In this NERI blog and its associated Long-read no. 11, NERI Co-director, Dr. Tom McDonnell focuses on economic resilience.
The latest NERI long-read is the 2nd in our New Economic Model (NEM) discussion series and focuses on economic resilience. Economic resilience is one of the four mutually reinforcing pillars that underpin the NEM framework. In an uncertain world we need our economies and societies to be ‘anti-fragile’, that is to say, capable of thriving and flourishing even while under external or internal stress.
The economies North and South are facing into a maelstrom of challenges. There are a number of foreseeable pressure points including climate change and biodiversity loss, technological change including Artificial Intelligence, demographic changes particularly population ageing, and deglobalisation. There are also going to be a range of challenges we cannot foresee.
This discussion paper considers each of these challenges and outlines a set of policy reforms designed to addressed them individually and collectively. Crucially, we must avoid short-termism. Stability requires making choices that look ahead. In good times we should be preparing for turbulence, and in bad times we should be protecting living standards and safeguarding our productive capacity. We need to hardwire fiscal stability and embed price stability, and we must do all of this while fighting climate degradation and protecting incomes. Policy must be agile, willing and able to evolve as context and evidence changes, and, it must be sustainable across all relevant dimensions.
We must be clear. Stability does not preclude dynamism. Indeed, the alternative to dynamism is stagnation, and stagnation ultimately and understandably breeds political instability and discontent. People need to believe there is a better future and that their living standards will improve or at least be sustained. Our challenge then is to develop resilient, stable and sustainable economies that are also vibrant, innovative, inclusive and dynamic.
The economy needs to be resilient across four sustainability dimensions. We need to A) design and hardwire a countercyclical but agile fiscal policy that reconciles sufficiency, efficiency, equity and sustainability; B) create structures and institutions that embed price stability in order to protect real wages and competitiveness and restrain damaging cost of living spirals; C) green’ our overall package of policies in order to reverse climate degradation and biodiversity loss in the necessary timeframe and consistent with just transition principles, and D) cater to political economy as policies that don’t have public support will be continuously vulnerable to reversal – policy design matters.
But we also need the economy to be dynamic. A focus on ‘protecting what we have’ can be politically popular in the short-run but is, nonetheless, a developmental trap and dead-end. A dynamic and flourishing economy is one that successfully embraces and manages flux, churn, evolution, transformation and change.
To address all of these issues we make a range of policy proposals. You can read about them here.