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Why Are Governments Paralyzed?

MILAN – It is no secret that the global economy is struggling. Europe is in the midst of a crisis whose root cause is a structurally flawed monetary and economic union. The United States, emerging slowly from a financial crisis and widespread deleveraging, is experiencing a growth slowdown, a persistent employment problem, an adverse shift in income distribution, and structural challenges, with little effective or decisive policy action.

Meanwhile, among the major emerging economies, China’s reform process is on hold, pending a leadership transition this fall that will clarify various internal interests’ goals and power relationships. India, which has lost reform momentum, is experiencing an economic slowdown and a potential loss of investor confidence.

The negative effects of these problems are now interacting, feeding back on themselves, and spreading to the rest of the global economy. And yet, despite a palpable sense of concern that something is very wrong, the prognosis for significant change is bleak – and deteriorating.

What accounts for the apparent lack of effective policy action across a broad range of countries and regions?