

Data from Timetric.

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Federal Government Debt: Total Public Debt from Timetric

Labour market themes

1/ Pensions - long term demographic changes threaten entire industries as pension liabilities accumulate. A crucial issue for both the public and the private sector.

2/ Major concerns about future health care costs associated with an aging population and the impact of obesity-related illnesses such as diabetes

3/ How will countries continue to attract new talent from around the world as political pressure mounts to impose caps on skilled migrants

4/ Evidence of a decline in relative educational standards in the USA and other emerged countries including slippage in science and maths which will impact on growth potential for high knowledge countries

5/ High unit labour costs - labour in the US is costly compared to the developing world - for manufacturing this makes it really hard for US businesses to compete.

6/ Persistently high unemployment rates in countries such as the USA and with it structural rise in income and wealth inequality. 30 million Americans are out of work and long term unemployment is high too. The real incomes of millions of workers in manufacturing industry in middle America have been either flat or falling. Globalisation has contributed to an increase in income inequality within the USA.

Data from Timetric.

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ILO unemployment rate SA United States: monthly from Timetric

The US faces a key choice going forward - remaining open to free trade, capital and labour flows. Or making a move away from globalisation and turning instead to protectionism. The erosion of educational standards cannot be reversed easily and will probably take more resources/money than the US government will have in the years ahead.