E-Discussion: A Recovery with a Human Face - Opening message by Francis Stewart, Richard Jolly, Andrea Cornia
(Facilitator's Note: Welcome to this e-discussion! Please share your ideas and experiences on how best to ensure a "Recovery with a Human Face". Specific questions to help trigger the discussion are included below. We appreciate your contributions and look forward to a vibrant discussion!)
The debt crisis of the 1980s led to a severe recession in almost all African and Latin American countries. IMF and World Bank adjustment programmes required countries to cutback on their expenditures, introduce charges for health and education, and reduce or abolish the minimum wage. Reductions in protection led to the collapse of industrial sectors in many countries, and to high unemployment. Poverty rose and income distribution worsened. Most countries had no or very limited programmes of social protection. This was what came to be known as the ‘lost decade’.
UNICEF responded with Adjustment with a Human Face which argued that children MUST AND COULD be protected during economic crisis and explained how this could be done – through more expansionary macro-programmes, redirection of meso-policies to protect crucial social and economic sectors serving the poor, and the introduction of social protection programmes.
Since then the world has generally acknowledged the critical importance of reducing poverty and of protecting children in difficult circumstances. Worldwide agreement on the MDGs is the outcome of this consensus.
Yet in 2008 a new global recession suddenly developed, the consequence of irresponsible lending by Western banks. The poor in developing countries are again suffering – this time from a crisis that is entirely due to actions taken in the developed world. It is critically important that this does not lead to a new lost decade; and that the poor, and especially children, do not suffer as they did in the 1980s.
Fortunately, the world has moved on since the 1980s and developing countries are more in control of their own destiny. Being less indebted they do not need to turn to the IMF in large numbers; many have initiated their own macro-economic stimulus, instead of the cuts of the 1980s. More social protection programmes are in place, like employment guarantee schemes, cash transfers and micro-finance. Nonetheless, many millions are likely to suffer from the depressed world markets, reduced employment, and falling remittances.
It is of crucial importance for the poor of the world that as the global recession recedes there is Recovery with a Human Face, that is a recovery that is inclusive, expands employment opportunities, sustains health and education services, and provides support for those below the poverty line. Like Adjustment with a Human Face, this can be achieved. It requires that aid to poor countries is sustained; that expenditure to social services is maintained; and that new schemes are introduced which promote employment, extend decent health services to all and provides cash support, where needed, for the poorest. Some countries are taking action in this direction; but many are not, either because they lack the financial or human resources, or because of political obstacles. It is imperative that those who care about the wellbeing of the children of the world should help these countries to achieve the conditions for Recovery with a Human Face.
Dr. Frances Stewart
Dr. Andrea Cornia
In an effort to facilitate this process, UNICEF has launched this open e-discussion. This is the first message of what we hope will be a fruitful and informative discussion on how to best promote a Recovery with a Human Face at national, regional and global levels. We would like to hear from you.
We hope to count with your active participation and valuable contributions!
Re: E-Discussion: A Recovery with a Human Face
- Armin Bauer, ADB
Thank you for initiating this e-discussion.
I would like to refer you to our Hanoi conference, on “The Impact of the Global Economic Slowdown on Poverty and Sustainable Development in Asia and the Pacific,” 28-30 September 2009. The conference was a joint event partnered with 12 development institutions including the Governments of PRChina and Viet Nam, ASEAN Secretariat, ADB, ADBI, AusAID, BMZ/GHTZ/KfW, DFID, ILO, IPRCC, JICA, WHO, and World Bank.
We had produced at least 60 papers related to this topic, and we will now also publish a book (by May). There were some very interesting presentations on several issues, including on:
There were also discussions on specific sectors, such as Social protection, Health, Education, and Municipal Services and Public-Private Partnerships.
Finally, there was also a very interesting special session on the “Environments of the Poor,” where participants discussed potential options on how to widen fiscal stimulus packages to improve environments of the poor through green growth strategies.
Re: E-Discussion: A Recovery with a Human Face
- May Miller-Dawkins, Oxfam Australia, and Santosh Mehrotra, Government of India
[Facilitator's Note: Please find below two messages, received with many thanks by , and Santosh Mehrotra, Government of India.View this discussion thread here.]
As the economic crisis started to hit developing countries Oxfam initiated research in 11 countries to understand the human impacts of the crisis and to analyse the effectiveness of responses to this crisis. Oxfam has been using this research to influence responses at national and global levels. A range of country, regional and thematic studies have been published, along with a draft research report. Reports include:
Dear Richard, Andrea and Frances,
Re: E-Discussion: A Recovery with a Human Face - Marty Chen, WIEGO
Dear Frances, Richard, and Andrea,
Thanks for initiating this e-discussion.
As Richard knows, I coordinate a global network called WIEGO (Women in Informal Employment: Globalizing and Organizing) that seeks to improve the status of the working poor, especially women, in the informal economy through improved statistics and research, stronger member-based organizations of the working poor, and inclusive policies.
In mid-2009, WIEGO and its allies in a global project called Inclusive Cities for the Working Poor carried out a study of the impact of the global recession on three categories of the urban working poor: home-based producers, street vendors, and waste pickers, in 10 countries. Please find here the ppt presentation that I made based on our findings in Latin America at a New School conference in November 2009 and please click here to see that study.
We are currently repeating the study with the original sample of urban working poor in those 10 countries to see what their current situation is. Having just returned from India where I met with our partner Self Employed Women's Association (SEWA), I think the study will show that there is continuing recession in these trades compounded with a marked rise in food prices.
I will share the findings from the second round of our study once they become available.
What we propose is that for the recovery to be inclusive, it needs to include:
1. short-term emergency relief measures for the working poor;
2. sector-specific recovery measures: such as storage facilities for waste pickers, vending space in central business districts for street vendors;
3. "do no harm" measures: temporary embargos on exclusionary laws, regulations, policies, and practices that undermine the livelihoods of the urban working poor (e.g., large infrastructure schemes that do not have any provisions for those whose work or livelihoods are displaced or disrupted).
E-Discussion: Lessons from Adjustment with a Human Face
- Sir Richard Jolly, University of Sussex
Adjustment with A Human Face (AWHF) was UNICEF’s call for a new approach to the economic crisis in the 1980s – and to how children were being neglected in the orthodox responses to structural adjustment being strongly promoted by the IMF and the World Bank, with strong support from many of the donor countries. It also proposed specific measures to change the orthodox approach. Looking back to UNICEF at that time brings out a number of lessons highly relevant for today.
It takes boldness and talent – but not large numbers. Most of UNICEF’s work was done by Andrea Cornia and Frances Stewart. I was useful in providing support and advocacy within the UN – but with my other duties as Deputy Executive Director in charge of programmes, my time was limited.
Specific examples are needed – When we met the head of the IMF, Jacques Delarosiere, he asked: Give me an example of Adjustment with a Face. I remember giving him the example of Britain during the Second World War. The UK at that time was nearly on its knees, having to restructure the whole economy for arms production and support of the military and to do this while halving imports because of enormous shipping losses to U-boats and battle. In this sense it was a structural adjustment problem of extreme short-term urgency. In spite of the desperate war-time imperatives, Britain adopted a range of imaginative priorities to protect the nutrition status of the whole of the population – and succeeded. At the end of the war, the nutritional status of the British population was higher than ever before in history. Churchill was apparently both a supporter and promoter, arguing that “there is no finer investment than putting milk in babies.” Most remarkable, the policy had been devised by a scientist, Jack Drummond, who had originally been appointed with the mandate of protecting British food supplies against contamination from poisonous gas. Yet in three months Drummond had redefined his mandate to protecting the whole of the British population against the wartime threat of malnutrition. This lesson from a developed country was unexpected but telling. And we had examples from developing countries. The examples showed we had done our homework - and were serious and practical.
UNICEF’s mandate and reputation gave it an enormous and credible voice – and still does. AWHF was first presented at the World Conference of SID, The Society of International Development in Rome in 1985, then promoted in the State of the World’s Children Report, then as the two volume study, Adjustment with a Face, published in French and Spanish as well as English. UNICEF’s strong voice and credibility enabled it to give an international lead, though we worked closely with allies, especially with ECA and the ILO. ECA had a powerful voice in Africa –but not in New York or Washington. ILO had been told firmly by the US not to hold a major meeting on adjustment, or their funding would be cut. In contrast, AWHF in UNICEF gained increasing government support. In the first year –from Norway, Netherlands and Canada and in the next year from 13 countries. By the third year support came from 26 countries and in the fourth year from all 41 members of the UNICEF Board, including the US. (The whole story is written up in a special issue of the journal World Development, December 1991.)
In spite of this considerable success, there were weaknesses in UNICEF’s position. With the benefit of hindsight, we were too weak in failing to challenge the Washington consensus on a wider basis – not just in its neglect of the human dimensions, but the fact that the Washington consensus was having a disastrous effect on economic growth and economic development in Latin America and Africa. Recent statistics show that in Latin America, over the 20 years from 1980 to 2000, economic growth per capita showed only a miserable increase of 9%, compared to the 80% increase of total GNP pc between 1960 and 1980. For sub-Saharan Africa, the comparisons are even most striking. In the years of structural adjustment, 1980-2000, GNP per capita fell by 15%. Over the 20 years, 1960-1980, there had been an increase of 36% over 1960-80.
The long run challenges of changing the whole approach to development were also less emphasised – though in this case, UNDP brilliantly took on this battle in 1990, with the creation of the Human Development Report. I would argue that there is still a strong case for UNICEF to work more closely with UNDP, in applying the approach and messages of human development to children. There is still time for this.
The Challenges today: Recovery with a Human Face
Frances Stewart has set out the main challenges for this in our previous note. So has the Commission on Global Recovery, set up by the President of the General Assembly and chaired by Joe Stiglitz. Many Asian countries have also demonstrated new approaches, as became clear from the case of Thailand, presented at the UNICEF seminar in London by the Deputy Director of Planning, and which I will be happy to share with you shortly.
As with AWHF, UNICEF could use its advocacy and outreach to promote wider awareness of these more human and child-focused approaches to recovery today, drawing on Asian and other positive examples. Gaining an audience should not be difficult. The G-20 approach has blatantly ignored most of the human needs of people in the 173 countries not represented. Moreover, in mainly focusing on measures to save the banks and the financial sectors from collapse in the largest economies, it has neglected many human priorities in the richest countries. Unemployment is still often at record levels not seen for decades and budget deficits are threatening cutbacks in education and other services benefiting children and other, especially the poor. The need for broader changes in the Bretton Woods approaches have also been neglected –especially the issues of structural change to tackle critical priorities over the medium to longer term – of employment, climate change, economic stability and income inequalities, within and between countries.
What could UNICEF do?
It should prepare a factual paper focused on how children are being affected - or are likely to be - by the neglect of these issues in the current crisis – employment, climate change, continuing economic instabilities, income inequalities. It should do this partly by a desk study in New York but also by gathering information from a well-chosen sample of field offices (a diversity of a dozen or so countries, chosen also in terms of where there is an analytical talent in the office and in the country).
UNICEF should mobilize interest and support for this among the other UN agencies – UNDP, especially the HDRO, WFP, UNIFEM, UNFPA, perhaps others like WHO.
It should promote the findings using all its skills and contacts for advocacy, including through the National Committees.
UNICEF can use the positive examples, for instance from Asia.
Re: E-Discussion: Lessons from Adjustment with a Human Face
- Bob Deacon, University of Sheffield UK
This is an interesting and worthwhile discussion.
I am prompted to address the question of the nature of the global social policy response to the crisis.
One significant development was the agreement of the UN Chief Executive Board to the idea of the Global Social Floor or minimum social protection package. This certainly is an advance on the neo-liberal era of residual safety nets and policies that targeted the poorest of the poor. It is to be supported. The work of UNICEF, ILO and WHO here is crucial.
However, I argue strongly (in a paper delivered at the UNRISD conference on the crisis last November) that an adequate social policy and social development response to the crisis has to go beyond the global social floor concept.
What is needed is a more universal and inclusive approach to state-led social development with which the welfare needs of the middle class and state builders are met as well as those of the poor.
If the professional and middle class of many developing countries are to be weaned away from a self-serving attachment to a global market in private welfare (overseas universities, private pensions, consumption of health service abroad), then developing countries need good universities, good hospital provision and adequate remuneration for the state builders.Otherwise, there will be no chance of rebuilding bonds of solidarity between the poor and the non-poor within countries, which are needed to (re)build universal and high quality social provision for all. This IS the lesson of effective European welfare state building.
The paper can be found here. It will also be available later as a chapter of a book to be published by URNRISD following the conference.
Similar arguments can be found on the revamped Comparative Research Programmme on Poverty (CROP) web pages. Follow links to core projects.
Professor Bob Deacon
Professor of International Social Policy
University of Sheffield UK
Founding editor Global Social Policy
Member of Scientific Steering Committee of CROP
Re: E-Discussion: Lessons from Adjustment with a Human Face
- Degol Hailu, BDP/UNDP and John Weeks, University of London
[Facilitator's Note: Please find below two messages, received with many thanks from Degol Hailu, BDP/UNDP, and John Weeks,University of London.View this discussion thread here.]
