How Governments Can Fly to Economic Recovery

A former U.S. Air Force pilot once told me how to deal with uncertainty. When your plane is cruising fast, she said, you may suddenly enter a cloud bank. You can no longer see the horizon, so you follow a simple rule: Keep the aircraft’s nose up. That’s the safest bet. After you clear the clouds, you can recover and recharge.

Today’s economic situation is like flying through fog. There’s a potential bright future on the other side, but right now, it’s not visible. Meanwhile, you are lost amidst uncertainties: the Russia-Ukraine conflict, the US-Chinese tension, the potential recession, and the lingering effects of the pandemic are all unpredictable. As policy makers in countries around the world, how do you secure future economic growth?

At BCG, we have an answer: “Think big, start small, and scale fast.” When in doubt, this will help you recover economic growth, no matter how dense the fog may be.

The first step, thinking big, relies on crafting an Economic Value Proposition (EVP). This is a recognition of your country’s current strengths and prospects. These are the factors that makes you attractive to talent (so people come to live and work there), to businesses (so those people have places to work) and to capital investment (so those businesses can grow). You identify these by talking in depth about three critical questions:

1. What are our strengths as an economy?

2. Where do we have leverage to improve those strengths?

3. Who are our target beneficiaries – the stakeholders who will gain the most if we reach our goals?

For example, one of your strengths may be a location near larger nations with major consumer markets. Improve that strength by reducing trade barriers and creating incentives for your relevant industries to improve. The third question, on target beneficiaries, helps you find others -- international agencies, businesses, universities, creative entrepreneurs, and leaders in your own government – who have reason to help you realize your economic goals. ??

In our article Crafting a Value Proposition for National Growth, my colleagues and I explain how to think big this way, in step-by-step detail. Base your plan on having a few distinctive strengths that fit well together. Draw guidance from successful and relevant examples (we call these EVP archetypes). Look for leverage points with the greatest payoff. Approach your target beneficiaries for support. And then implement your ideas – this is the “smart small” part – through one or more Catalytic Specialist Areas (CSAs).

If the EVP is a broad umbrella, the CSA is the point of strike. Every nation has a few economic growth points, often in metropolitan areas, where opportunities come together. Together, the CSAs represent your nation’s economic wheelhouse. They act as a growth engine and can help you absorb economic shock.

Norway’s aquaculture industry, Philadelphia’s facility with cold storage logistics, and Montreal’s creative arts sector are all examples. The government doesn’t create CSAs; it enables them. An economic agency might begin by assembling all the economic players—including companies, regulators, and training and education providers—to talk about common growth goals. To achieve these goals, they may have to pool their resources and invest in training and technology. The effort may also require shifting some investment away from unrelated fields.

We describe how to start small this way in our second article: To Transform Economies, Promote Specialization. It includes examples of highly successful CSAs, a simple framework for identifying and prioritising CSAs and growth models for raising their profile.

A CSA won’t stay small forever. You nurture it until it can support other CSA in the rest of your country. By scaling fast, you can accelerate your own most productive, distinctive activity. ?

When the United States shot down a Chinese balloon over its territory in February 2023, I was reminded of a German pop song from 1984. It was “99 Balloons,” from Nena. The singer releases 99 red balloons into the air, which is shot down by a military plane – escalating into a global war.

This year, the risks are just that obvious. But the path forward need not be fraught with pessimism or fear. No matter what happens with inflation, innovation, and international geopolitics, there is one certainty: the need for national economic strategies will grow more urgent during the next few years. A country that keeps its nose up, engaging optimistically through the economic and geopolitical fog, working pragmatically to identify its core strengths (EVPs) and create its own opportunities (CSAs) will emerge stronger than it was before the crises began. ?