Wars, depressions and financial crises have pock-marked history, causing growth to stall or fall. And phases of innovation have lifted economic fortunes, caused living standards to leap. But whereas the growth lapses have been temporary, the leaps have been permanent. Over the past two and a half centuries, secular innovation has dwarfed secular stagnation. In explaining rising living standards since 1750, economists have typically identified three distinct innovation phases. Each was associated with a great leap forward in society’s production possibility frontier. 9 The first is the Industrial Revolution commencing in the middle of the 18th century; the second, the era of mass industrialisation, starting in the second half of the 19th century; and the third is the IT revolution, which began life in the second half of the 20th century. What distinguished these three innovation phases is that they gave birth to a sequence of socalled General Purchase Technologies (GPTs). 10 These technologies had applicability well beyond the sector for which they were originally designed, thereby transforming the efficiency of business practices generally. During the first industrial revolution, these GPTs included the steam engine, cotton spinning and railways; during the second, electricity, the internal combustion engine and internal water supply and sanitation; and in the third, the personal computer and the internet. Interest in innovation-led growth has re-intensified over recent years as growth prospects have dimmed. One strand of the secular stagnation debate asks – wither innovation? Among some there is a concern the well of innovation may be running dry.

Inequality may retard growth because it damps investment in education, in particular by poorer households. 57 Studies show parental income is crucial in determining children’s educational performance. 58 If inequality is generational and self-perpetuating, so too will be its impact on growth. US evidence suggests striking, and rising, differences in educational attainment across different socio-economic groups. Prior to 1970, rising high school completion rates permanently raised the productivity of US workers. Latterly, those improvements have stalled and, for some, have reversed. The US is slipping down the international league tables of educational attainment. 59 There is evidence the UK could be following suit. The UK is currently below average for literacy and numeracy skills across OECD countries. 60 Between 2003 and 2011, although the proportion of adults with literacy skills increased from 44% to 57%, those with numeracy skills decreased from 26% to 22%. 61 To put that in perspective, 17 million adults in England have numerical skills only equal to those of a primary school child. Even without these headwinds, human capital may be set to grow less rapidly in future for demographic reasons. In the second half of the 20th century, population growth added two percentage points to global growth each year (Chart 15). Since 1980, that has fallen to around 1% per year. By 2050, it is predicted to have halved again. That would translate, pretty much one-for-one, into lower trend growth rates. 62 A third secular, sociological headwind concerns short-termism.