We argue low-income countries can adopt counter-cyclical policies. However, we need to reject the price-determined economy framework in macroeconomic policy analysis. The adoption of counter-cyclical policies becomes feasible when we adopt a demand-determined economy framework. Please see the below publication for details of the argument:
Find here the study that I did for the Minister of Finance of Sierra Leone, Samura Kamara. The recommendations are being implemented, with the fiscal stimulus initiated in September. This was the basis for the keynote address that I gave to the annual Caucus of African Governors of the IMF and the WB, which can be found here.
E-Discussion: The Return of Counter-Cyclical Policies
- Jose Antonio Ocampo, Columbia University
The importance of counter-cyclical macroeconomic policies has been emphasized by some of us, even when the concept had been marginalized from the lexicon of mainstream economics. Some of us insisted that a good counter-cyclical macroeconomic policy has to start during booms to avoid the accumulation of unsustainable indebtedness, and, in the case of emerging and developing countries, of unsustainable external debt positions. Some of the new instruments that we suggested were in fact implemented by some countries.
Nevertheless, support for such instruments was weak: the International Monetary Fund had a pro-cyclical bias in its monetary policies; emerging and developing countries tended to have pro-cyclical macroeconomic policies, which magnified rather than smoothed the effects of strong positive and negative external shocks; and it is now clear that the U.S. ran massive pro-cyclical policies during the 2003-07 boom, a factor that became a basic a major force behind the financial crisis that erupted in the summer of 2007 and became a major worldwide financial collapse in mid- September 2008.
Thus, it is very refreshing to see that the term “countercyclical” not only came back, but came back with force during the “Great Recession.” It has been strongly endorsed by the Group of 20 and now is frequently heard from the International Monetary Fund and some orthodox economists. The most massive Keynesian macroeconomic packages in history were put in place, including in some emerging markets, and some policy innovations were endorsed, particularly the principle of introducing countercyclical principles in prudential regulation. Financial policies were put in place in India and Colombia to cool down the credit boom and avoid currency mismatches in domestic portfolios; large countercyclical packages were put in place during the crisis in Brazil, Chile and China, though in the latter they accelerated some of the imbalances of the Chinese economy.
Still, some countercyclical policies have been weak. European policies have been weaker than those in the U.S. during this as well as previous crisis. The lagged and very moderate countercyclical policies in Turkey during the recent crisis can be tracked to the problems generated by the fiscal crisis and adjustment in the early 2000s. And in Africa the experience has been very diverse, from countries that have adopted countercyclical policies to those that have been unable to put them in place.
No country has been free from the boom-bust pattern of the most recent cycle, which had the U.S. economy as its epicenter. The idea that somehow emerging and developing countries could decouple from the industrial world has not stood up to reality. Indeed, this proved to be false, and the peculiar euphoria that has characterized world financial markets since the second quarter of 2009 have also facilitated the recovery–i.e., that push rather than pull factors have contributed to the renewal of capital flows into the emerging markets.
The Journal of Globalization and Development’s symposium, entitled “The Return of Counter-Cyclical Policies,” examines this issue and the cases of several countries, such as Brazil, Chile, China, Turkey, Colombia, India, and more. I invite all of you to take a look at this symposium at http://www.bepress.com/jgd/
Looking forward to a great discussion,
Jose Antonio Ocampo
Re: E-Discussion: The Return of Counter-Cyclical Policies
- Peter Auer, IILS/ILO, and Carmelo Mesa-Lago, University of Pittsburgh
[Facilitator's Note: Please find below two messages received, with many thanks, from Peter Auer, ILO, and Carmelo Mesa-Lago, Univ. of Pittsburgh]
1. Peter Auer
Yes, Jose Antonio adresses an important point. In this context it is also important to mention the anticyclical working of automatic stabilisers, that are probably more effective as counter-cyclical measures than discretionary programmes. In Germany for example, estimates for the automatic stabilisers are in the range of 2 1/2 % of GDP for each of the years 2009 and 2010 (in addition to the stimulus).
But effectiveness may not only depend on size but also on experience of organizing these programmes: no need to reinvent the wheel at each new recession. Open the tool-kit and you find the instruments. One may adapt them slightly to new circumstances but in essence they work. While not the whole "automatic" stabilisation is done via the social protection system (taxes play a role) much is done through it. E.g. short-time work is a quasi automatic stabiliser (discretionary extensions occur), traditionally used in downturns in Germany and elsewhere in Europe. But the reasoning applies also to unemployment benefits.
And this is, in economies with social protection system of some size and a suitable structure of programmes, inbuilt "counter-cyclicality", mitigating negative effects on labour markets and beyond. How to build these programmes in much of the developing world is a major ongoing challenge.
It was a pleasure to read your article on anti-cyclical policies and to know you are a Professor in the School of International and Public Affairs en Columbia University.
Taking a comparative approach, these two books evaluate the effects of the global financial crisis on social security (pensions, health care and social assistance) in 25 Latin American and Caribbean countries. The analysis, supported by a wealth of data, explores the key themes necessary to understand how Latin America's social security systems are affected by the global crisis. These include:
It also extracts lessons and recommends policies to cope with the negative effects of the crisis and to strengthen social protection in the future. Issues considered are: coverage, sufficiency of benefits, social solidarity, gender equality, efficiency and administrative costs, and financial sustainability, analysing the impact of the crisis on pension funds, portfolio diversification and capital returns. Finally, they demonstrate that those countries taking anti-cyclical measures of a social nature attenuated the adverse effects of crises and shortened their length.
I hope we can meet in the near future.
Re: E-Discussion: A Recovery with a Human Face
- Sir Richard Jolly, University of Sussex
Thailand: An example of Recovery With A Human Face
Unemployment at record levels, rising poverty, social services facing serious cutbacks – such are the headlines in the West, in spite of billions of dollars and pounds poured into bank bailouts and quantitative easing. How different from the many of the measures reported for Thailand in a recent UNICEF meeting in London and in Asia in late November at the Committee of Macro Economic Policy meeting at the UN’s ESCAP, the Economic and Social Commission of Asia and the Pacific. The latter presented plans and results for Asia which give a totally different perspective from Western preoccupations.
Asia is the only region where GDP growth has slowed but not turned negative. Growth is estimated to be 5% for the region in 2009, down from 7% or more in the years before. But it is not only continuing growth which accounts for the more positive mod and perspectives. Throughout the region, stimulus and recovery measures have emphasized social protection and actions for boosting demand among the poor and vulnerable –precisely because these are the groups which will rapidly turn additional income into additional demand – and jobs.
Thailand is a clear example. In March 2009, Thailand’s short term stimulus of $3 billion – just under 2% of GDP- included a one time cash handout to all persons over 60 years, old-age monthly allowances and the start of a skill upgrading programme for the unemployed and new graduates with monthly allowances.
At the same time, Thailand developed a 3 year medium term programme of $45 billion, equivalent to 4% of GDP each year. This has just started. It is focussed on investments in infrastructure covering transport, communications, water management as well as improvements in education and health services. The net effect of these programmes has been to keep down unemployment. The number of job-seekers has risen –but only from 1.7 to 2.4%.
Thailand by no means stands alone in having such programmes. As reported at the ESCAP meeting, many Asian countries have focused recovery on the poor -Recovery with a Human Face.
How have these programmes been funded? One must go back to the Asian financial crisis of 1997-9 for answers. During this earlier crisis many Asian countries experienced desperate capital flight and were forced to go cap in hand to the IMF and were met with tough conditions and only limited funds. “Never again will Asia allow itself to be so humiliated”, was how this episode was described by the Governor of the Central Bank of Bangladesh at the ESCAP meeting last week. So reserves were built up – in Thailand’s case to $130 billion, to $4 trillion for Asia as a whole. Regulations on banks and capital outflows and inflows were also tightened.
Not surprisingly, therefore, Asia is reporting that recovery is already underway. However, it is also looking to a changing structure of economic growth to sustain it over the longer-run. This means a shift from the past model of ‘manufactured in Asia, consumed in the West’ – as Noeleen Heyzer, the dynamic Executive Director of ESCAP put it - to a more balanced pattern in which Asian consumption grows as its own source of demand and of further poverty reduction. There is also talk of action to stem the extremes of income inequality.
What lessons are there for the UK, the West and even for the agenda of the G-20s next meeting? While unemployment is still at record levels, there is still need and time for measures to stimulate employment-creating demand and reduce poverty. Why not increase pensions or other benefits for pensioners, who as in Asia would spend rapidly and spread the money into employment and jobs –unlike the surge of bonuses for fat cats which often end up in adding to bank balances and more for hedge funds. Measures to provide additional income to poorer groups would similarly help reduce poverty and increase employment. And why not actions to upgrade the skills of the unemployed and to expand places in higher education? It is not too late for the West to learn some human lessons from the East.
Re: E-Discussion: The Return of Counter-Cyclical Policies
- Yanchun Zhang, UNDP
"Fiscal stimulus with a human face"
The global economic and financial crisis erupted in 2008, coupled with the precedent food crisis and fuel crisis, posed new yet familiar challenges to both developed and developing worlds. Unseen features are associated with the latest crisis as unprecedented policy responses are taken by governments and international organizations. Many countries have responded to the financial and economic crisis by implementing expansionary monetary or/and fiscal policies.
The size and composition of the fiscal stimuli varies from country to country. Some countries included certain measures in their fiscal stimulus plans to protect the most vulnerable members of the societies. The size and content of social protection measures matters because they could directly help prevent people from losing their income, shedding their assets, or reverting to coping strategies that may be harmful to their current and future wellbeing (for example, by cutting spending on prenatal health or child education). Indirectly, social protection measures can also help to build a more sustainable and resilient economy by providing the poor with the capacity to climb out of poverty. At the G20 Pittsburg Summit (September 2009), "improving social safety net" is included in the Framework for Strong, Sustainable and Balanced Growth.
In a paper I co-wrote with Nina Thelen and Aparna Rao, we collect data on 48 fiscal stimulus packages worldwide and study social protection components of them to better understand how the policy responses to the crisis addressed concerns about poverty, vulnerability, and deterioration in human development outcomes.
An updated version of our working paper can be found here.
It is also worthy to be reminded of potential short-term and long-term costs associated with fiscal stimulus packages, which vary depending on the conditions of an economy. Especially I would like to emphasize that discretionary fiscal stimulus is not the only fiscal option to stimulate a domestic economy. Additional non-discretionary fiscal stimulus constitutes another tool that can help prevent the need for aggressive discretionary stimulus measures. This economic crisis might therefore be an opportunity for many countries to rethink the need for implementing additional non-discretionary fiscal safeguard measures.
Relating to the last point, I want to propose that the composition of stimulus matters, in a sense mattering even more than the size of the stimulus. Some emerging and developing economies face a hard choice between a quick stimulating fix of the economy and a slow and challenging journey of building their social protection framework. If they are pressured to take the easy way out, they might miss once again an opportunity to safeguard their people and their future economy. Without a sizable social protection system, these emerging countries may end up "emerging" but may never be able to leap into the advanced country club.
Re: E-Discussion: The Return of Counter-Cyclical Policies - Peter Auer, IILS/ILO
Dear Yanchun Zhang,
I entirely agree with your points, especially also on the point of the respective importance of level and structure (or composition). It has often been forgotten by development specialists that a social protection system is one of the outstanding features of developed welfare states, thus of development. It helps in a recession (e.g. the labour market part of it: unemployment benefits and active labour market policy which work counter-cyclically if well organized), while being always important for the economy. As a guesstimate let's say that at least about 30% of GDP is in one way or the other related to social protection. Important questions remain though: should it be organized privately or publicly, what are the important elements of a social protection system (each composition hides another one), is a social floor the way to go or should one target beyond this because of economic growth, who pays, etc. And an important one: does it need growth before one can even think of social protection or is it an ingredient of growth; I believe it is the latter.
Anyway it must be a political target and needs a supporting coalition of interest, as can be seen in the present health bill process in the US, with a decisive vote recently.
First, thanks to Frances, Richard and Andrea for again triggering an important discussion after the discussion and re-orientation on adjustment triggered by your book some 20 years ago.
Taking up Prof. Ocampo’s encouragement to discuss, I should like to comment on the well-presented important point with which I totally agree. He rightly, though not most explicitly, refers to the IMF’s different treatment of North and South – usually pro-cyclical bias in the South, endorsement of countercyclical policies in the North.
This is a double standard that calls for more attention and discussion. One may also ask why going to the IMF was immediately excluded in the case of Greece, but is recommended as the best policy to the South by the very EU-members excluding the Fund for Greece. If the IMF’s recipe were thought to be the only possible one, or at least the best one, there would be no honest reason to do so. In fact, the very possibility of a recovery with a human face would be heavily restricted if there existed only the IMF’s approach, or if it were the best one. As in the case of adjustment, a human face for recovery is also possible.
