CPS: "Seeking a dynamic recovery"

I started writing for the Centre for Policy Studies, an independent free market think tank, co-founded in 1974 by none other than Margaret Thatcher, and Sir Keith Joseph. This is where the "Conservative revolution [of the 80-ies] began". 

Here's a quote from Lady Thatcher about the CPS:

"I do think we have accomplished the revival of the philosophy and principles of a free society, and the acceptance of it. And that is absolutely the thing that I live for. History will accord a very great place to Keith Joseph in that accomplishment. A tremendous place because he was imbued by this passion too. We set up the Centre for Policy Studies, and it has propagated those ideas, and they have been accepted."

Margaret Thatcher, 1979

My first text for them, entitled Seeking a Dynamic Recovery, was mostly on ideas on how to ignite a dynamic recovery in Western Europe. It focuses on innovation, investments and trade as the essential principles for surpassing the productivity shock and achieving a higher level of wealth. 

Here's an excerpt from the text: 

"The situation in which the Western economies found themselves isn’t an isolated historical event. These situations happen quite often. The biggest difference is in the response to the shocks, or better yet, how the shocks are recognized. In the case of Sweden in 1992, Germany in 2003, or Estonia and Latvia in 2009, the faults of an old system were recognized and reformed. Whether this was an inflexible labour market, an inefficient tax system, burdensome regulations, or all three combined, the response was timely and efficient, and the results were a more sustainable growth model. 

In terms of current fiscal consolidation attempts it is important that all the reforms be mutually supported by medium term budget plans which will send credible signals to attract investors.

But this is harder to accept in many European countries where its citizens got used to a comfortable social safety net which has altered their incentives of creating value and generating wealth. Electoral pressures make the necessary reforms all the harder to do, but even the voters realize that the system must be reformed. Drastic times require drastic measures. The focus on austerity was a wrong approach primarily because it was done the wrong way (favouring increased taxation and minimal spending cuts), and more importantly, institutional reforms which were supposed to reinforce the government cuts weren’t implemented. 

Structural reforms to promote competitiveness, medium-term fiscal consolidation and a strong pro-business environment will enable the economy to pick up the momentum it needs to regain confidence and start growing again. No single policy aimed at short-term boosts will be of much help. Only a broad set of policies aimed at institutional reforms - like the ones done in the aforementioned countries - will signal greater confidence among businesses, consumers and the banks to innovate and invest in new ventures. Only then the true process of deleveraging can commence and new patterns of specialisation will emerge."

Read the full text here.