Spending on health care and pensions will gallop until 2040. And the hole is gaping in public finances. Productivity growth was only 0.5% on average over the 2019-2023 period, according to the latest CNP report, published this Friday, while the study committee on aging, headed by the Federal Planning Bureau, postulates average annual growth of 1.2% over the period 2023-2070.
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A potential hole of 50 billion with unchanged productivity
A misguided hypothesis, we will say. But who represents what in hard cash? “It’s simpleexplains Siska Vandecandelaere, economist at the Central Economic Council (CCE). With this scenario of average annual growth in labor productivity of 1.2% over the period 2023-2070, social spending due to aging increases from 25.8% of GDP in 2023 to 30% of GDP in 2070. The fiscal cost of aging is therefore (rounded) 4.1% of GDP“. That’s some 24 billion euros more. What if productivity drops by 0.1%? “A 0.1% decline in average annual productivity growth leads to a 0.6% increase in the fiscal cost of aging.”specifies the economist. That’s 3.5 billion more. And as it is proportional, with the growth in the current productivity rate (0.5%), the additional bill would therefore be around 24.5 billion euros. In short, we are approaching an additional cost of 50 billion at current productivity rates.
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Of course, it’s far away. Some would be tempted to brush the problem under the rug. Happy, we said, that the Arizona negotiators are therefore aware”the steady decline in productivity growth“This is all the more worrying as employment rates have indeed increased in recent years in the three regions of the country, but this has not been accompanied by a significant increase in productivity.
Adapted training
Obvious underlying question: how to fix it? The National Productivity Council (CNP), made up of economists from the BNB, the Planning Bureau, the secretariat of the Central Economic Council (CCE) and the federated entities, recommends that the increase in the employment rate be directly correlated to productivity gains. “And therefore to put the emphasis on training, teaching – still too unequalbelieves Luc Denayer –, as much as on research and development and innovation” he continues.
gullArtificial intelligence (AI) has the characteristics of an impactful technology but it will take time to percolate into the economy. The electric revolution took 20 to 25 years to be transmitted to all levels of society, and that linked to the steam engine, between 40 and 45 years.
Training has been a driving force over the last 20 years in productivity gains but, as the added value of jobs created in recent years tends to stagnate, it must be adapted. “It has a growing deficit of graduates in science, technology and mathematics (STEM) and information and communication technology (ICT).”. And if Belgium succeeds in investing more in education than surrounding countries (France, Germany and the Netherlands), especially in primary and secondary education, the report points out that “The assessment of skills acquired by 15-year-old students in mathematics, reading and science indicates an average performance of Belgium compared to OECD countries.. Additionally, the report notes the “limited role of the basic education system in correcting initial socio-economic inequalities, which reduces the number of young people likely to acquire the skills most useful to our society.” And the CNP report concludes that “It is therefore at this level that the efficiency gains potentially appear the highest.”
AI has everything to be an impactful technology
As for innovation, another key factor in the growth of productivity gains, “Belgium already benefits from an advantageous position in terms of innovation, ranking among the “strong innovators” in Europe, alongside the Nordic countries and the Netherlands. Additionally, the country appears to be home to a strong scientific base for research in the field of AI. However, Belgium faces the difficulty of successfully transforming innovation into commercial services and applications“, explains the CNP report.
A third of Belgians of working age have never used generative AI
For Luc Denayer, “AI, which has already mobilized a lot of investment, has the characteristics of an impact technology but it takes time to percolate into the economy. The electric revolution took 20 to 25 years to be transmitted to all layers of society and that linked to the steam engine, between 40 and 45 years old We do not see it immediately, but what is certain is that if AI, especially in SMEs, does not. does not accompany profound changes in the organization of work, productivity gains could be lower than imagined.
L’expert “is concerned about the evolution of productivity in the manufacturing industry” (chemistry, metallurgy, plastics, etc.) which calls for more in-depth monitoring and analysis. “AI can undoubtedly help to regain higher rates of productivity growth, but this means that a balance must be found between respect for fundamental rights (such as privacy) and access to data, the development of soft skills in terms of training and more efficient infrastructure, which requires investment. I know that the budgetary margins are low but these investments are necessary. They will have to be chosen carefully so that they bring productivity gains. The survival of our social model is at stake“, concludes Luc Denayer.