Peter Auer recalls the important role of the social protection system as automatic stabilisers in the North. Those MDGs targeting poverty would play the same role of built-in stabilisers in the South. I feel that this property of the MDGs need be stressed in connection with anti-cyclical policies. Presumably one should assume an impact below the figures mentioned for Germany because the German social system is more generous to its recipients than MDG-financing, but this quality of the MDGs must be clearly pointed out, especially so in view of the likelihood of cuts in ODA by most, if not all Northern governments due to the US Crisis. I feel the anti-cyclicality point also supports my own argument that the MDGs must be used as the measuring rod for debtor protection in the case of over-indebted countries. Resources needed for financing must be exempt - thus reducing sustainable debts - as usual in the case of domestic bankruptcies protecting debtors (if interested in more details of my book “Debt Management for Development: Protection of the Poor and the Millennium Development Goals,” available this May/June, please click here.
Last but not least, my thanks to Prof. Ocampo for your clear language on the roots of the recent US Crisis (U.S. economy as epicentre). It is necessary to point this out because there exist again attempts to use the South as a convenient scapegoat by attempting to make “global imbalances,” more precisely surplus countries in the South, appear as the real root of present problems, quite as the debt crisis of 1982 was uniquely pinned on OPEC surpluses, demonstrably wrongly but extremely successfully so.
South-South cooperation related to social protection is an important and strategic partnership development tool. It is well recognised that the knowledge, skills, and technical expertise which can be exchanged through South-South co-operation are in many cases those most suitable to meeting the development challenges faced by others in the South.
Social Security Department
Social Protection Sector
International Labour Office
Following contributions by Richard Jolly on a greater attention to growth in reviewing the consequences of adjustment policies, by Jose Antonio Ocampo and Peter Auer on fiscal stimuli, I would like to share some major conclusions of a special issue of the Journal of Human Development and Capabilities (Vol. 11 no 1) entitled: Employment, Inequality and Globalization: A Continuous Concern.
Re: E-Discussion: The Return of Counter-Cyclical Policies - Harry Shutt, Development Consultant
The following should be borne in mind:
A. The presumption that global recovery from the crisis has begun and can be expected to continue is highly questionable and needs to be qualified. This is because:
1. The enormous fiscal imbalances resulting from the financial crisis – compounded by the decision to bail out Western banks on such a massive scale – means that at best there can be no sustained global recovery in real GDP for several years, thereby severely limiting the capacity of developed countries to maintain public spending levels, let alone increase them;
B. Furthermore the long-term sustainability of the growth / employment model of development is now in question. This is because:
1. The record of the past 30 years has shown not only that global growth is in long-term decline (excluding the exceptional spike achieved in 2003-07 thanks to the unsustainable and disastrous credit bubble) but that higher productivity has led to lower employment elasticity, such that even in a high growth economy like China, manufacturing employment has fallen considerably from its peak in 1995 (please see "Jobless Growth in Chinese Manufacturing" by C.P. Chandrasekhar and Jayati Ghosh)
2. The pressures on the environment resulting from the continued competitive pursuit of high growth are increasingly intolerable –with the poor often the main victims in terms of the impact on their living conditions (particularly through pressures on land, water and forests, often compounded by excess population growth).
Hence to see the macro issue in terms of traditional Keynesian or “neo-classical” analysis is no longer appropriate, since neither approach can bring about sustainable recovery – or indeed avert disaster. Rather there is growing recognition even in official circles that prioritising global growth can no longer be considered the means of attaining adequate living standards for all (even if the poorest countries will still need to experience growth). Thus, significantly, a recent report for the British government-sponsored Sustainable Development Commission has concluded that “For the advanced economies of the Western world, prosperity without growth is no longer a utopian dream. It is a financial and ecological necessity” (see Prosperity without growth? The transition to a sustainable economy. Sustainable Development Commission. London 2009, page 12). The obvious implication is that the elimination of poverty will require far greater emphasis on redistributing existing income (value added) – both between and within nations – rather than futile attempts to expand it further.
C. Income distribution. All this points to the need for much greater reliance on a combination of
1. Income transfers – conditional or not – as a mechanism for distributing income in developed and developing countries alike, ideally moving towards adoption of a basic / citizen's income payable at a survival level to all adults as of right (see here), and
2. Assuring more equitable access to income generating opportunities in oversupplied labour markets by, for example, promoting a shorter standard working week - as recently proposed by the New Economics Foundation in the UK - or enhanced accessibility of microfinance.
D. Creating fiscal space. Richard Jolly correctly notes the damage caused by the application of the Washington Consensus in the 1980s. It needs to be stressed that, despite the failure of this doctrine to deliver any sustainable benefits to anyone (rather the opposite), it is still very much in place. While it may not be politically possible for UNICEF to challenge this directly, it must be prepared to do so to the extent necessary to enable poor countries and regions to generate and retain sufficient domestic value added, especially given the greater emphasis on redistribution. This will require some restrictions on the cross-border movement of goods, services and capital in conjunction with the setting of appropriate levels of taxation – e.g. to finance income transfers.
Economic consultant and author (most recently of Beyond the Profits System: Possibilities for a Post-Capitalist Era. Zed Books, London 2010).
West Sussex, UK
Re: E-Discussion: The Return of Counter-Cyclical Policies - Sabri Oncu, NYU, and Hakon Arald Gulbrandsen, MFA Norway
[Facilitator's Note: Please find here two responses received, with many thanks, from Sabri Oncu, NYU, and Hakon Arald Gulbrandsen, MFA, Norway.]
1. Sabri Oncu, NYU
Regarding Harry Shutt's comment: "ii) this risks unsustainable levels of inflation"
Although I mostly agree with almost everything else Harry said, I believe that what is at risk is deflation, not inflation. This is the reason behind the ongoing attempted monetary expansion. However, it appears that the global money supply is contracting because of the ongoing defaults and develeraging, despite the efforts of the leading central banks such as the Fed, ECB and Bank of Japan. The risk is not unsustainable levels of inflation, in other words. We are in a debt deflationary period and, by the looks of it, we will continue to stay in it for a long while. I hope I am wrong.
Prof. T. Sabri Oncu
2. Hakon Arald Gulbrandsen, MFA, Norway
Recalling your groundbreaking work on conditionality -"Adjustment with a Human Face"- back in the 90's, it would be of great interest to us to hear your assessment on the current debate on IMF’s, WB’s and regional banks’ conditionalities. The Norwegian Government has, in its renewed Soria Moria declaration, underlined the importance of political and economic space for developing countries. The Government is now assessing how the debate on conditionality can be moved forward during the Spring meetings in Washington next month. If it is of relevance to you, it would be very much appreciated if you would give us some directions from how you see it.
A question could for instance be if you agree with the follwoing quotation from an OXFAM's consultation draft report entitled The Global Economic Crisis and Developing Countries: Impact and Response, that "...the IMF and World Bank have moved from orthodoxy [Washington Consensus] to a degree of agnosticism, but stopped a long way short of heresy"?
With best regards,
Kunibert Raffer makes an excellent point about why it would be bad for the IMF to be imposing austerity on Greece, and if such austerity is so bad, why is it OK for developing countries?
I tried to raise concern on this point in a letter to the FT in October 2008 (1) and with Bhumika Muchhala in a G24 Policy Brief (2). The fact that the IMF was still pushing pro-cyclical policies on countries in the south during the global economic recession (despite their turn-around on such policy advice for rich countries in the north) was also well documented by Eurodad (3) the Center for Economic and Policy Research (4) and by a joint study by Eurodad and SOLIDAR, Doing a Decent Job, which looked at IMF conditions and their impact on labor as opposed to ILO guidelines for the crisis (5).
Robert Pollin, Gerald Epstein and James Heintz show that alternative approaches to fiscal and monetary policies in low-income countries are certainly possible (6), and Degol Hailu and John Weeks show that such alternative approaches are necessary (7), but first the dominant neoliberal price-determined economy framework in macroeconomic policy analysis must be abandoned and replaced with a greater emphasis on the long-neglected demand-determined economy framework. This gets to the point that there are short-term issues related to the current crisis but also much more serious longer-term problems with the whole development model (something The MDG Campaign has been reluctant to take head-on).
Along the lines of these bigger-picture and longer-term problems with the IMF’s policy approach and the neoliberal development model more generally, Jan Kregel (8) notes that the current model’s approach of using the bulk of domestic productive forces (including labor) for producing exports and an external surplus in order to repay creditors necessarily reduces the left over resources that could otherwise be directed towards building domestic demand. Therefore, despite the recent minuscule increases in recent IMF flexibility, the neoliberal model generally blocks any effective use of classic Keynesian deficit spending to achieve full employment goals. Not only is favoring exports over enabling greater domestic demand at odds with the new post-2008 consensus in the rich countries, Kregel notes that it also exacts a double whammy since devoting resources to exports also involves a sacrifice in foregone or lost output because of domestic labor resources that were not mobilized for building domestic demand and domestic productive capacities.
This underscores a deeper problem with the MDG approach and its over-emphasis on getting needs met, particularly through added external inputs (more ODA, debt cancellation, FDI, remittances) to the continuing neglect of asking how countries can better generate more of their own resources domestically, how and when and under what circumstances will they finally grow their domestic tax bases? Despite the UN Monterrey Consensus and Financing for Development (FfD) process alluding to mobilizing more domestic resources, very little has actually been done in this regard. Terry McKinley and Katerina Kyrili point out that despite some recent improvements, efforts to increase tax bases have been bottoming out and remain insufficiently low (9).
UNCTAD, however, has done a good job of hammering home this point and calling for a paradigm shift away from price-determined neoliberal approaches and towards a demand-determined approach in several of its recent publications, including its important UNCTAD Least Developed Countries Report 2006 focused on Developing Productive Capacities (10) and its Economic Development in Africa series report for 2007 focused on Reclaiming Policy Space: Domestic Resource Mobilization and Developmental States (11), which was followed by a useful 2009 handbook for policy makers based on lessons from 9 countries looking at policies for Enhancing the Role of Domestic Financial Resources in Africa’s Development (12).
The idea that alternative and more expansionary fiscal, monetary and financial policies can be used to bring back the full-employment agenda has been well articulated by Gerald Epstein (13). And the related idea that the tax base must be built-up over time through successful economic diversification (moving away from primary agriculture and extractives up the ladder towards manufacturing and services with greater value-added over time) and industrialization has been recently well examined in a recent South Centre paper on industrial policy efforts in Africa (14). But perhaps nowhere have these arguments been made more elegantly than in a wonderful new book by Eric Reinert called How Rich Countries Got Rich and Why Poor Countries Stay Poor (15).
E-Discussion: Exiting from Crisis Intervention Policies - Isabel Ortiz, UNICEF
Our review findings are:
This is to put forward the following questions to guide our e-discussion:
We look forward to learn from your expertise and experience.
Associate Director, Policy and Practice
UNICEF, 3 UN Plaza, New York, NY 10017
Re: E-Discussion: Exiting from Crisis Intervention Policies - Terry McKinley, University of London
Dear Isabel and colleagues,
Many thanks for initiating this e-discussion.
In this two-pager, which draws on a newly released Eurodad and Third World Network report, we conclude that: "despite having recently raised expectations about reforms in its fundamental policy stance, the IMF remains a long way from jettisoning the neoliberal underpinnings of its governing macroeconomic framework. If the Blanchard et al. Staff Note is any guide, there are likely to be very few changes indeed in its standard recommendations to developing countries on monetary and fiscal policies. Thus, the IMF is engaging in only a rhetorical opening up, at best, of any ‘policy space’ for developing-country governments to determine their own macroeconomic framework.”
Professor Terry McKinley
Referring to our e-discussion on fiscal policy after the crisis we would like to draw your attention to a recent report published by Eurodad and the Third World Network (the report Terry McKinley referred to on theprevious message):
This report (authored by Terry McKinley, Hannah Bargawi and Elisa Van Waeyenberge) assesses the Fund’s claim of granting more macroeconomic policy space in the context of its engagement in 13 low income countries that had continuous programme engagement with the Fund before and during the crisis (i.e. January 2007 to June 2009). The report highlights aspects that can be useful to our e-discussion.
Recommendations: towards growth and development oriented macroeconomic policies
Therefore the report recommends:
For more details on the report's findings and recommendations please clickhere. We hope that this report can provide you with valuable input to this e-discussion. We look forward to reading your contributions to this discussion.
Re: E-Discussion: Lessons from Adjustment with a Human Face - George Laryea-Adjei, UNICEF South Africa
Readers will recall that South Africa is the largest economy on the continent of Africa, with a fairly open economy. GDP PPP is at around US$10,000. Development challenges centre around the huge burden from the apartheid era including extreme inequality in almost every area of life. The Gini coefficient is about 0.66. Unemployment affects a quarter of the working age group.
