Ignazio Visco: Introductory remarks - Annual Conference of the
Global Forum on Productivity
Introductory remarks by Mr Ignazio Visco, Governor of the Bank of Italy, at the Annual Conference
of the Global Forum on Productivity, co-organised by the Italian G20 Presidency, Venice, 9 July
2021.
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It is a pleasure to join Minister Franco and Secretary General Cormann in welcoming you to
this important initiative, promoted by the OECD Global Forum on Productivity together with
the Italian Presidency of the Group of Twenty (G20) to discuss recent developments in
productivity and the challenges ahead
The OECD has a long and outstanding reputation for producing high quality studies on
productivity and the determinants of cross-country differences in growth performances. As
Chief Economist of the Organization, I had the privilege and honour of contributing to this
research programme more than 20 years ago.
At that time, our efforts were directed towards obtaining a deeper understanding of the "new
economy" and of the impact of information technologies (ICT) on society at large. To this
end, the OECD significantly intensified its research activity, the collection and diffusion of
comparable cross-country data and benchmarking analyses aimed at identifying best
practices among member countries. The lessons learnt back then were published in several
reports, starting from the book on "The Sources of Economic Growth in OECD Countries",
issued in 2003, and the various editions of "Going for Growth", which are still highly relevant
today.
The new research presented at this edition of the Global Forum on Productivity confirms
that, analogously to the case of "the new economy" debate in the late 1990s, obstacles to
the diffusion of new technologies play a critical role in explaining the disappointing growth
performance experienced at least since the global financial crisis. In particular, they help
explain why, despite the new digital revolution, the dynamics of aggregate productivity have
been so sluggish.
To be fully exploited, the new digital technologies require adequate availability and
composition of skills in the workforce, good managerial practices and, often, appropriate
economies of scale. These factors are creating a divide between a few fast growing large
firms and many small ones struggling to keep up, which is preventing our economies from
taking full advantage from technological progress.
These are critical issues, whose relevance can hardly be overstated. The troubled
macroeconomic context in which the digital revolution has been taking place since the global
financial crisis has also played a role in explaining the stagnation of productivity. We have
learnt that deep recessions, especially if accompanied by severe financial distress, may
have long-lasting effects on potential output, in particular through a reduction in the speed
and quality of capital increase. Coupled with adverse structural developments, such as the
ageing of populations in large parts of the world, the global financial crisis and the euro-area
sovereign debt crisis have pushed down equilibrium interest rates, reducing the room for an
effective monetary policy response to the low-growth, low-inflation environment. We are now
fully aware that, when confronted with recessions of such a magnitude, a joint and strong
effort on the part of both monetary and fiscal policy is necessary to prevent structural
damages to the economy.
Today, we have just faced another global recession of unprecedented nature and size,
which hit our economies in the middle of the digital and green revolutions. The pervasive
adjustments forced by these two structural changes, together with the legacy of the
pandemic, which is still threatening our countries, are pushing the global economy into
uncharted territories. It is still hard to understand what the "new normal" will look like, but I
believe that both governments and central banks can do a great deal to prevent the
pandemic shock from leaving permanent scars. It is of the utmost urgency to prepare our
economies for the future, making possible the stronger, inclusive and sustainable growth
pursued over the years, with mixed success, by the G20. Indeed, "People, Planet and
Prosperity" are the priorities of the Italian Presidency of the G20.
The global policy response to the crisis, thanks to the close international cooperation that the
G20 strongly promotes, has already obtained important results. The joint action of fiscal and
monetary policies has avoided a generalized tightening of credit, averting the risk of a
spiralling crisis. It has attenuated the impact of the emergency on the corporate and
household sectors, preventing the destruction of viable physical, intangible and human
capital. It has also been key in directing resources to strengthening health-care
infrastructures, including for the development of vaccines.
Thanks to the policy support and the vaccination campaigns, the recovery is now gaining
strength. Economic forecasts are being revised upward. However, progress is uneven, and
less developed and emerging economies are still facing major difficulties in curbing the
pandemic. The health crisis will not be over until vaccines are accessible to all countries.
Diverging health and economic patterns would not be acceptable, as they would put the
global economy and the whole society at risk.
In such an uncertain environment, a coordinated effort is still needed to support the recovery,
until idle productive capacity, which remains sizeable, is fully reabsorbed. At the same time,
we must pave the way for the upcoming future, by strengthening potential growth and
favouring the structural transformations that will take place.
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Somewhat surprisingly, some studies suggest that, contrary to recent crisis episodes, the
pandemic shock could have a positive impact on productivity. The available data tentatively
confirm that, thanks to the extensive support they have received, firms are reacting swiftly,
recovering a large fraction of the investments deferred during the emergency. Stronger
accumulation and the need to adjust productive processes to the challenges of climate
change and the opportunities offered by new digital technologies may entail a more intense
innovative activity. The managerial changes imposed by the spread of the virus, which
forced even smaller and more conservative firms to experiment with new forms of labour
organization and the benefits of digital technologies, should spur further innovative efforts. As
in the case of the oil shocks of the 1970s and early 1980s, the pandemic could then be
followed by a period of strong investment, an extensive reorganization of production
processes and, ultimately, faster productivity growth.
These potentially positive developments, however, will need to be supported by suitable
policies aimed at removing the obstacles that have delayed the diffusion of new technologies
and of organizational innovations over the last few years. Otherwise, they might lead to
higher market concentration and much smaller welfare benefits.
A critical role will be played by public investment in digital infrastructures and, even more
importantly, in human capital. The "human side of productivity" has to be taken seriously.
Improving the supply of human capital through effective education remains a priority in many
countries. Nevertheless, increasing the years of schooling is not the only target our policies
should focus on. Expanding the availability of specific skills, which are often acquired during
the working career, through on the job training and lifelong learning, is also key, particularly in
light of the intense reallocation processes that the digital and green transitions will entail.
Finally, yet no less importantly, we should address with greater determination the wide set of
frictions that prevent individuals, notably women and minorities, from pursuing their
comparative advantage, too often causing a considerable misallocation of talents.
Most of the topics and policy challenges that I have just mentioned are being discussed in
this conference and I am looking forward to the contributions from the upcoming high-level
panel discussion among G20 policymakers, to whom I am pleased to give the floor with no
further hesitation.