With intangible investments on the rise, governments must rethink tax collection to pay their bills
Roger E.A. Farmer says as those profiting from technological progress are increasingly paid in stock options, and companies invest more in intangible assets like data, branding and software, a change in tax rates may be necessary to pay for public services
Some very clever people, including the president of the European Central Bank, Mario Draghi, and Andy Haldane, chief economist at the Bank of England, are expressing concerns over the slowdown in productivity growth. And, given that productivity (measured as gross domestic product per hour worked) is the ultimate driver of increases in living standards, they are right to be worried.
For most people in the West, wages and living standards have stagnated for decades. If you were a factory worker in the north of England in 1970, for example, odds are good that your children will earn less in real terms than you did 50 years ago. The same is true for workers elsewhere in Europe and the United States, an economic reality that is partly responsible for the rise of populist politics.
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The trajectory has been trending down for years. Average annual productivity growth in five OECD countries – France, Germany, Japan, the US and the UK – was 2.4 per cent in the 1970s. During the decade after 2005, it was 0.6 per cent in those countries. And, although the Great Recession that started in 2007 contributed to the decline, the average had been falling well before the financial crisis began.
Lower productivity growth has meant reduced living standards for many, but not all. For a financial analyst on Wall Street or in the City of London, life isn’t so bad. And for the independently wealthy – especially those with a majority of income derived from a stock portfolio – standards of living have actually increased in recent decades.
An employee looks at FTSE 100 share price information in the atrium of the London Stock Exchange Group’s offices in London on July 6. Financial analysts and the independently wealthy are among those prospering in the present economy. Photo: Bloomberg
But it’s worth asking how much of this increased prosperity was paid in the form of taxes, because the answer – not as much as if income had been in wages and salaries – is one reason why so many economists are so worried.