The global recession hit the local economy in severe ways. The economy shrank by more than 3 percent from Q4 of 2008 to Q3 of 2009 (like many, signs of recovery started in Q4 2009). Some sectors experienced very big hits: mining output fell by about 7 per cent, manufacturing by over 12 percent. About a million people lost their jobs. The budget balance moved from a surplus of 1 per cent of GDP in 2007/08 to a deficit of 7.3 percent in just two years. The expansion helped greatly in cushioning the economy against an even larger decline in output and employment. UNICEF's study (only abstract is shared above due to file size) shows that the relatively vast social grants system is smoothening household consumption in many positive ways. South Africa's social grants system serves some 13 million people (out of a population of 49 million). Of particular importance is the Child Support Grant which serves some 9 million poor children every month. Use of simulation techniques show that the Child Support Grant is also helping poor families go through a relatively short recovery process. The age of eligibility for the Child Support Grant has been expanded by the government to cover all poor children under 17 in 2010 and under 18 in 2011 even in times of the recession.
So once again, the storyline is about how a robust set of pre-crisis policies and institutions have ensured effective absorption of an expanded budget and benefited large numbers of children in a relatively short period of time. And this is in a developing country! There is room to improve the administration of social grants in South Africa to make them more responsive in times of crisis. But altogether, they are supporting poor families to stay above water in both ordinary and extraordinary times.
Our ongoing qualitative work also points to a big role played by another social protection instrument, the unemployment insurance. Findings will be available shortly.
Re: E-Discussion: Exiting from Crisis Intervention Policies - Ava Shrestha, Independent Consultant
Dear Isabel and colleagues:
Heretofore, economic and political considerations have taken precedence in the debate about targeting versus universal schemes, and many have opted for targeted interventions on grounds that they are more effective in reaching the poor while maintaining budgetary restraint.
But more important than economic costs is the ability to grasp the *social cost* of targeting. Social programs (e.g. child grant) are increasingly being targeted to disadvantaged castes (Nepal). Do such interventions contribute towards greater social cohesion or greater social disharmony in a country fraught with caste and ethnic tensions? Recall the 10-year conflict and what the root causes of the conflict were...Communities in Nepal are generally heterogeneous, and without a system for identification of the disadvantaged castes (not everyone is poor, how do we sift the non-poor, and what is the cost), or strong institutions for implementing and monitoring, is this the best solution? There is a need to have a better understanding of the objective of such schemes.
In Mongolia, while increased government spending has contributed to easing monetary poverty in low-income families, and helped sustain basic consumption in poor households, there are increasing concerns regarding the effectiveness of the cash-handout programs vis-à-vis their stated goals. A 2007 study found that while child money has been an important source for decreasing monetary poverty, it has resulted in a very high leakage to non-poor households and substantial exclusion of poor households, especially migrants, children in institutions and in the streets. The study found little evidence that the program is having a positive impact on non-income poverty dimensions such as school attendance and child development. On the other hand, it appears these programs have lent support to the government’s pro-natalist policy as evidenced by the increase in the birth rate by 7-8% since 2006.
Re: E-Discussion: Exiting from Crisis Intervention Policies - Oscar Ugarteche, University of Mexico and Mahesh Patel, UNICEF EAPRO
1. Oscar Ugarteche, National Autonomous University of Mexico
2. Mahesh Patel, UNICEF EAPRO
The crisis is marching on—from finance, to food, to fuel, to the real economy, to national debt—and sweeping more and more countries into its trajectory. How should we be reacting to the current fiscal crises in Europe? And what are the implications for developing countries and children?
These references are, of course, to the developed economies. Are they justified?
And if we advocate for counter-cyclical policies in developing countries, must we, for consistency, advocate that counter-cyclical policies will equally be implemented in boom cycles as in bust cycles? My gut reaction, without evidence, is that we tend to argue for "more fiscal space" regardless of the current phase. And further, again without evidence, that we may argue rather more strongly for counter-cyclical policies during bust phases than in boom phases.
Do we perhaps need to nuance our approach, focusing more on relative expenditures on the social sector and protection of the most vulnerable - and conversely be somewhat more careful on total fiscal space issues? Or can we confidently say that the macro-economic reality of developing countries is less debt oriented or otherwise insulated? Just a thought for today, reacting to recent headlines with some sense of shock, for ideas and refinement of our responses...
Mahesh Patel Ph.D., Regional Adviser – Social Policy and Economic Analysis
This discussion, launched by UNICEF some months back, is becoming more and more timely: the public policy and media discourse appears to be moving away from last year’s Keynesian renaissance and moving back into austerity mode with a vengeance. If we are searching for recovery with a human face, we need to be consequent and see policy space and fiscal space in a humanistic and development-oriented vein. Space for development policy needs to be geared to transforming structures so that poverty is not re-generated but instead progressively eradicated. This requires a reinvigorated orientation to a public sector which provides public goods, and active labour market strategies for decent work, cum social protection.
Macroeconomic growth can make for more policy space and make transformative action easier, but if growth is to be employment-intensive, and more domestically-driven than in the past, GDP growth is likely to remain slow/slow down in the short run at least. The current series of crises therefore need to be instrumentalised to rethink the notion of growth, and to re-insert employment and income distribution into the discussions on productivity and value-added, to re-turn to discussions on growth and recovery bearing in mind human needs and rights.
Fiscal space is a linchpin in this re-think. The surge in fiscal stimulus packages introduced in 2009 to tackle the looming global recession and financial disarray are already being put to question because of the larger fiscal deficits they have entailed. The attack on fiscal deficits by more conservative policy makers, financial markets, and the media are distracting from what needs to be a debate on recovery with a human face. The current interest in fiscal budgets needs to be used constructively to remind what fiscal expenditures are really about to finance public goods and services.
At a sheer minimum, they need to support the core public goods in education, health, at least basic care services, water and sanitation, environmental measures, and the economic infrastructure and institutions needed to ensure energy and connectivity.
However, government budgets also need to include programmes to support employment not just in terms of regulation, but also through some active labour market strategies. Examples include wage matching schemes as applied in some developed countries, or public works guaranteeing a minimum of employment at minimum wages, as seen in some developing countries, or government salaries for care services, as seen, at least in rudimentary form, in more and more regions. There is also the - more popular - support to SMEs - seen to be the most employment intensive forms of business, and to microcredits and asset building measures.
Accompanying the delivery of high-quality social services and support measures for employment and incomes under decent work conditions, a third necessary component is social protection or social transfers benefits to the unemployed, the ill, pensions and child grants. Social transfers, in various formats, have over the past five years been recognised as central in enabling citizens to claim and make use of social services and employment entitlements.
If these three areas social services, active labour market strategies for decent work, and social protection constitute what fiscal expenditures are used for, they can not be rolled back in times of fiscal distress. This for at least two sets of reasons they are rights that cannot be subjected to the whim of conjunctural crises, and must certainly not become victim of speculators who bet against currencies and even entire sovereign states.
Undermining such rights undermines social cohesion, an argument perhaps more convincing for those who are less attuned to the rights-based approach to public policy. A second set of reasons revolves around what in one school of economics would be seen as multiplier and accelerator effects resulting from increased consumer demand and new investment, or in another seen as the enhanced productive capacity and improved quality of human capital, so needed precisely in a crisis to re-trigger economic activity in the real economy, and to create the conditions for individuals and societies to be productive economically. Both a security of rights to public goods, and in investment into the future are needed for balanced and just human development, and to transform societies.
There is therefore every case to retain fiscal expenditures. Obviously this means ensuring that expenditures are directed to genuine public goods and services (as opposed to private capture or defence spending). There is also a case to discuss how much fiscal deficit is tolerable and who decides on ceilings the US deficit of 12% far exceeds the EU Maastricht agreement of 3%. Ratios in developing economies or crisis-stricken countries with high future GDP growth potential may call for other criteria on sustainable fiscal debt than those applied in economies with matured GDP growth rates.
And: this time of crisis is also an opportunity to make the case for budget lengthening funding the necessary public goods and services from additional taxation. Progressive income and wealth taxes as well as international taxes including those on speculation or environmental destruction, but also taxes on pleasures such as international travel could contribute to highly needed income and wealth redistribution while securing, and helping improve, social expenditures. In many developing countries, the tax to GDP ratio hovers at 15% or less certainly there is room to increase this. Provided there is democratic decision making and genuine transparency in the allocation and disbursement of public funds, a larger government revenue could help offer a transformative approach to tackling the fiscal budget deficits, and could help usher in a recovery with a human face.
[Facilitator's Note: Please find below to messages received, with many thanks, from Maxine Molyneux, University of London, and G. Andrea Cornia, University of Florence]
The changes in inequality seen in the recent years can be attributed to external shocks and changes in domestic policies, particularly macroeconomic, educational and social policies introduced in recent years, since the "left-of-center wave" hit the region. While the average regional decline in the Gini coefficient was 2-3 points, in countries ruled for most of the 2002-2007 period by left-of-center governments, the drop was more pronounced.
Prof. Giovanni Andrea Cornia
Re: E-Discussion: Exiting from Crisis Intervention Policies - Marc Weisbrot, Center for Economic and Policy Research
The Eurozone crisis is self-inflicted, with help from financial markets - The current turmoil in financial markets around the world illustrates the damage that a bloated and politically powerful financial sector can do, especially when combined with finance ministers and central bankers who identify with this sector and have their own rightwing policy agenda.
Europe has become the epicentre of the new global "financial crisis." First Greece, and now the focus of Europe's troubles shifted somewhat to Spain. Even if Greece defaults on its debt this would involve a relatively small amount of money compared to the resources that the EU has available to bail out any affected banks. And Spain's debt is much smaller, relative to its economy, than that of Greece: it's about 60% of GDP, well below the EU average of 80%.
Yet, the price of credit default swaps on Spain's debt shot up on Wednesday. If this sentiment grows, Spain's interest rates will continue to rise, and then their debt burden really could become unsustainable.
Two weeks ago the euro was plummeting because the financial markets wanted Greece, Spain, Portugal, and the other currently victimised countries of Europe (Italy and Ireland) to commit to more spending cuts and tax increases. After a day or two of getting just that, the euro started crashing again because "the markets" discovered that these pro-cyclical policies would actually make things worse in the countries that adopted them, and reduce growth in the whole eurozone.
The European authorities – especially the European Central Bank – are committed to punishing the weaker economies by having them cut spending even if it causes or deepens recession and mass unemployment (over 20% in Spain). The agreement reached for the so-called "trillion dollar bailout" requires that any country borrowing the funds must agree to more austerity. The ECB is committed only to maintaining very low inflation (without regard to employment), yet the eurozone is projected by the IMF to have 1% inflation for this year and 1.5% next year.
I have argued this more in-depth in an article for The Guardian, which can be read here.
[Facilitator's Note: Please find below two messages, received with many thanks from Charlotte Harland, UNICEF Zambia, and Peter Lloyd-Sherlock, University of East Anglia. View the entire discussion here.]
1. Charlotte Harland, UNICEF Zambia
In Zambia, we have launched research into the effects of crisis in six contrasting locations. We have based the research design on a well-being framework, using a combination of quantitative, qualitative and participatory approaches. These will help us understand changing social and economic circumstances, shifting vulnerabilities, opportunities and constraints to coping, and appropriate policy responses and interventions (including social protection). The research will produce a series of outputs that will build an evolving picture of changes over a two year period. We are collaborating with the Government on this research.
One of the first very striking issues to emerge is that ways in which the crisis is hitting hardest can be directly linked and attributed to the weaknesses of the adjustment policies of the early/mid-1990s. Although the decisions of the Government / international finance institutions came after the intensive advocacy of the 1980s, and the need to mitigate the 'human face' risks were highlighted, this did not happen. Furthermore, instead of the rough side of adjustment being essentially a transition period, by linking the current situation to the adjustment period it is becoming apparent that those effects have turned out to be permanent.
There are good examples of this in both urban and rural areas.
In the mining towns, the lives of mining communities were completely transformed by the privatisation of state-owned mines. Employees, who previously had access to job security and comprehensive 'cradle to grave' social services, were made redundant. Redundancy payments were paid in most cases, but in the absence of targeted support many miners failed to utilize the payments to build a new livelihood. Many miners were re-employed in the privately owned mines through contract labour agencies that provided no more than a casual daily wage. This arrangement put bread on the table... until something goes wrong (ill health, old age, social contingencies), and even a brief visit can unearth many such tales. When large numbers of miners are laid off - which is what happened when the copper price fell -the effects are multiplied and a crisis is inevitable. The terms of privatisation did not create an obligation for the mines with regard to security for miners, and the casualisation of labour has created an environment where the effects of shock are amplified not contained.
Before the adjustment of the 1990s, the old-style agricultural marketing system had created a massive burden of subsidies - on fertiliser, transport, processing and consumer prices. Interprovincial subsidies paid millers to move grain back & forth across the country just to pick up the payment, whilst milling subsidies mean it was cheaper to feed stock on maize meal than anything else. However, the process of adjustment focused on doing away with this monster, but not on conceptualising or managing what should replace it. The substitute has been an ever changing hybrid of reduced Government intervention in markets, varying quantities of subsidised inputs (targeted or not), and a de facto unregulated private sector, underfinanced and in many cases dominated by 'briefcase' outfits. As prices of inputs and other costs have risen sharply in the last 18 months or so, the weaknesses in the agricultural marketing sector are exposed. Farmers describing experiences just last week complained to our team that they are unable to realise a good price for their crops as shady and well organised informal sector middlemen who control markets take an unreasonable proportion of the end price, even threatening violence against those who complain. A detailed analysis of on-going groundnut sales showed that farmers are currently making just $1.40 per 50kg bag (less than 10% of the current bulk commodity price in Zambia).
