Competitiveness in the private sector higher

Pre-industrial revolution[ edit ] Prior to the industrial revolution, Norway's economy was largely based on agriculture, timber, and fishing. Norwegians typically lived under conditions of considerable scarcity, though famine was rare.

Competitiveness in the private sector higher

A key question for macroeconomic policy is how this debt burden can be alleviated. Until excessive private debt is cleared away, the expenditure of households and firms will be severely constrained, hampering economic recovery. One approach would be to conduct an orderly write down or cancellation of a substantial part of private debt.

Another method would involve government making appropriate use of fiscal policy by engaging in substantial and concerted net spending government spending in excess of tax revenue to sustain overall demand and income until the private sector can sustainably revive its own level of activity.

A currency-issuing government always has the financial capacity to conduct net spending of this kind. This post focuses on a key positive effect of the second policy approach, but ideally a combination of the two approaches would be employed.

Competitiveness in the private sector higher

Attempts to slash government deficits actually work against private-sector efforts to get debt under control. By directly subtracting from demand, fiscal contraction has a negative impact on output, employment, income and therefore private saving, frustrating private-sector attempts to pay off debt.

The following accounting identity shows an aggregate relationship that must hold by definition for a closed economy, such as the global economy as a whole: The right-hand side, S — I, is referred to as net private saving or the private sector balance. Net private saving is the amount by which disposable income income, Y, minus tax revenue, T exceeds private spending.

When the private sector, in aggregate, spends less than its disposable income, it is said to be in surplus. When it spends more than its income, it is in deficit. The identity can therefore be restated as: A larger fiscal deficit means higher net private saving.

A reduction in the fiscal deficit implies lower net private saving. This relationship makes sense considering that government expenditure involves crediting private bank accounts whereas taxing involves debiting private bank accounts.

If the government spends more and taxes less, there is an increase in bank reserves, held in special accounts with the central bank, and a corresponding increase in private bank deposits held by households and firms.

Some households and firms may use the extra funds to buy government bonds, which will result in some bank reserves being converted into bonds.

Either way, there is an increase in net financial assets which comprise currency, bank reserves and government securities. If, on the contrary, governments try to cut spending and raise taxes, as they are beginning to do in a misguided attempt to reduce government debt, private saving will be squeezed.

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For open economies i. There are now three major sectors: The accounting identity becomes: In words, we have: So, in an open economy, private net saving can come either from government deficit expenditure or net exports.

In many countries, though, including the US, net exports are typically negative, which means the external sector subtracts from net private saving. This leaves the fiscal deficit as the only source of net private saving.

For trade deficit countries such as the US, in other words, it is impossible for the private sector to net save unless the government runs a fiscal deficit. Again, this is not a problem for a currency-issuing government. It is private debt that can be problematic. Households and businesses can go bankrupt.

Despite this elementary principle, governments around the world, including the governments of trade-deficit economies, seem intent on slashing their deficits. This strategy is bound to fail if the aim is to enable sustainable economic recovery.

The fact that private households and firms desire to net save, in aggregate, means that private sources of demand are currently weak. By engaging in fiscal contraction at the same time, governments will only succeed in further subtracting from demand, resulting in lower output and employment.Education is one of the world’s fastest growing industries.

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Competitiveness in the private sector higher

With member countries, staff from more than countries, and offices in over locations, the World Bank Group is a unique global partnership: five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries. Abstract Shifting Kenya’s private sector into higher gear: a trade and competitiveness agenda’ was born out of the World Bank’s Trade and Competitiveness (T&C) Global Practice recent stock taking of its work in Kenya.

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