By Lina Hope 
By Mariana Mazzucato
June 30, 2026
Across the corridors of power in Brussels, Washington, and London, a familiar, anxious refrain echoes through the halls of government. Political and business leaders are united by a singular, persistent narrative: the developed world is losing its competitive edge. The diagnosis, according to the prevailing orthodoxy, is that our economies are suffocating under the weight of high wages and stifling regulations. The prescription, offered with near-religious fervor, is almost always the same: deregulate, cut labor costs, and unleash the private sector.
However, a critical examination of the last two decades of economic data reveals a starkly different reality. Far from a lack of capital or excessive regulation, the developed world is suffering from a structural disconnect between profitability and productivity. Despite two decades of abundant, cheap capital and robust corporate earnings, investment in the real economy has stagnated, productivity growth has cratered, and wages for the majority have remained flat. We are not suffering from a "competitiveness crisis" in the traditional sense; we are suffering from an investment crisis driven by the wrong kind of economic policy.
The Great Disconnect: A Chronology of Stagnation
To understand how we arrived at this juncture, one must look at the trajectory of the global economy since the turn of the millennium.
2000–2008: The Era of Financialization
In the early 2000s, the global economy saw a massive influx of liquidity. Following the dot-com bubble and the subsequent low-interest-rate environment, capital was cheap and readily available. However, instead of flowing into long-term research and development (R&D) or infrastructure, a significant portion of this capital was funneled into financial markets and real estate. This period laid the groundwork for the 2008 financial crisis, characterized by a decoupling of corporate profits from tangible economic growth.
2009–2019: The Austerity Trap
Following the 2008 collapse, the response in many developed nations—particularly across Europe—was a double-down on fiscal austerity. Policymakers argued that shrinking the state would "crowd in" private investment. Yet, the data from this decade shows that even as corporate balance sheets became healthier and interest rates hit historic lows, private investment remained tepid. Businesses prioritized share buybacks and dividends over capital expenditure (CAPEX), effectively hollowed out the productive capacity of the economy.
2020–2026: The Post-Pandemic Paradox
The COVID-19 pandemic provided a brief window where the state re-emerged as a primary economic actor. Massive fiscal interventions prevented a total collapse. However, as the world moved into the mid-2020s, the old guard of economic policy returned to the stage. Today, we face a new set of challenges—supply chain fragility, the green transition, and the AI revolution—yet the policy response remains stuck in the 1990s playbook of deregulation and labor market flexibility.
Supporting Data: Where the Money Isn’t Going
The assertion that competitiveness is solely a function of lower wages and fewer regulations is not supported by the macroeconomic evidence. In fact, the data points to a systemic failure to reinvest in the foundations of growth.
The Investment Gap
Over the last twenty years, the ratio of gross fixed capital formation to GDP has remained chronically low across most OECD nations. While corporate profits have consistently trended upward, the rate of investment in machinery, equipment, and intellectual property has not kept pace. This is not because companies lack the cash; it is because the incentives for long-term productive investment have been cannibalized by the drive for short-term shareholder value.
The Productivity-Wage Divergence
The most damning evidence against the current orthodoxy is the widening gap between productivity and compensation. In the mid-20th century, as productivity rose, wages rose in tandem. Since the late 1990s, however, this link has been severed. Productivity continues to grow—albeit at a slower rate than in previous decades—but the gains are increasingly captured by capital owners rather than workers.
Labor’s Shrinking Share
Data from the International Labour Organization (ILO) consistently shows a downward trend in labor’s share of total income. As capital becomes more concentrated, the bargaining power of labor has diminished. This is not a natural law of economics; it is a direct result of policy choices that prioritized labor market flexibility over job security and wage growth. When labor’s share of income shrinks, aggregate demand suffers, leading to the very stagnation that leaders claim to be fighting.
Official Responses and the Resistance to Change
The current debate in policy circles is polarized. On one side, the "Supply-Side Revivalists" continue to argue that the path to prosperity is through a race to the bottom on taxes and environmental standards. They contend that any intervention by the state—such as industrial strategy or public investment—is "picking winners" and distorts the market.
Conversely, a growing body of economists, researchers, and progressive policymakers are calling for a "Mission-Oriented" approach. They argue that the state must act as an investor of first resort, particularly in areas like the green transition and digital infrastructure.
The Institutional Stance:
International organizations like the IMF and the OECD have begun to shift their tone, acknowledging that extreme inequality and under-investment are, in fact, threats to long-term competitiveness. However, this acknowledgment rarely translates into the radical policy shifts required to alter the incentive structures of the private sector. The hesitation stems from a deep-seated fear of capital flight and a belief that the private sector is the only legitimate engine of innovation.
Implications: A New Path for the Global Economy
If we continue to follow the current playbook, the implications are dire. We risk a "lost generation" of stagnant wages, crumbling infrastructure, and a lack of technological advancement that serves the public good. To break this cycle, we must move beyond the obsession with "competitiveness" as a zero-sum game between nations.
1. Reframing the Role of the State
The state should not merely "fix" market failures; it should actively shape markets. By setting ambitious goals—such as decarbonizing the economy or ensuring universal access to new technologies—the state can provide the certainty that private investors need to commit capital to long-term, high-risk projects.
2. Rewriting the Social Contract
We need to decouple productivity growth from wage stagnation. This requires strengthening collective bargaining, reforming corporate governance to prioritize long-term value over quarterly stock prices, and ensuring that the gains from automation and technological change are shared across society.
3. Investment in the "Real" Economy
Policymakers must incentivize reinvestment. This could include taxing share buybacks, providing tax credits tied specifically to R&D and training, and mandating that public subsidies come with conditions regarding job creation and wage standards.
4. Beyond the Competitiveness Metric
"Competitiveness" is often used as a euphemism for low wages. A more productive metric for a nation’s health would be "well-being," which incorporates social cohesion, environmental sustainability, and the quality of employment. A country that competes by suppressing its own citizens’ living standards is not a competitive country; it is an extractive one.
Conclusion
The evidence is clear: the stagnation of the developed world is not a mystery to be solved by more of the same. We have the capital, we have the technology, and we have the capacity. What we lack is the political courage to abandon the tired orthodoxies of the past.
For two decades, we have been told that if we give the owners of capital everything they want, prosperity will trickle down. It has not. It is time for a new economic agenda—one that recognizes that the state is an essential partner in creating value, that labor is a driver of growth rather than a cost to be minimized, and that the ultimate goal of the economy is to serve the people, not the other way around. The future of our economies depends not on how much we can cut, but on how much we are willing to build together.
Siti Muinah 
Iffa Jayyana 
Pevita Pearce 