Are we trying to recover from crisis, or from adjustment? The examples here suggest that the effects of adjustment (both policy and implementation)have been prolonged, and have left the poorest in a continued state of vulnerability. Consequently, we must be careful with what we mean by recovery, which could be understood as restoring the status quo ex-ante. In emergencies we have understood this as 'build back better', and it is important that we take the same approach in economic policy advocacy. Our analyses should include a reflection on these issues.
I strongly agree with Bob Deacon's advocacy of a Global Social Floor and the need to wean better-off groups from private welfare.
All the same, we should not lose sight of the fact that government social spending in most developing countries, continues to be highly regressive, especially when subsidies for private health and education are included. This continues to be the case in most of Latin America, despite the extension of cash transfer schemes and other interventions targeting poorer groups. This is, of course, mainly due to the inequity of contributory pension and health insurance schemes. I recently published a paper about this in Social Policy and Administration, available here.
Professor of Social Policy and International Development
Dear Colleagues, a few comments on some of the messages on the Network:
1. PERSONIFYING MARKETS
I agree with Mark Weisbrot's criticism of sacrificing human welfare for the profits of financial speculators, and wish to make a constructive suggestion about his brief essay. His personification of markets does not illuminate the nature of the problem of financial instability, for example, in the passage:
"the financial markets wanted Greece, Spain, Portugal, and the other currently victimised countries of Europe (Italy and Ireland) to commit"
This abstraction from the real world of speculators and financial fraud, universal in the media, is an essential part of the mystification of financial behaviour. It facilitates the mythology that the dysfunctional financial system is not the work of men and women (mostly the former) within institutions with socially irrational rules and norms, but rather a manifestation of the inexorable operation of the laws of nature that no government can change. While I endorse Mark Weisbrot's sentiments, it is not "markets" that "wanted" countries to commit themselves to fiscal cuts, but a specific collection of financial speculators that sought to coerce governments to take actions in the immediate economic interests of those speculators.
The turmoil in currency and bonds markets in Europe and elsewhere provides opportunity for massive profits for financial speculators. Frequently this turmoil is the result of actions of a few people with access to extremely large amount of money, whose role is obscured by the personification of markets as independent actors, and whose destructive role in society is disguised by the media describing them as "investors."
In the absence of appropriate controls and regulations, speculators with access to large financial resources act through markets to undermine the actions of governments. Too frequently governments (e.g., Merkel's) aid and abet that speculative behaviour by pretending it is through an impersonal market process over which little control can be exercised. Financial markets are not in themselves the problem. The problem is that the rules and constraints on those markets are so weak or inappropriate that speculators can behave recklessly with confident of never being held accountable.
2. The suggestion by Peter Llyod-Sherlock on opening up discussion of reforming social expenditures is extremely important. This directly relates to the design of the stimulus packages for developing countries. Effective counter-cyclical policy is not based on capital projects, because they are slow to start and should not be stopped when recovery comes. More appropriate are social expenditures that focus on (NOT "target") the poor. I have suggested such a programme for Sierra Leone and it is now being implemented by the government. The paper can be downloaded from here.
[Facilitator's Note: Please find below two messages, received with many thanks from Peter Beat Gross, UNICEF Botswana, and Chris Edwards, University of East Anglia.]
1. Peter Beat Gross, UNICEF Botswana
The point that Bob Deacon, Peter Lloyd-Sherlock and John Weeks have made about effectively being 'all-inclusive' is a really important point to make. It's how the Scandinavian [welfare] systems work; taxes and social insurance may be high, but everyone benefits (e.g., in Finland all children receive free school meals). And people are reasonably happy about this, even the tax payers. I suspect that if the articulate middle classes use the same services as others, the service quality may also be higher since they are more likely to complain about poor quality. Did someone once say 'services for the poor are poor services'? Interestingly, in Botswana, with the third highest Gini-coefficient in the world, all primary school children receive free school meals, unless they go to private schools, and all under-5s should receive nutrition supplementation (though in this case there may be a self-selection effect in that children from wealthier families may not use government health services).
But it is really hard to change mindsets - in the former Soviet Union, following its collapse, it seems to have been a case of 'everyone for him/herself'. Now, with global mobility, if e.g. a tax system is changed dramatically to fund improvements to health and education 'the rich' will just up sticks and leave the country to go somewhere else where the tax system (and perhaps the climate) is more congenial. And unfortunately the changes to the tax system are likely to precede improvements in services by several years, given that investment is needed.
In addition, 'the poor' are often not visible to 'the rich', given different housing locations, with the only point of contact being in shops or as servants; and perhaps 'the rich' may also tend to look away (It makes me wonder whether they think poverty is infectious). So it may be quite difficult to get the middle classes to see the poor as part of the same society - and therefore solidarity cannot be built. (In Lithuania, in 2001, working on a social assistance project we often used the term 'social solidarity' until we were told that people were sick of it, since it was a Soviet term. In a workshop of Southern African government officials I found I had to explain the meaning of 'solidarity').
There is a very long way to go, but certainly Bob's suggestion is one we need to keep in mind.
2. Chris Edwards, University of East Anglia
I was interested to read your message a few weeks ago. As you point out, South Africa has appalling inequality in spite of the social protection measures in force.
I have argued in a recent paper (which can be found here and soon to be published in a book edited by Patrick Bond et al) that social protection should be extended further by implementing a Basic Income Grant (a BIG). In 2002, the Taylor Commission in South Africa argued that a BIG could and should be phased in but the ANC government has failed to do so. Admittedly the Government has extended the social protection measures (by lowering the qualifying age for the Old Age Pension and raising the age for the Child Support Grant) but a BIG would go very much further in reducing absolute poverty and inequality (for details see pages 14 and 15 of the paper).
All best wishes,
Adding to the discussion on the Social Protection Floor, I am sharing a response by Lara Newson and Charles Knox of HelpAge International to a new World Bank working paper on reducing poverty in the older population via universal minimum pensions.
HelpAge International welcomes a new working paper by the World Bank that endorses universal minimum pensions as an effective and administratively simple way to substantially reduce poverty among the older generation. Over 340 million older people lack income security today and if nothing is done this will rise to 1.5 billion people by 2050. Most older people in developing countries will have spent their lives in heavy manual and agricultural labour that they cannot sustain in old age and thus will face limited options to earn a living. Universal pensions have transformed the lives of older people and their families in countries in Latin America such as Brazil, Bolivia and Chile. HelpAge International supports the World Bank's recommendation that reducing old age poverty requires a different approach from other age groups and a minimum pension is a likely viable option.
Universal social pensions are regular cash transfers paid to older citizens by government. Unlike contributory pensions, they do not require any previous contributions from the recipients. Universal social pensions have been recognised by many governments, academics and international organisations as an effective and practical way to address the poverty of older people and the households they live in. Yet the World Bank, as one of the most influential voices on pensions, has traditionally been lukewarm to universality. A new working paper by the Bank, nevertheless, gives a far stronger endorsement. The paper looks at their potential impacts and fiscal cost in Latin American countries, but provides a number of important lessons for an international audience.
The need for social pensions
The World Bank has occasionally argued that specific cash transfers for older people may not be necessary: rather, poor older people could be covered within a catch-all poverty-targeted safety net. This paper, however, suggests the contrary, arguing that "Alleviating poverty in old age requires a different approach from other age groups." The point is not elaborated in great detail, but appears to suggest that while it may be possible to tackle the poverty of the wider population through efforts such as education and job creation, this is less relevant for older people who face increased challenges in earning enough from work. On this basis, the authors see the only option for tackling old-age poverty as a "real transfer of income".
Old age poverty
The paper highlights the lack of existing international data on old age poverty and the challenges involved in attempting to measure it. In particular, the authors note that the results of any poverty analysis will strongly depend on the assumptions used about how income is redistributed within households, and how much each member needs. The discussion in the paper emphasises the need to understand the assumptions used in such analysis before making blanket statements about which age groups are poorer than others.
In its own analysis, the paper finds that in the vast majority of the countries studied, the poverty rate of older people is higher than the poverty rate of households in general. Interestingly, most of the countries where older people are better off are those where social pensions exist such as Argentina, Brazil, Chile and Uruguay. It also shows that, without these transfers, older people would be strikingly poorer than the general population. For example, in Brazil the poverty headcount1 among older people would be 51 per cent without current transfers to older people, compared with the present headcount of just 6 per cent.
Universal versus means-tested social pensions
In considering the pros and cons of targeting the paper explains that "An unconditional [universal] pension has a number of advantages: it is administratively simpler; it implies less disincentives to work and save; and it carries less stigma. It is however costlier ...", and concludes "Therefore, a priori, an unconditional pension would cost more than a conditional [means-tested] one but would be more attractive."
This analysis succinctly summaries some of the benefits of universal pensions, nevertheless, the paper could have also added that means-testing faces huge challenges in actually reaching the poor at all. Impact evaluations of pensions and the testimonies of older people repeatedly reveal the variety of barriers that older people face in accessing poverty-targeted benefits, from eligibility criteria which don't detect their poverty to complicated administrative systems. As an example, the previously means-tested social pension in Chile was found to miss out over 80% of older people in the poorest households.
A number of scenarios are chosen to simulate the impact of social pensions, including setting the transfer at $2.5 (double the international poverty line). If a benefit at this level was given to everyone over 60 it would reduce old age poverty by between 55 and 83 per cent in the countries analysed. The authors note that these benefits would be even bigger if older people did not live in households where income is shared. Nevertheless, this highlights another quality of social pensions in that their impact goes beyond older people to their households and communities. A study currently being undertaken by HelpAge in Tanzania has shown that a universal pension at a far lower level than those chosen here would reduce the basic needs poverty rate of the total population by 12 per cent.
The final section of the paper considers affordability and concludes that the cost of a universal pension is "far from negligible but it is reasonable." The costs between countries vary significantly so the cost for a benefit of $2.5 a day to everyone over 60 ranges from 0.5 and 2.7 per cent of GDP depending on the country. The cost is higher for poorer countries where $2.5 makes up a larger proportion of average income. In making choices about what kind of social pension to implement, the paper reflects that "The choice boils down to questions of financial feasibility and above all, political support."
In sum, the paper provides compelling evidence that universal pensions are effective, practical and affordable. Crucially, it supports that argument that - while the costs of a universal pension are higher - the benefits which come with universality justify the extra investment.
The original paper, "Universal minimum old age pensions: impact on poverty and fiscal cost in 18 Latin American countries" by Jean-Jacques Dethier, Pierre Pestieau and Rabia Ali, can be found here.
1 The poverty line used is half of the national median per capita income.
2 Castaneda, T and K Lindert (2005) "Designing and Implementing Household Targeting Systems: Lessons from Latin American and The United States", World Bank, Washington.
You may be interested in a recent UNICEF Brief on “Protecting Salaries of Frontline Teachers and Health Workers,” essential to achieving the MDGs and a recovery with a human face.
Despite the fact that social expenditures tend to be insufficient to achieve human development objectives, governments frequently cut recurrent expenditures in education and health in times of fiscal contraction, often by adjusting the wage bill and public sector employment. For teachers and medical staff, this means that their salaries are not adjusted in line with increases in local prices, paid in arrears, or reduced in cases of employment retrenchment, which has adverse impacts on crucial services for children. Low pay is generally a key factor behind staff absenteeism, informal fees and brain drain.
Initial evidence from ten countries out of 23 suggests erosion in real terms of the salary levels of primary teachers, and their purchasing power, over the period 2007-09. In DRC and Myanmar, school teachers’ real pay has decreased by about 40 percent in the past two years, and by between 20-30 percent in Madagascar, Sudan, and Yemen. A similar magnitude of erosion in real pay may be observed for nurses.
This erosion increases the risk of primary teachers and nurses falling into poverty. Comparing salaries of primary teachers and nurses in over twenty countries shows that in 2009 they are dangerously close to the national poverty line in about one-fifth of the countries for which recent data are available. In middle income countries such as Belize, Bhutan, Morocco, and Bosnia and Herzegovina, teachers and nurses seem well off by GDP per capita and international poverty line, but are very close to the national poverty line.
Moreover, mounting fiscal pressures have worsened the historical problem of late payment of wages in Sub-Sahara Africa and is now affecting an increasing number of countries in other regions, such as Bulgaria, Kazakhstan, Moldova, and Yemen. Recent evidence from UNICEF offices also shows that in some countries, such as Cambodia, governments are considering reducing the number of classrooms for cost savings as well as laying-off contractual teachers and health workers, who play an essential role in rural poor areas.
UNESCO’s Education For All 2010 Report points out that the rate at which teaching post are created will need to increase if universal primary education is to be achieved by 2015. However, more than thirty low and middle income countries are considering wage bill cuts/caps. Securing teachers and health workers is essential not only to preserve early human capital during the crisis period but also to enable an economic recovery that is inclusive and sufficiently broad-based to support the achievement of the MDGs.
