Preparing Developed Democracies for Long-Run Economic Slowdowns

Abstract

Economic growth in the 19th and 20th centuries, following the Industrial Revolutions, was much faster than in preceding centuries. This unprecedented global growth coincided with the global proliferation of democracy, with some evidence for bidirectional causation. Macroeconomic forecasts have predicted slower economic growth in the 21st century--perhaps substantially slower--for structural reasons such as aging populations, slowdowns in innovation, and debt. Long-run effects of COVID-19 and climate change could further slow growth. Moreover, some sustainability scientists assert that slower growth, stagnation, or even de-growth is an environmental imperative. Whether slow growth is inevitable or planned, we argue that democracies should prepare for additional fiscal and social stress--some of which is already apparent. Focusing on developed democracies, we propose that preparations should include efforts to: (i) reduce inequality; (ii) socially integrate diverse populations and build shared identities; (iii) increase economic opportunity for youth; (iv) improve return on investment in taxation and public spending; (v) strengthen formal democratic institutions; and (vi) invest in improving non-economic drivers of subjective well-being. Many aspects of our analysis likely also apply to other types of societies besides developed democracies.