64 economists are sounding the alarm about productivity growth

Productivity growth should be the priority for the next governments, say 64 Belgian economists in a free gallery in De Tijd. “If we fail to reverse the downward trend, future generations will be worse off.”

Higher wages, lower labor costs, investments in healthcare and health, a brake on immigration and shorter working hours: these are the themes that dominate the election campaign. Ask any party how it wants to pay for this, and depending on the political leaning, you will end up with a mix of wealth taxes or savings and getting more people to work, who will then pay more.

But even if the employment rate rises from 72.5 to 80 percent by 2030 – the holy grail for the federal government – it will not be enough to guarantee our future prosperity. 64 Belgian economists warn about this, who wrote about this at the initiative of our columnist and Voka chief economist Bart Van Craeynest. It is the first time that such a large group has supported a call. Last year, about 50 economists delivered a similar signal about the sustainability of public finances.

‘By a wide margin the most important determinant of our future prosperity is our productivity growth. According to the models of the Aging Commission, 90 percent of prosperity growth in the coming decades should come from productivity growth and only 10 percent from a higher employment rate. The latter alone is sufficient to put the budget in order,” says Van Craeynest.

Our prosperity is essentially determined by how many people are working and how much output those people produce per person. Productivity growth is about delivering more output with the same input. Belgium is still one of the most productive countries in the world. That is why we are very prosperous despite a low activity rate. But the engine breaks down in two ways, the economists warn.

Due to the aging population, which hampers the demographic dynamics of our growth. And due to a stronger than average decline in productivity growth. Labor productivity in countries such as Denmark, Sweden and the US grew more than twice as fast as in Belgium over the past ten years. If we fail to reverse the downward trend, future generations will be worse off than us, it says.

Van Craeynest: ‘The decline in productivity growth is a phenomenon that affects the entire industrialized world. It has to do with the shift from industry to services. The easy sources of growth have also been exhausted: the reconstruction after the Second World War, the automation of industry and the enormous leaps forward in the education level of the population. In addition, digitalization has not yet delivered what was expected. But the decline is happening faster in our country, due to specific Belgian handicaps such as high administrative burdens, permit problems, traffic jams, savings on government investments, and so on.’

The economists make a whole series of recommendations in the areas of education, innovation, government investments, digitalization, artificial intelligence, the labor market, competition and sustainable transition. But they especially hope that the theme will be higher on the agenda in the election campaign.

‘Almost everything that the political parties want to achieve – such as wage increases, shorter working hours, higher pensions, additional investments in healthcare and in the climate transition – must be financed by productivity growth. And yet no one talks about it. Probably because it cannot be captured in slogans or because people think it is about working harder and longer, which is not true. It is precisely because of the growth in productivity that the reduction in working hours of recent decades has become possible,’ says Van Craeynest.