Jingqing Chai, Isabel Ortiz and Xavier R. Sire
UNICEF Policy and Practice
As the UN Independent Expert on Human Rights and Extreme Poverty, I have worked extensively on human rights and social protection, and I have discussed the issue of targeting in reports submitted to the Human Rights Council. I have sought to draw recommendations for States on ways to establish social protection programmes that contribute to the realisation of the right to social security and the right to an adequate standard of living. I have argued that cash transfer programmes (such as child grants, universal old age pensions...) are effective tools for poverty eradication because they can help reduce inequalities and break intergenerational transmission of poverty, but that they ought to be grounded on a human rights framework.
We are sending here copies of the 2009 report submitted to the HRC, which focuses on cash transfers, and of the latest report, presented at the Council a few days ago, which focuses on universal old-age pensions.
For a more complete view of our work (including links to reports on missions to Ecuador and Zambia which also focus on social protection), please click here.
I want to share a recent report, "Bringing Human Rights to Bear in Times of Crisis: A Human Rights Analysis of Government Responses to the Economic Crisis," co-authored by the Center of Concern with Association for Women's Rights in Development (AWID), Center for Economic and Social Rights (CESR), the Center for Women's Global Leadership at Rutgers, The State University of New Jersey (CWGL) and the International Network for Economic, Social and Cultural Rights (ESCR-Net).
The information, views and recommendations presented in this report are derived from the responses to a questionnaire, along with complementary research conducted on specific measures and country responses. The questionnaire was developed to engage civil society in determining how governments were meeting their human rights obligations in their economic policies and to generate reflection and input from a broad community of social justice activists. The questions in it were based on a statement developed last year by ESCR-Net members in which almost 300 organizations and individuals call for a response to the financial crisis and economic recession that places human rights norms at the center, in which people and the environment, not banks or business, are at the foundation of economic policy-making. The questionnaire presented 8 broad questions on fiscal and monetary economic measures taken by governments since the start of the economic crisis in the mid-2007 relating to economic stimulus packages, tax policy reforms, social protection programs, financial measures and international dimensions of the crisis.
As governments and international institutions begin to grow complacent, arguing that the worst of the crisis is over, we hope the report helps bring into the debate civil society voices that can attest to a different reality- one of deepening unemployment, further disenfranchisement of the most vulnerable, the breakdown of social safety nets and protection systems and the associated increase in unpaid work done mostly by women, increasing hunger and limited policy space particularly for developing country governments to take the necessary actions to avoid and prevent economic and social breakdown.
In addition, the report contains useful recommendations of interest to anybody concerned with how to ensure human rights obligations of governments shape the response to the financial crisis at both the national and international levels.
Kevin P. Gallagher
I liked Kevin Gallagher's contribution very much. I fully concur that developing a sovereign debt crisis management regime should have been at the top of the G20's agenda, especially so after the idea of insolvency protection for EU-members has been voiced officially. While this is a step into the right direction, there is no logic justification at all why this solution and protection need be restricted to these countries and not be available to any country needing it.
Kevin's contribution has encouraged me to refer to my own proposal on how to solve a sovereign debt overhang. It has been propagated by NGOs, the Jubilee Movement in particular, under the name FTAP (Fair Transparent Arbitration Process). Unlike the SDRM it treats everybody correctly, does not discriminate against the private sector, and does not legalise a preferred creditor status of multilateral institutions (such as the IMF), whose de facto and illegal enforcement makes debt management so much more difficult.
Please allow me to refer colleagues who may be interested to a short summary of my proposal (my panel statement at the UN Financing for Development Civil Society Hearings on 6-7 November 2000 in New York; published in B. Herman, F. Pietracci & K. Sharma (eds.), Financing for Development: Proposals from Business and Civil Society, 2001) or my description of the differences to the SDRM as submitted to the International Development Committee of the House of Commons.
Department of Economics, University of Vienna
[Facilitator's Note: Please find below two messages received with many thanks from Alice Amsden, and Endah Murniningtyas]
1. Alice Amsden, MIT
I applaud the efforts of the UN Independent Expert on Human Rights and Extreme Poverty to extend the human rights framework to social security and an adequate living standard. I would advocate extending the human rights framework even further, to the region or nation, and to its right, in response to the needs and demands of individuals, to have the freedom to adopt and implement economic policies of its choice to promote an adequate living standard through social security or employment. The ability of a country to implement an economic policy regime of its choice is usually conceptualized in the economic literature in terms of 'space,' and how organizations like the World Bank and IMF affect this space. But economic policy, when it involves the employment, social security and well-being of individuals, qualifies as part of the new human rights agenda, which the UN has pioneered.
The US Full Employment Bill of 1946 mandated that the federal government achieve full employment as a "right" guaranteed to the American people. The Bill was passed in a watered down form, but it may be worth revisiting for its treatment of full employment, and by implication economic policy making, as a national right.
2. Endah Murniningtyas, Ministry of National Development, Indonesia
Dear Magdalena, Elaine and all,
We (or at least I) were in the stage of learning how to internalize the human right based poverty alleviation program. We have done initial work with UNDP, but do not have clear, concrete implementation yet. We may unconsciously do so, but to make it more conscious or even to comply with it in a way that can really fulfill the rights of all people—especially the poor and marginalized groups—a comprehensive learning process is needed. I appreciate you all keeping us updated on this issue.
The G20 and the Decline of the West
The Chinese leadership must be pleased indeed with European economic policy, as it hastens the day when the world's largest economy[ies?] will lie "somewhere east of Suez". The president of the United States seems the only leader of a western developed country to resist the lemming-like rush of the Europeans to the edge of the economic cliff. Politicians in Beijing must have been doubly pleased to see President Obama forced to smile and concede to a collective depression commitment (which he has no intention of following).
Re: E-Discussion: Exiting from Crisis Intervention Policies - Martin Khor, South Centre
Will austerity lead to a new recession?
With developed countries announcing severe cuts in government spending and new taxes, there is concern a new global recession may be in the making.A debate is raging among economists and policy-makers whether the recent sharp shift in economic policy from fiscal stimulus to fiscal austerity will help the global recovery or cause a new recession. It is more than an academic debate. Depending on what the answer is, there could be a continuation of the recovery or a slip into a "double-dip recession" or even a depression.
The rush to austerity started in Europe, when the near debt default in Greece quickly created fears of contagion of sovereign debt crises to Portugal, Italy and Spain. These countries quickly announced severe cuts in government spending and new taxes. Other countries that are thought to be safe from crisis followed, including France and Britain. This was a big about-turn from the policy consensus that the threat of a depression must be fought by the Keynesian policies of increased government spending, through higher budget deficits and low interest rates. It is widely acknowledged that the re-discovery and implementation of Keynesian policies in the past few years saved the world from a prolonged recession or even a Great Depression. But the Greek crisis has struck fear into governments, that if their budget deficits are too large, they may not be able to borrow enough at a reasonable rate of interest, and may be forced to default. Actually, most governments have the options of borrowing from their own central banks (or to "print money") and also devaluing their currency (so as to expand their exports by making them cheaper). But countries in the Eurozone such as Greece don't have this option as they cannot lend to themselves and don�t have their own currency to devalue. Thus, Greece had to rely on the market to lend to it. When the market demanded interest that was too high, Greece had to be bailed out by loans from Europe and the IMF.
Britain joined in the austerity drive. The new Tory-Liberal government cut spending by £83bil and raised taxes by £29bil. As Britain is not in the Eurozone, it has more options to continue with fiscal stimulus, but the government chose instead an austerity budget. Well-known economists and media commentators like Robert Skidelsky, Martin Wolf and Will Hutton have been critical. Skidelsky, the biographer of John Maynard Keynes, criticised the "conversion to austerity" for being caused by the need to restore "confidence in the markets." "If markets have come to the view that deficits are harmful, they must be appeased, even if they are wrong," he wrote about the change in policy. He pointed out that in a parallel situation in 1931, a British government committee recommended a drastic cut in government spending in order to balance the budget, and this was supported by almost all politicians and the business sector. Keynes was one of the very few who opposed it. He commented that deficits are nature's remedy for preventing business losses from being ... so great as to bring production altogether to a standstill.
The austerity policies adopted in 1931 contributed to a long recession, and Skidelsky noted that there was never a complete recovery until the war. Commenting on the present situation, Skidelsky wrote: "We are about to embark on a momentous experiment to discover which of the two stories about the economy is true. If, in fact, fiscal consolidation proves to be the royal road to recovery and fast growth then we might as well bury Keynes once and for all." "If, however, the financial markets and their political fuglemen turn out to be as 'super-asinine' as Keynes thought they were, then the challenge that financial power poses to good government has to be squarely faced." There was a public uproar when The Guardian reported on leaked Treasury documents showing the austerity budget could cause 1.3 million job losses by 2015-16, of which 600,000 would be from the public sector and 700,000 from firms losing government contracts. The government responded that two million new private sector jobs would be created which would more than offset the 600,000 lost in the public sector. But this prediction has been met with scepticism.
Germany, whose finances and economy are in strong shape, has been criticised by the United States and those who advocate expansionary policies for insisting that Greece and other countries take on austere policies to qualify for bail-out loans, and for itself cutting its deficit. Its finance minister Wolfgang Schauble replied to the criticisms by saying that Germany was attempting an exit strategy from the present large fiscal stimulus with laying the foundations for future growth. But the investment guru George Soros strongly attacked Germany for insisting on pro-cyclical policies and on strict fiscal discipline for weaker Eurozone countries. He said this was in conflict with the lessons of the 1930s' Depression and was liable to push Europe into prolonged stagnation or worse.
In the United States, although the federal administration is in favour of further fiscal stimulus, it is facing opposition from the Republicans and some Democrats in Congress, and a Bill to assist state governments and the unemployed has been stalled. Most of the states are in deep deficit and since they face problems getting loans, they are now cutting their spending. This will affect jobs and demand, and more than offset the expansion in federal spending. The economist Paul Krugman has written scathing columns attacking the new emerging consensus in policy circles favouring immediate fiscal austerity. He argues that there is no evidence for the belief that fiscal contraction is actually expansionary because it improves confidence. For example, Ireland has implemented savage spending cuts, and its reward is a Depression-level slump, and financial markets continue to treat it as a serious default risk. The Financial Times, in its editorial on July 3, warned that the balance of risk had shifted towards renewed recession. Noting that the world economy is heading for a period of tightening fiscal policy, it reports on estimates that the big advanced economies will tighten their government budgets by 1.9% of their output this year, and that the United States will cut its deficit by 2.7% of national output next year.
If the Keynesian economists and media commentators are right, the contraction in public spending will have an adverse effect on the private sector and there will be overall economic slowdown or a new period of recession. The developing countries will be affected through the trade channel as their exports slow down due to the cuts in spending and the rise in unemployment. These countries are also following the debate on fiscal stimulus versus austerity budget, as they also face the same policy dilemmas.
See more relevant articles at: http://www.southcentre.org/
Re: E-Discussion: Exiting from Crisis Intervention Policies - Richard King, Oxfam GB
A new report for Oxfam by Development Finance International examines the impact of the global economic crisis on the budgets of low-income countries, especially their spending to reach the Millennium Development Goals.
The crisis created a huge budget revenue hole of $65bn, of which aid has filled only one-third. As a result, after some fiscal stimulus to combat the crisis in 2009, most LICs (including those with IMF programmes) are cutting MDG spending, especially on education and social protection. They have also had to borrow expensive domestic loans, and increase anti-poor sales taxes. Almost all LICs could absorb much more aid without negative economic consequences (whereas they have much less space to borrow or to raise taxes).
This report therefore urges:
All reports and more information on Oxfam's work on the economic crisis are available here.
Spain, where unemployment has risen to 20% and domestic demand has yet to recover, has just approved a labor reform law that makes it easier for employers todismiss workers.
I hope someone from the IMF or OECD -- the two institutions responsible for convincing the Spaniards that such a reform is an urgent priority -- will explain to me how reducing the cost of firing workers can lower unemployment in the midst of a decline in labor demand.
Professor Dani Rodrik
Re: E-Discussion: Exiting from Crisis Intervention Policies - Oscar Ugarteche, UNAM, Noemi Ly, UNAM, and Gustav Ranis, Yale University
[Facilitator's Note: Please find below 3 messages received, with many thanks, from Oscar Ugarteche, UNAM, Mexico, Noemi Levy, UNAM, Mexico, and Gustav Ranis, Yale University.]
Is there a cognitive dissonance between the US Treasury and Europe? Or is it more complicated than a power balance issue in the analysis at the Fund, do you think?
Dr. Oscar Ugarteche
2. Noemi Levy, UNAM
This answer is very important for us, especially for those who oppose actively the passing of this law in our countries.
3. Gustav Ranis, Yale University
Perhaps, at the same level of aggregate demand, employers are more reluctant to hire workers when they expect to be unable to dismiss them during a down-turn.
