In this optimistic view of the future, the industrialised countries renew their strength with quantum leaps in technological progress and reforms that promote growth. Intelligent machines take on increasingly complex processes, enabling productivity gains that provide economic stimulus. In this scenario, despite generally weak growth and excess debt, the industrialised world addresses challenges such as liberalising labour markets and increasing the retirement age. We call this scenario, in which the Western world regains momentum, “Transformative progress”.
Under pressure from both political interests and financial markets, the industrialised countries enact structural reforms in order to generate new growth. Obstacles to trade are removed, highly regulated labour markets liberalised, employment protection eased, and part-time workers become more easily employable. Workers must stay on the job longer to prevent the collapse of pension systems. Since the social consequences are painful, the political will to carry out such reforms is still weak. But there are hopeful signs: in some countries the liberalisation of labour markets aims to reduce the record-high unemployment levels. The impact of these reforms is, however, barely visible in the unemployment figures.
As in past decades, Europe and the USA remain the global innovation engines. Quantum leaps in technological progress can achieve great productivity gains. A new “industrial revolution” becomes a reality as product manufacturing becomes more customised and cost-efficient and machines communicate even more intricately with each other. All these factors enhance productivity even further.
Asia, in particular, is already making a substantial contribution to economic recovery in the industrialised world. The growing middle class has an increasing taste for consumption and Asian countries are investing in the development of their infrastructure. Export-oriented Western companies in the consumer goods and infrastructure sectors are also beneficiaries. Asia has thus already become an essential growth engine for many economies.
In this scenario, the economies of the industrialised nations enter a new era of prosperity, although for the moment, economic growth is still fragile. Even so, the eurozone has largely shaken off one of the toughest recessions of all time, and growth projections are now gradually improving.
A sustainable solution to the crisis must include a reduction in state debt. In this scenario, this is mainly achieved through real economic growth: thanks to the thriving economy, unemployment rates fall and tax revenues increase. On balance, governments take in more than they spend. It will take quite some time, however, before the mountains of debt become visibly smaller.