Ever since the global financial crisis in 2008, the world has been trying to find something which has become increasingly elusive: economic growth.
Whether it’s the UK’s productivity gap, the Covid-19 pandemic, or Russia’s invasion of Ukraine, there has always been something over the past 15 years apparently in the way of the sunny uplands of healthy economic growth and the continued increase in prosperity within democratic nations that had become the norm for the previous 50 years and more.
The lack of good, healthy growth has helped to create the conditions for populist governments and strongman leaders such as Bolsonaro in Brazil, Trump in the US, Johnson in the UK and, most recently, potentially Wilders in the Netherlands. While local situations played a part in all of these people’s rise, a population casting around for change while fearing for their own economic security also had a hand.
So how can countries seek to restore economic growth and prosperity to their people?
It may be that the world needs to look back at the 1929 Wall Street Crash and the theories of John Maynard Keynes that gained such popularity in the decade that followed. His ideas have been used ever since to promote the use of a strong fiscal stimulus from government to kickstart the economy back into action. Right now, there seems to be some strong evidence for returning to this concept.
Figures from the International Monetary Fund (IMF) published in October 2023 show the struggles of democracies around the world in attempting to shrug off sluggish growth. European countries such as the UK, France and Italy are all seeing real GDP growth of no more than 1%. Meanwhile, Sweden, Finland and Germany (normally the economic powerhouse of Europe) are all in recession.
However, one country showing more promising signs of growth is the US. According to the IMF, its economy is growing by 2.1%, and it is predicted to grow further over the coming year.
President Joe Biden has staked his term in office (and perhaps the chances of a second one) squarely on Keynesian principles. First there was his much-vaunted, trillion-dollar Infrastructure Investment & Jobs Act (IIJA), labelled the ‘Bipartisan Infrastructure Law’ after a handful of Republicans agreed to vote with their Democrat colleagues to get the legislation onto the president’s desk.
This was followed up with the Inflation Reduction Act (IRA) and the CHIPS Act, both of which have provided more incentive and opportunities for capital investment. As a result, the number of projects taking place in the US has ballooned over recent years, helping to drive productivity and economic growth with it.
Some, of course, fear that all this spending will come back to bite the US economy in the future, with critics arguing Biden is throwing money around like a “drunk at the bar”.
But the economic figures show the US growing at a faster rate than the vast majority of other developed Western democracies, outstripping even places like Canada (1.3% growth) and Australia (1.8% growth).
Spain is also surging forward in terms of GDP growth, reaching an impressive 2.5% this year - albeit from a low base as the country suffered significantly from the 2008 financial crisis. Spain is also benefiting from high levels of employment thanks in part to the government’s recovery plan, although critics also point out that the country’s borrowing is above 100% of GDP, leading to fears that it is storing up problems for the future.
Nonetheless, it appears that where infrastructure has been used as a lever of growth, countries are currently reaping the benefits - with the US being a prime example. Whether this approach can offer long-term solutions or merely a short-term jolt remains to be seen, but given that most infrastructure investment and activity takes place over a long time horizon, it makes sense to be optimistic that this type of investment can provide the basis for sustainable economic growth