Re: E-Discussion: Exiting from Crisis Intervention Policies - Katarzyna Żukrowska, Warsaw School of Economics, and Carel de Rooy, UNICEF Bangladesh
1. Katarzyna Żukrowska, Warsaw School of Economics
In short, how does firing help to decrease unemployment? Employers did not employ scared that when such decision was a mistake they could not fire the worker. This is the answer. This is not the case only in Spain but also in France, Germany or Poland. 20% of the unemployment rate in Spain is smaller than 28%, which the country had still 10-12 years ago. Growth stimulated by expansion of the EU and structural changes caused by introduction of EMU had positive effects on the rate of growth and the increase of employment. Transformation in Poland gives a lot of interesting insights concerning impact of the market forces on structural changes of an economy. Poland had good opinions during the first years of transformation after 1992, when the economy started to grow and when the rate of growth was the highest in the region and exceeded the rate of growth of the EU member states. Poland was the only country in the region to experience such deep changes and relatively high rates of growth.
In 2009, Poland was the only economy in the region which was indicating positive rates of growth. The unemployment rate here also was high 4-5 years ago and recently again unemployment rate falls down, although it is high in comparison with traditionally low rates in Czech Republic. One can find a lot of interesting information about what is happening in the economy looking closer at the East Central European economies. Last OECD Report (April 2010) also does not give the answer to the question why Poland was the only economy in the region that was showing positive rates of growth. Nevertheless, the World Competitiveness Report upgrades the position of my country and the European Growth and Jobs Monitor 2009. Indicators for Success in the Knowledge Economy, Lisbon Council, puts Poland on the 2nd place after Finland in the overall ranking of the EU member states. Look closer at Poland. Ask yourself simple questions like the one from which I started this explanation and you will not only find your own answers but also confirm what I have said here. I have done a lot of studying on transformation and making comparisons with Hungary and Czech Republic. This gave me knowledge which is firm and undeniable. With pleasure I can discuss with you what is good for the economy today and what is wrong. I am a specialist in international economic relations and with that knowledge I have learned about transformation. This is my advantage to use my IER in understanding transformation with its failures and successes.
All the best from Warsaw,
Professor Katarzyna Żukrowska
Re: E-Discussion: Exiting from Crisis Intervention Policies - John Weeks, University of London, and Alicia Puyana, FLACSO, Mexico
[Facilitator's Note: Please find below two messages received, with many thanks, from John Weeks, University of London, and Alicia Puyana, FLACSO, México.]
1. John Weeks, University of London
Professor Emeritus & Senior Research Fellow
The experience of several countries suggests that there is not direct and necessary relation between liberalization of labour market and more employment generation or the reduction in informal unemployment: Chile and Colombia did liberalize labour legislation and did reduce the costs of hiring and of dismissing them, nevertheless, unemployment remains high and informal unemployment has grew larger. Perhaps the key question to explain that outcome is it that, despite liberalizing trade and capital accounts and the labour market, the economies did not grow at the speed needed to absorb more labour.
Facultad Latinoamericana de Ciencias Sociales (FLACSO)
Carretera al Ajusco 377, Colonia Héroes de Padierna,
Del. Tlalpan, México D.F.
Re: E-Discussion: Exiting from Crisis Intervention Policies - Guy Standing, University of Bath
Regrettably, Dani, the logic of those taking that position is impeccable. The idea, as I am sure you know as well as they do, is that by making it cheaper to be rid of someone, an employer will be more emboldened to take a risk in hiring a person in the first place. In turbulent times, if you are not sure if the market is going to go up or down, you will hesitate about hiring anybody. If you have the prospect of having to pay them a lot to go away, you would be rational not to hire them in the first place if you thought the probability of having to tell them to go away a few months later was high, especially if you would have to pay them a lot for doing so.
Re: E-Discussion: Exiting from Crisis Intervention Policies - Isabel Ortiz, UNICEF New York
This is to share with you a UNICEF working paper released today, titled "Prioritizing Expenditures for a Recovery for All: A Rapid Review of Public Expenditures in 126 Developing Countries".
Our working paper is based on IMF reports from July 2009 to July 2010, including REO and country reports (Article IV consultations, reviews of Stand-by Arrangements and Extended Credit Facilities, Policy Support Instruments and Staff Monitored Programs) in 126 low and middle income countries. The dataset is also downloadable.
1. A significant number of developing countries is expected to contract aggregate government spending in 2010-11. This is of concern both in terms of GDP (44% of the sample is tightening compared to 2008-09) and in terms of the real value of total government expenditures (25% of the sample). The overall timing and scope of projected spending contraction raise concern, in light of the still fragile and uneven recovery and the continued crisis impacts on vulnerable populations in many developing countries.
Re: E-Discussion: Exiting from Crisis Intervention Policies - Dani Rodrik, Kennedy School of Government
In your last message you wrote that the logic of those taking that position is impeccable. Well, actually, this is not the case.
Your argument is correct in steady state, and is the one used to motivate reduction in firing costs in order to increase employment. However, Spanish labor markets are not in steady state, having been shocked by a sharp reduction in aggregate demand. That means, assuming that firing costs matter in the first place, that lots of firms are now caught with more workers than they would have liked to employ absent those costs. Put differently, the firing costs have presumably dampened the reduction in employment during the downturn. Removing them now allows firms to get rid of their excess workers and actually increases rather than reduces unemployment.
This story can be partially (or perhaps totally) offset if we assume that firms (a) anticipate a pickup in demand, and (b) they have a sufficiently low rate of discount. Neither condition sounds realistic to me in the context of Spain.
The reason the IMF and the OECD are wrong on this is that they have taken a long-term solution and are treating it as a remedy to a cyclical problem.
Professor Dani Rodrik
Re: E-Discussion: Exiting from Crisis Intervention Policies - Alice Amsden, MIT and Morten Elkjaer, Danish Embassy in Bolivia
Different views about productivity seem to be batting about. Given aggregate demand, if a firm has surplus labor, the government can give it an incentive to lay off workers (Spain), in the hopes that productivity and profits will rise, as existing workers work harder, and future investments in employment (and tax revenues) will increase. Or the firm can be given an incentive to train and invest more to retain workers (China), in the hopes that productivity and profits will rise and more investment will create even more jobs (and tax revenues).
2. Morten Elkjaer, Danish Embassy in Bolivia
In Denmark it is very easy to fire (and hire), which in the years up to the economic crisis every 4th employee in the private sector in Denmark changed job every year. Those who get fired receive un-employment benefits covering up to 80 pct. of the wage for the lowest paid. They are also entitled to training to help improve the prospects of finding a new job. Unemployment benefits and the costs of training are partly financed by the workers themselves, partly (and a considerable part) by the government (i.e. tax payers). The system is costly and require a competitive economy that is able to secure a high level of productive employment and hence income to finance the (social - society wide) security nets. And, of course it depends on a will and commitment of the tax payers to pay a high income (and other) taxes.
Re: E-Discussion: Exiting from Crisis Intervention Policies - Guy Standing, University of Bath
Re: E-Discussion: Exiting from Crisis Intervention Policies - Rica Garde, Save the Children UK
As the leaders of the world's 20 largest economies gather in Seoul, the international financial institutions are pointing to signs of a fragile global economic recovery. Yet the aftershocks of the biggest global downturn in decades are still being felt by millions of the world's poorest people
This is to share with you a policy brief by Save the Children UK, entitled The Global Economic Crisis: Balancing the books on the backs of the world's most vulnerable children?, which we released recently and used for the G20 Summit in South Korea.
A combination of falling revenues and a drive for fiscal stability in low-income countries is hitting the poorest households hardest, by reducing funding for essential services, including healthcare and educationFood price rises and falling incomes are placing a double squeeze on the poorest families.
The G20 urgently needs to agree steps to achieve a broad-based recovery from the global economic crisis. We're calling on G20 countries to acknowledge their collective responsibility by disbursing the funds they have committed, demonstrating strong support for social protection programmes, and working in partnership with developing countries. The governments of low-income countries also have a pivotal role to play, by ensuring that spending is progressive and that cuts do not have a detrimental impact on the poorest and most vulnerable children.
Only a satirist - and one with a very savage pen - could do justice to what's happening to Ireland now.
A genuine economic miracle, turned into a speculative frenzy driven by runaway banks and real estate developers, financed with huge borrowing on the part of Irish banks, largely from banks in other European nations.
When the bubble burst, and those banks faced huge losses, the Irish government stepped in to guarantee the banks' debt, turning private losses into public obligations. Ireland tried to reassure the markets with a harsh program of spending cuts. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.
In early 2009, no matter how bad the Irish situation, it couldn't be compared with the utter disaster that was Iceland. But at this point Iceland seems, if anything, to be doing better than its near-namesake. Its economic slump was no deeper than Ireland's, its job losses were less severe and it seems better positioned for recovery. In fact, investors now appear to consider Iceland's debt safer than Ireland's. How is that possible?
Re: E-Discussion: Exiting from Crisis Intervention Policies - Richard Wolff, The New School
Dear Paul and colleagues,
Finally, consider this: Greek politicians justify their austerity program on the grounds that by lowering wages and other costs of business, they will "become more competitive" and so draw investments and thus jobs, especially from elsewhere in Europe, into Greece. However, now that Ireland, several eastern European nations, Portugal and Spain are undertaking their austerity programs, no investor will commit to Greece without first comparing conditions there with what are evolving opportunities elsewhere. The same applies to the parallel justifications for austerity in each of those other European nations. Moreover, can anyone doubt that Germany and the other rich countries of Europe will not also take steps to prevent the exodus of their industries to the cheaper zones of peripheral Europe (as they have been doing successfully for years)?
Richard D. Wolff
Dear Paul, Rick and colleagues,
I would like to pick up where my New School colleague, Rick Wolff, left off in elaborating on Paul Krugman's contribution. Yes, we must strongly oppose the extreme austerity policies that European governments seem intent on implementing. This is hardly revolutionary, although I had to rub my eyes when I received an email from Avaaz.org containing a video in which Gordon Brown pleas for signatures on a global petition against misplaced austerity. But we have to also address the so-called reason for the austerity: maintaining the confidence of the financial markets so they continue to buy the bonds that have to be issued even during the phase of deficit contraction (and rolling over maturing debt in the next phase of a stable or orderly decline in the stock of debt). Germany has an answer of sorts, but they propose to apply it to the next crisis, not this one. I do not think Europe should wait.
Regards (and thanks for a great discussion),
Re: E-Discussion: Exiting from Crisis Intervention Policies - Inge Kaul, Hertie School of Governance, Berlin
I am wondering why, when commenting on the 2008 financial crisis, so many of us are still just critical of financial markets, notably "the bankers." In my view, the basic problem is state failure: governments failing to do what they are expected to do (according to public economics textbooks): to play their role in terms of preventing, and if it occurs, correcting market failure.
States failed and continue to fail in large measure in performing this corrective, market-embedding role. I would even argue that state failure facilitated, and thus, preceded market failure in the 2008 financial crisis.
State failure that happens when states are confronted with global challenges occurs not only in the finance area but also in fields like global climate change or communicable disease control. It is a global systemic problem, reflecting the fact that when confronted with global challenges states act like private actors: as individual nation states they, too, tend to free ride, shying away from cooperative solutions, according preference to unitalteral, or in the case of Europe, regional policy measures.
If this assessment of the role of states is correct, we need to address the implication: Do we need to expand the current standard theory of public economics/finance, notably the standard market failure theory? Do we need to develop a theory and better understanding of multi-actor (state and nonstate actor) failure in order to appropriately explain the provision of global public goods like global financial regulation and international financial stability?
We cannot just think of new measures that states could adopt without answering the question of how to ensure that next time around states are not failing again to act in a concerted, multilateral way that would be required, I would argue, in order to create an effective and efficient policy framework for the globalizing financial markets and addressing other global challenges like climate change.
The question to Paul Krugman: Should one not undertake a review and update of current textbooks of public economics/ finance to make them better reflect current realities? Together with colleagues I looked at a large number of these textbooks. Most still assume a single closed economy.
Re: E-Discussion: Exiting from Crisis Intervention Policies - Angus Deaton, Princeton University
You may read more at: http://www.princeton.edu/~deaton/downloads/Letterfromamerica_oct2010.pdf
Dwight D. Eisenhower Professor of International Affairs
Professor of Economics and International Affairs
Woodrow Wilson School, Princeton University
Re: E-Discussion: Exiting from Crisis Intervention Policies - Guy Standing, University of Bath, UK
Re: E-Discussion: Exiting from Crisis Intervention Policies - Charles Lwanga-Ntale, HelpAge, and Rick Wolff, The New School
[Facilitator's Note: Please find below two messages received, with many thanks, from Charles Lwanga-Ntale, HelpAge, and Rick Wolff, The New School.]
Dear friends,Inge Kaul's contribution to the debate makes very interesting reading. First, I want to agree that there has been pronounced state failure over the last few decades. While in Africa the the phenomenon was quickly "baptised" state fragility, elsewhere in the more developed world this erosion of state responsibility and responsiveness was initially couched in such terms as "the necessary withdrawal of the state from development to allow the more natural agents of the market to adjust and drive change". How wrong we were!
