Interview
A recipe for economic growth
Former US treasury secretary Lawrence H. Summers believes institutional reforms and significant investment are required to push the world economy forward.
February 2015
At a time of historically low interest rates and
nervousness about the outlook for global economic growth, why aren’t
governments investing more? In this interview with McKinsey’s Rik
Kirkland, former US treasury secretary Larry Summers urges policy makers
to invest aggressively in everything from infrastructure to education.
Summers also believes that in a world of rising inequality and rapid
technological advances, there is going to be a need for more progressive
taxation. An edited transcript of his comments follows.
Interview transcript
Reforming our institutions
Confidence is the cheapest form of stimulus. Governments need to
recognize that fairness and inequality and sharing the benefits of
growth more widely are crucial issues going forward, but they need to do
it without invoking a politics of envy. That can be very debilitating
to business investment.
I think growth probably is going to be slower in terms of aggregate
GDP over the next 50 years than it has been over the last 50 years.
We’ve already seen some trend toward decline and, if I had to guess,
that trend will persist. But that’s a reason why we’ve got to do all we
can.
For example, if we’re not going to have as much quantitative
improvement to the labor force, we’re going to need qualitative
improvement. That goes back to issues of education—to issues of the
transition from school to work. We’re also going to need a much greater
effort at innovation. Science has more promise today than ever before,
yet the fraction of our resources being devoted to science has gone down
in the United States. That’s not how it should be.
There’s plenty of work in our society that needs to be done: think
about healthcare, think about education, think about taking care of the
aged. But whether we’ve got the social institutions that will permit
that work to get done is going to be a very large question. We’re going
to have to think in very fundamental ways about how our society changes
in response to technology, just as we have seen our society change in
very fundamental ways because of what came about in the Industrial
Revolution.
e rarer and rarer for people to spend their whole lives at a
single employer. Employers are going to be less and less the source of
social insurance for people, and that’s going to need a larger public
role. We’re probably going to need a larger public role to accommodate
the fact that more of our economy is going to be in health and education
than has been the case traditionally. I suspect in a world of rising
inequality, there’s going to be a need for more progressive taxation as
well.
Investment, investment, investment
We need to focus on raising the demand for capital and stimulating
investment. That means more public-sector infrastructure. If a moment
when we can borrow money in the long term at well below 2 percent, in a
currency we print ourselves, is not the right time to fix Kennedy
Airport, I don’t know when that moment will ever come.
But this is not only a public-sector investment issue. Taking oil
around on trains is a 20th-century technology—and not the last third of
the 20th century. We need a far greater pipeline infrastructure than we
have now; we need a much more satisfactory broadband architecture than
we have now. We need a commitment to investment on a large scale. It is
absolutely essential to protect the environment, but that is no reason
why basic permitting decisions should take years and years to make.
We need to recognize that there’s a great deal that needs to be
regulated in the financial sector; there are important problems that
have not been resolved in the financial sector. But even as there are
important problems that aren’t resolved in the financial sector, we need
a more satisfactory flow of credit for housing, a more satisfactory
flow of credit to small and medium-sized businesses. That’s a
particularly important issue in Europe.
So it’s the promotion of both public and private investment for
growth that I believe is crucial if we’re going to push the economy
forward.