- Richard Samans, Director, RESEARCH
- Sangheon Lee, Director, EMPLOYMENT
- Uma Rani, Senior Economist, RESEARCH
This book argues that macroeconomics requires structural reform and rebalancing in a century facing the prospect of further inequality and disruption from artificial intelligence and machine learning, climate change and other shifts and shocks. Liberal economics’ most influential original theorists and codifiers—Adam Smith, John Stuart Mill and Alfred Marshall—stated explicitly that markets and capital accumulation alone were not capable of delivering broad and lasting improvement in the material well-being of societies. They argued that enabling policies and institutions were also needed in a wide variety of policy domains, which is to say that a robust social contract is every bit as essential as markets in delivering the bottom-line performance societies seek from their economies: broad and durable progress in household living standards. However, this macro-institutional context remains a residual consideration of modern economics, implicitly assumed to obtain over time as a natural by-product of economic growth.
The essential principle the book posits is that the living standards of median households deserve at least as much direct policy attention and cultivation by economists and policymakers as the overall wealth, or productive output, of nations. Broad progress in the lived experience of people, rather than GDP growth per se, depends on the strength of both markets of exchange and institutions in such areas as labour and social protection, financial and corporate governance, competition and rents, infrastructure and basic necessities, environmental protection, anti-corruption, and education and skilling. The book integrates these and other key institutional dimensions of the social contract into the heart of macroeconomic theory on a co-equal basis with the traditional factors of production of the aggregate production function. Extensive comparative data are presented demonstrating that nearly every country has considerable policy space to narrow its social “welfare gap”—its underperformance on key dimensions of household living standards relative to the frontier of leading outcomes and enabling policy practices of peer countries—and that doing so can often also help to reduce its output gap, or underperformance on growth. Major corresponding reforms of the international architecture are proposed to support countries and the biosphere in this journey, including a tripling of external finance for developing country climate and sustainable development needs.
The author Richard Samans
is Director of the International Labour Organization’s Research Department and has been its Sherpa to the G20, G7 and BRICS processes. He was formerly Founder and Chairman of the Climate Standards Disclosure Board, a Managing Director of the World Economic Forum, and Director-General of the Global Green Growth Institute. He served in the second Clinton-Gore Administration as Special Assistant to the President for International Economic Policy and NSC Senior Director for International Economic Affairs and was previously economic policy advisor to US Senate Democratic Leader Thomas A. Daschle.