But the expectations created by pre-crisis growth patterns have adjusted slowly. Because the dominant narrative still maintains that the pre-crisis period was normal, at least in terms of the growth pattern in the real economy, the perceived challenge is to restore growth according to the pre-crisis pattern. Unfortunately, this narrative cannot explain why, particularly in the advanced countries, growth is faltering and the employment engines have largely shut down.

Part of the answer consists in the long, lingering impact of the financial crises and deleveraging. At the same time, the financial imbalances and distortions that precede a crisis delay appropriate and necessary responses to technological and global market forces in the real economy.

In short, economies and policies adjusted in an unsustainable fashion, to some extent obscure the need for a more sustainable pattern of adaptation.

What does it mean for individuals, businesses, and governments that structural adjustment is falling further and further behind the global forces that are pushing for structural change?

It means that expectations are broadly inconsistent with reality, and need to adjust, in some cases downward. But distributional effects need to be taken seriously and addressed. The burden of weak or non-existent recoveries should not be borne by the unemployed, including the young. In the interest of social cohesion, market outcomes need to be modified to create a more even distribution of incomes and benefits, both now and in inter-temporal terms. After all, under-investment now implies diminished opportunity in the future.

The imperative for structural adjustment also implies that individuals, governments, and other institutions, especially schools, need to focus on increasing the speed of adjustment to meet the rapidly shifting market conditions. Attention to both the demand and supply sides of job markets is required. This means not only matching skills to jobs, but also expanding the range of jobs to match skills.

Finally, global economic-management institutions need to address whether the pace of globalization, and its implied structural change, is faster than the capacity of individuals, economies, and societies to adjust can withstand. If so, the next challenge will be to find non-destructive ways to moderate the pace in order to bring the capacity to adjust and the need for adjustment into closer alignment.

None of this will be easy. We do not have well developed frameworks for understanding structural change. Nevertheless, the unemployed and underemployed, especially younger people, expect their leaders and institutions to try.

The author, a Nobel laureate in economics, is professor of economics at New York University's Stern School of Business and senior fellow at the Hoover Institution, Stanford University.

Project Syndicate.

(China Daily 10/19/2011 page8)