How policymakers can help us address future economic challenges

In January 2020, President Macron asked us to organise and head a commission to address the structural challenges for the global economy. At that time, we didn't know that Covid-19 would create an immediate global crisis (see the Vox section on economics in the time of Covid-19 here) but, as the acute impact of Covid-19 fades, the problems we were tasked to investigate are still with us. The need for creative and effective policy solutions is even more urgent.

We had free rein in choosing the commission’s members and full independence in stating our conclusions, which were published in Blanchard and Tirole (2021). Our report is divided into three sections, representing the three most pressing challenges that we identified. Our colleagues Christian Gollier and Mar Reguant were lead authors for the section on Climate change; Dani Rodrik and Stefanie Stantcheva had the same role for the section on Economic inequality and insecurity; and Axel Börsch-Supan, Claudia Diehl, and Carol Propper acted as leads for the section on Demographic change. A further 17 distinguished economists from around the world contributed to the final report, meaning the team was one third French, one third American, and one third non-French European. This brought a broad set of opinions and evidence to bear.

Our conclusions and recommendations apply particularly to France – but also to Europe and the world economy. These are global challenges, and we can learn from local or regional successes. Also, many of our policy prescriptions will require international cooperation and support, particularly for the policy solutions to the challenge of climate change.

There is not space to explore all our conclusions in detail. Below, a summary that we hope will inspire you to read the full text. The report can be downloaded here in full.

Here we can clearly see the causes and the impact of procrastination. There is a general disconnect between the acceptance that global warming is happening, and the consequential need to make hard policy choices to fight it. A lack of transparency about the costs of these measures has led many people to focus on the costs that are visible – such as carbon taxes – rather than on those costs which may be larger, but are harder to see.

The commission made three recommendations:

In France (and elsewhere), research shows that the public does not believe there are equal educational and job opportunities, or adequate social mobility to mitigate the problems of inequality. Sadly, these perceptions are broadly correct.

The traditional remedy for inequality has been to double down on redistribution and protection, policies that focus on mitigating the distributional effects of production. Our report argues instead that policy should focus more on what happens before production occurs (creating more equal life chances or improving education). It can also influence the nature of production, creating more good jobs and more equal access to good jobs.

The commission made four recommendations:

On average we live longer, healthier lives. This is good news. But this also requires we maintain the right balance between work and retirement. If more people live longer after they retire, this implies a decrease in the benefits they receive in retirement, an increase in contributions while they are working, or that they work for longer before they retire to maintain financial balance, now and in the future. This looming crisis has been particularly controversial in France, which has a very low activity rate among 55- to 64-year-olds.

Ideal pension reform implies a unified, transparent, and fair system that delivers flexibility in the choice of retirement age versus the level of retirement benefits. It should also increase supply and demand for senior workers. It should recognise the large differences in life history and life expectancy among the population. But public perception is that current reform proposals are technocratic and lack transparency.

Our report makes a series of more detailed recommendations for this challenge – partly because, for these problems, painful reforms have been attempted with limited success. Among those ideas:

All three of our challenges are potentially imminent. Their immediate effects are much weaker than their long-term ones, and so decision-makers procrastinate over policies that could mitigate the worst effects. They are also complex problems, meaning that if policymakers are to make those hard decisions, they must do this under uncertainty and often in the face of public resistance. Nevertheless, our commission found that many potential solutions to these problems, though sometimes expensive or unpalatable, exist.