31 May 2018
The OECD Economic Outlook released on the occasion of the 2018 Ministerial Council meeting carries the key message that we need “a different way to grow”. As the recovery in investment is not strong enough and other growth dynamics in particular wages are not taking off either, fiscal policy easing is keeping up the growth momentum.
With rates of return on investment as high as 12% across the OECD (see graph below), and a loose monetary environment prevailing, business investment should be booming. And it is not. Wage dynamics should be accelerating. But they are not. Corporations are clearly hoarding these record returns or are paying them out in shareholder dividends and share-buyback and/or channeling them into mergers and acquisitions instead of investing in productive investment.
This calls for a reform agenda that is radically different from the past. The OECD’s call for investment in skills and higher public investment in infrastructure should be complemented by a policy agenda that sets the regulatory conditions for long term business models and rebalances the bargaining position of labour versus business. This will ensure that wage growth can be fast enough to force business investment into expanded output, thus shaping a wage-led recovery.