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Prior to modernity, government economic policy (usually through monarchs, clergy or the nobility) mainly focused on building wealth (mainly their own) through conquest - that is, economic policy was primarily military policy. With the advent of global trade, policy began to shift to 'mercantalism', which enabled the building up of gold and silver in the national treasury through trade dominance. Fast-forward to today's world - where exploiting our national competitors through military or trade is no longer seen as a viable, long-term strategy - we see most government economic policy now focused on building wealth in a stable and sustainable fashion.
The economic policy settings that take up most of the headlines today are fiscal policy (taxes and welfare) and monetary policy (interest rates). These settings are more concerned with the 'stable' part of the modern policy equation, with both used to flatten out the economic cycle. For example, when the economy is running too high the central bank might push up interest rates to encourage more saving and less spending; or when activity is slumping through the economy, government might look to increase welfare payments to induce more business activity through consumption.
Perhaps, more important however, is the 'sustainable' side of this equation. This speaks to the long-term rather than the short-term and aims at maximising real wealth and living standards over time. A big key to this is that there are actions central authorities might take that could boost short-term wealth, but might do so at the expense of the long-term (e.g. holding interest rates too low or running excessive budget deficits): Loose monetary or fiscal policy is easy to employ and hard to reverse.
But, what about long-term economic policy settings? How might central authorities enact laws and instruments that provide for the long-term. For fiscal policy, this is an easy question to answer: Spend more on good infrastructure that supports business activity. This might look like better internet, better roads, etc and needs to be balanced with the greater efficiencies that might come from private enterprise provision of such services. For monetary policy, this is a little trickier, but is likely to be implemented by targeting a long-term level of interest rates that incentivizes investment but limits capital waste. Unfortunately, this type of long-term thinking can often be missing by policy decision-makers.
Overall, economic growth is generally seen to be driven by three main factors: Labour, capital and natural resources. Increasing levels or productivity of these will generally see a rise in production and a rise in general wealth (as we have more stuff). Thus, good long-term economic policy might be focused on how to keep these moving upwards. This might sound easy, but there are plenty of economic and social trends that could hinder long-term economic growth. This includes mega-themes such as declining birth rates (which means a lower future labour force) and natural resource depletion (which can eliminate a source of national wealth). Other themes of the day, such as the 'anti-work' movement and deglobalisation, might be more short-term in nature but could definitely have ramifications for the nation's level of production.
Long-term policies that focus on the three main factors of production include:
- Labour Force Policies
- Increase labour force size
- Birth rate and female participation policies such as parental leave, childcare
- Immigration policies
- Increase labour force productivity
- Training and education policies
- Skilled migrant policies
- Capital Base Policies
- Increase capital base size
- Foreign investment and trade policies
- Increase capital base productivity
- Infrastructure policies
- R&D and intellectual property policies
- Natural Resource Policies
- Increase natural resource size
- Extraction, conservation and renewable resource policies
- Increase natural resource productivity
Throughout the ages, technological advancements have been a key driver of economic growth and can easily help us overcome some of the drags on economic growth that we are now facing. Automation will likely see our labour force become increasingly more productivity as we become trained on new and better ways of producing things. Newer technologies can improve the efficiency of our machines of industry and make it easier to do more with less impact on our environment. For countries that are facing steep declines in their labour forces or that have been reliant on fossil fuel extraction, adoption of new technologies will be critical in avoiding a long-term spiraling of economic activity.
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