As The Telegraph launches an essay prize on youth unemployment, ex-US Treasury Secretary Larry Summers discusses a growing problem.
Larry Summers, the former US Treasury Secretary and, until recently, leading economic adviser to President Barack Obama, is not known for mincing his words.
"I'm not sure that there is a more important long-term issue than youth unemployment," says Summers. Given the more than 20 years that he has spent at the coalface of economic policymaking, it is an arresting declaration.
A snapshot of youth unemployment rates across developed economies suggests that the 57-year-old is not scaremongering. It stands at 20.5pc in Britain, according to the Office for National Statistics.
Across the Channel, it is at 23.3pc in the eurozone, the latest figures from Eurostat show. Over the other side of the Atlantic (Frankfurt: 640218.F - news) , the Bureau of Labor puts the rate in the US at 17.1pc.
The unemployment rate among those first entering the labour force or who are still early in their working lives is historically higher than the rest of the population whatever the pace of economic growth. Those starting out tend not to have the experience employers are after, supporting the adage that it is easier to find a job when you are in one.
But the four years since the financial crisis have seen youth unemployment rates explode upwards in most Western economies, joining the already high rates in their emerging counterparts. The average rate across the G20 economies a club of the world's biggest is 20.4pc, more than three percentage points higher than before the crisis.
The level of unemployment now confronting those starting their working lives as well as the deep headache it is giving policymakers has prompted The Telegraph to partner with the Henry Jackson Initiative (HJI) , an economic and public policy think tank. Today, we are together launching an essay competition complete with a £10,000 prize full details of which are contained in the panel (see right) designed to generate debate and ideas on how to begin solving this growing problem.
Summers, who has previously collaborated with the HJI, argues that it is vital that answers are sought far and wide. "A lot of the good ideas are not going to come from people who are professional economists pouring over statistical analysis," Summers told The Sunday Telegraph .
"They'll come from entrepreneurs, teachers working with young people and people in public policy. I applaud the effort [of the competition] to cast the net wide."
Those countries that have endured the twin horrors of a banking crisis and housing crash have seen sharp rises in their youth unemployment rates. Besides the increases in Britain and the US, Ireland (Xetra: A0Q8L3 - news) 's rate is above 30pc and Spain's north of 50pc. However pernicious the effects of the financial crisis, it does not offer a full explanation for the current predicament facing many countries.
Another important part of the picture is the development over the past 20 years of an increasingly global labour market. In an echo of the English Premier League football teams that can scour the world for players to swell their ranks, multinationals now have that option when deciding where to locate plants, research centres or fill vacancies.
"Even if we had consistently very good economic growth, we'd still have important structural issues behind youth unemployment," Summers says. "The biggest development is the increasing amount of routine work of any kind whether mental or physical that is no longer being valued as it once was. That's partly through technological substitution and partly because of global competition for jobs."
In the US, some are pushing for the elimination of a tax American companies pay when they bring overseas profits back home. The hope is that these profits will be invested in the US and ultimately swell the pool of jobs available. For Summers, though, the increasingly global nature of the jobs market, as well as the automation of work once done by humans, puts "a real premium on education skills".
This accent on education echoes that of business leaders across the Western world who are pushing for schools and universities to turn out students better equipped to flourish in modern economies. In practise, this means better basic maths and language skills at schools, greater vocational training after school and more young people studying sciences and engineering at university.
"The prize that the Henry Jackson Initiative is giving is a reflection of the sense that we don't have this problem in hand in the way we would like to," argues Summers, who has returned to Harvard University since stepping down as the head of the National Economic Council, which advises the White House, in late 2010. "When it comes to education, schools need to find ways of measuring performance better."
Should youth unemployment rates continue to rise or remain elevated over the next few years, one temptation for governments will be to try to roll back the globalisation of the jobs market. In other words, to legally compel companies operating in their countries to hire more local employees.
"I think that trying to be nationalist about this is going to be a short-sighted strategy. It might work for some, but it's not going to work for everyone," Summers says. "It's great if you get people to hire at home rather than abroad, but there are risks. It might ultimately make a company less competitive than a company overseas that is not doing it."
What will be required, though, is greater and more fruitful collaboration between governments and the private sector. This is especially true as the majority of Western governments are cutting, rather than adding to the number of employees in the public sector. At the G20 summit in Los Cabos, Mexico, in June a number of companies, including Coca-Cola, pledged to make efforts to increase the number of apprenticeships available.
Lessons can also be learnt from Germany, where youth unemployment is about 8pc. Companies have tax incentives to provide training to young people and reduce their hours, rather than make them redundant, when the economic backdrop is tougher.
Summers is used to challenging economic conditions as a policymaker, having been Obama's chief economic adviser when he took power during the depths of America's recession in January 2009. Just 48 hours before US voters go to the polls again, he defends his former boss from the accusation that he has not laid out a clear enough agenda for a second four years in the White House.
"I think the President has a clear understanding of where the country needs to go," Summers contends. "He has conveyed that to the public."
Asked about Republican challenger Mitt Romney's economic prescription, he says it would be a "return to the past". Summers, who served as Treasury Secretary during Bill Clinton's presidency, suggested he is worried that too strong an emphasis on austerity in the US next year risks choking off a recovery still struggling to achieve annual economic growth of more than 2pc.
"I think President Obama is orientated to putting forward fiscal measures that increase demand in the short term. That is essential," says Summers, who was an architect of the stimulus plan Obama passed in early 2009. "He's also proposed cutting the deficit by both raising revenues and cutting spending. He also has an agenda that tackles the big policy issues confronting the economy."
There is no doubt who has Summers' vote, but whoever wins on Tuesday, their most urgent priority will be to ensure that the world's biggest economy does not fall over what has been dubbed the "fiscal cliff". It is shorthand for a series of spending cuts and tax rises the economy faces in early January because politicians in Washington have failed over the past three years to agree on a grown-up plan to cut America's $16 trillion (£9.9 trillion) of debt. Should the US head over the fiscal cliff, the rest of the world can expect to follow.
Summers, though, remains optimistic on this point. "The US is likely to avoid making egregious errors with respect to the fiscal cliff," he argues. "If they do that, and with some evidence that housing is starting to improve, there is a real prospect that the US makes a significant contribution to the global recovery."
A more robust American recovery next year would certainly be welcomed by a global economy in which the Chinese powerhouse has slowed and Europe (Chicago Options: ^REURUSD - news) remains trapped in recession. While Summers struck a more sanguine note on the US, he was more cautious on Europe even though Mario Draghi, president of the European Central Bank has taken measures to shore up the euro.
"I think Mario Draghi has taken some very important steps that have contributed to reducing the near-term risk of collapse," Summers explains. "Nonetheless, there are some very serious issues that remain with respect to the sustainability of growth. I think Europe has tended to be more reactive than ahead of the problem. What's needed is a continent-wide growth policy that involves steps by both the creditors and debtors in the euro."
Draghi will know all too well the worrying levels of youth unemployment across many eurozone countries. His focus, though, as the head of the central bank, is on trying to keep the euro together. For Summers, currently out of formal policymaking, there is an urgent need to highlight the dangers.
"Youth unemployment has never been a more serious problem," he says. "All the studies and data show that when young people have a career path and get in the habit of working hard, the benefits are long-term. We're not just talking about early in life."