One issue which not many are brave to address themselves to today is that of how a dominant ideology has contributed to the erosion of state responsibility and responsiveness. This dominant ideology initially was conceived in the immediate aftermath of the failure of communism and socialism in their traditional state and the subsequent "fleeing to the west" of East European countries to the west for ideas. The flight not only resulted in the total abandonment of everything which such states had invested in (never minding whether some of it had some good ideas) but also led to the imbibing "lock-stock-and-barrel" whatever was existing in the West - good or bad. That's probably where part of our problem today lies. Post-Washington Consensus policy orthodoxy was the final nail in the coffin of the idea of balanced state/private sector relationships and the whole period that followed aimed at rolling back the state. This experience was nowhere as pronounced as it was in Africa during the Structural Adjustment 1980s and 1990s. The rest is now history with the state weakened and unable to rise to the occasion or to new challenges.
So why should we turn around and then blame the victim - the state - for not surviving through all the economic hurricanes that were inflicted by a major ideological shift beyond their control? How could they prevent their own collapse, let alone that of the markets?
Being a non-economist I am sure there are things colleagues could educate me better on in this debate. Also, as an African, I have learned to be critical of almost every prescription that is proposed for the continent's remedy.
2. Rick Wolff
While vast wealth flows for the tops of finance, austerity is the watchword across the United States, as in many parts of the world. Goldman Sachs sets aside $15bn for pay; the state of California cuts $1.5bn from education. What's wrong with this picture?
Richard D. Wolff
Re: E-Discussion: Exiting from Crisis Intervention Policies - Kunibert Raffer, University of Vienna
Thank you very much for your very pertinent contributions. If you, Charles, permit this pun, most might have been wrong, but you got it right. The dominant ideology is demanding to destroy the state as an agent of re-equilibration and social protection, transforming the state into a unit that keeps out of private business as long as profits accrue, bailing out private business immediately when (rather than if) the private sector produces crashes. As an economist, I may say that you, Charles, put it perfectly correctly.
Maybe the issue you and Rick touch upon so skillfully can be understood much better if one reads the highly pertinent book "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too" by J.K. Galbraith (2008, Free Press: NY etc.). He speaks of a new class that “set out to take over the state and to run it – not for any ideological project but simply in the way that would bring to them, individually and as a group, the most money, the least disturbed power, and the greatest chance of rescue should anything go wrong.” Briefly, it is greed not ideology.
Re: E-Discussion: Exiting from Crisis Intervention Policies - Wouter van Ginneken, ISSA Consultant, Lena Dominelli, Durham University, and Kirk Leigh, FMI
[Facilitator's Note: Please find below three message received, with many thanks, from Wouter van Ginneken, ISSA, Lena Dominelli, Durham University, and Kirk Leigh, Financial Market Intelligence].
1. Wouter van Ginneken, ISSA Consultant
I agree that the productivity differential between the North and the South is diminishing and that this has an inevitable impact on earnings and social benefits. My personal New Year's resolution is to support the (global) financial transaction tax (0.05%), which would reduce speculation and inequality, and bring in new money to fund government expenditure. Such a tax (lower than 0.05%) is apparently already levied on the London stock exchange. Under the current circumstances, labour is taxed much more heavily than capital. At the moment there is no global consensus to introduce such a tax, but it would be possible to start such a tax in Europe.
Wouter van Ginneken
2. Lena Dominelli, Durham University
Just to put the record straight, some of us in the social sciences have been saying this for years. In the UK since Thatcher made it absolutely clear that the state had no role in welfare provisions - the international architecture has been in place for this to happen since then too, including GATS and other agreements coming out of the WTO.
3. Kirk Leigh, FMI (Nigeria)
Financial Market Intelligence (Nigeria)
Re: E-Discussion: Exiting from Crisis Intervention Policies - Anita Kelles-Viitanen, ATTAC Finland
Many companies are shifting their operations to the South in seeking for cheap labour, to conditions where they can avoid paying taxes or where they get all kinds of subsidies from Southern governments and where social and environmental regulations are lax. Ministry of Finance of India has, for example, been calculating how much India is losing from the tax money this way, money which they would need for their social programs. But the present model of globalisation forces the Southern countries into global tax competition and subsidy competition at a cost to the people in order to attract investors.
Second, we really need to look very carefully at what kind of health and social services are provided, by whom and how it benefits nation-building as well as tax base.
Third, yes, the Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC) has been campaigning for 10 years for the Tobin tax. Finally, this has become a topic being considered both by IMF and many countries in Europe. It has also been discussed within the European Union. And it has a good possibility of becoming a reality, in spite of financial sector's resistance.
Yet, we in ATTAC think that the present crisis is a complex one interlinking climate, food, finance/economy, democratic/human rights and social. Tobin Tax alone will not anymore do. We need many efforts.
For example, the banking system and the global economic system with too large financial players ("too big to fail") have to be replaced with a system that benefits a larger society. We think financing is a public function.
Moreover, we need to get the moneys disappearing - both from North and South - back to the blood circulation of our economies and to return to their productive role and not just disappear and rest idly and unproductively in tax havens.
We have other ideas too and we work nationally, regionally and also globally.
[Facilitator's Note: Please find below two message received, with many thanks, from Harry Shutt, West Sussex, and Kunibert Raffer, University of Vienna.]
1. Harry Shutt, West Sussex, UK
The piece from Isabel Ortiz, Jingqing Chai and Matthew Cummins on Escalating Food Prices is highly significant and disturbing, although it could have come as little surprise to most of us.
What needs pointing out, in light of so much of the macro commentary that continues to appear in this forum, is the positively dangerous futility of relying on fiscal and monetary expansion to try and get us out of the intolerable impasse the global economy has now reached. We should all note that the article linked to the paper points out that "excess liquidity in financial markets" is a key factor behind inflated food prices.
I feel compelled to recall that this is exactly the outcome that I (and a few others) have consistently forecast would result from such "extraordinary measures" since they first began to be adopted two years ago in the wake of the credit crunch - as stressed in my earlier contribution to this forum (13 April 2010), when some felt I was exaggerating the threat of inflation. Sadly in any case, most Keynesians - even those who lived through the stagflation of the 1970s - still seem to look on inflation as an acceptable price to pay for averting slump, even though it is always the poorest who are hit hardest by it. Worse, they persist in this view even though it is now also obvious (again as forecast by some of us 2 years ago) that such measures cannot avert slump in any event, so that the only form of "recovery" that is occurring is in asset and commodity prices - hardly a "human face" from the perspective of the vast majority. Meanwhile the banksters and ultra-cynical supporters of the status quo are clearly hoping that their massive fraudulent and unserviceable debts will be devalued by this process, their only calculation being how many countries will be torn apart by the resulting violent upheaval as millions more all over the world take to the streets following the Arab example.
If we do not all very soon recognise that there is no salvation to be had from continued market manipulation - or indeed from any remedy that does not involve a massive redistribution of wealth and income (as a few of us have been urging) along with abandonment of the growth obsession - then I fear we shall soon have nothing left to talk about. Such an approach would of course be quite incompatible with anything resembling the current pattern of globalised "free" markets but will rather require managed flows of trade and capital - as well as the basic / citizen's income as of right as urged by Guy Standing (20/10/10) along with other redistributive measures. For different reasons many will find it uncomfortable to embrace such a reversal of the conventional wisdom of the past 30 years. Yet the longer such a radical change of approach is delayed the more painful it will be and the greater the risk of complete global disintegration. Hence if we fail to grasp this nettle now there will not only be no prospect of a better future for the world's poor; there will neither be any tolerable future for ourselves and our families.
2. Kunibert Raffer, University of Vienna
Thanks to Isabel Ortiz, Jingqing Chai, and Matthew Cummins for this highly topical, informative, and stimulating paper.
May I draw your attention to a small piece I wrote in 2008 that suggests one measure of urgent and coordinated policy actions by national governments and the international community? Its title is "A Food Import Compensation Mechanism: A Modest Proposal to Reduce Food Price Effects on Poor Countries;" it can be downloaed by those of you interested here.
Re: E-Discussion: Exiting from Crisis Intervention Policies - Deepak Nayyar, Jawaharlal Nehru University/The New School
Developing countries coped better than industrialised countries and transition economies as the impact was less adverse and the recovery was somewhat quicker. This crisis, thus, provides an opportunity for rethinking policies at the national level and contemplating collective action at the international level, so that outcomes are more conducive to development. China, India and Brazil provide us great insight. The impact on these countries was less adverse due to initial conditions, policy responses and domestic demand that shaped their resilience and recovery.
Furthermore, the economic recovery was faster because of the adoption of expansionary, countercyclical macroeconomic policies, the size of the home market, and the fact that their financial sectors did not absorb scarce resources from stimulus packages, thus not creating financial asset bubbles.
The experience of the giant economies suggests obvious lessons for smaller countries in the developing world: hasten slowly with capital account liberalization, or retain the option of introducing capital controls; exercise restraint in the deregulation of domestic financial sectors; stay prudent in macro management so that there is some freedom to introduce countercyclical macroeconomic policies; create social safety nets for the poor and the vulnerable.
Recovery is sustainable only if it is based on a rebalancing of the world economy that extends beyond current account deficits and surpluses to income–expenditure gaps and income distribution within countries. An increase in the share of wages in GDP would be conducive to growth everywhere. This is possible if wages keep pace with productivity growth and full employment is the primary objective. In the global context, international collective action is an imperative for crisis management and crisis prevention.
If you are interested in policy implications of this rethinking of development, please refer to my recent article on the “The Financial Crisis, the Great Recession and the Developing World,” Global Policy, Volume 2, Issue 1, January 2011, pp.20-32.
When advocates of austerity and lower spending get a chance to put their ideas into practice, the burden always seems to fall disproportionately on children� those who they usually claim to hold so dear.
Consider the case in the United States where, while at the federal level it is still not clear whether 2011 will be the year of austerity, at the state and local level big spending cuts are coming.
In Texas, a state that likes to portray itself as a model of small government - taxes are low (at least if you're in the upper part of the income distribution, as taxes on the bottom 40% of the population are actually above the national average), and government spending is also low, major cuts in spending highlight the vulnerability of children. While low spending may sound good in the abstract, what it amounts to in practice is low spending on children, who account directly or indirectly for a large part of government outlays at the state and local level. The result has been low high school graduation rates (at just 61.3%), high ranking in child poverty (5th in the country), and the highest percentage of children without health insurance.
The budget gap will be closed solely through spending cuts; Medicaid, a program that is crucial to many of the state's children, will take the biggest hit, with a proposed funding cut of no less than 29%. Education will also face steep cuts, with school administrators talking about as many as 100,000 layoffs.
It's not a pretty picture; compassion aside, you have to wonder - and many business people do - how the state can prosper in the long run with a future work force blighted by childhood poverty, poor health and lack of education.
The really striking thing about all this isn't the cruelty but the shortsightedness. What's supposed to happen when today's neglected children become tomorrow's work force?
Anyway, the next time some self-proclaimed deficit hawk tells you how much he worries about the debt we're leaving our children, remember what's happening in Texas, a state whose slogan right now might as well be "Lose the future."
Read more in the NY Times - "Leaving Children Behind"
Professor of Economics and International Affairs
Re: E-Discussion: Exiting from Crisis Intervention Policies - Zoe Horn, WIEGO
This latest study, which was carried out in 13 locales in nine countries, provides a unique perspective on how workers have coped with the longer-term effects of the economic crisis.
It suggests that in spite of some positive developments, there has been a lag in recovery for informal workers. Persistent unemployment and underemployment in the formal economy continues to drive new entrants into informal employment, creating more competition for those already dependent on it. Some study respondents did report demand for their goods and services had recovered over the previous year, but many continue to face low levels of sales or orders. While incomes have risen modestly for some (in absolute terms to mid-2009 levels), they have not risen to pre-crisis levels and have not kept pace with rising living costs. Persistently high inflation - affecting food and fuel prices in particular - have intensified pressure on family budgets. Households continue to restrict their diets, while the withdrawal of children from schools appears to be on the rise.
The global economic crisis brought new challenges to informal workers, but also exacerbated existing problems. Many study participants were already living in a state of "crisis," struggling daily to feed their families. Pre-crisis thinking, therefore, must not be applied in the present or in a post-crisis future, because the status quo for most informal workers will perpetuate poverty and inequality.
As others have argued in this e-discussion, the global economic crisis presents an opportunity to think differently. Coping with Crises argues for a new stance that places informal workers at the centre of employment schemes and social protection measures, including them in economic policies and urban planning. We have the chance to reframe the mainstreaming or “formalization” process as one aimed at increasing earnings and reducing risks for the working poor, not simply registration and taxation of informal enterprises. Without an inclusive approach to economic and social policy that integrates informal workers, poverty, vulnerability, and inequality will persist.
Interviewees asked to identify and prioritize interventions that would support their livelihoods provided several insights: short term emergency measures were not priorities; rather, respondents opted for support for their ongoing livelihood activities, which included access to financial services, skills training and market analysis and access. Wage protection, workplace improvements and a range of social protection measures were also identified as priority interventions.
The lesson that must be learned from this crisis is one of minimizing exposure and building capacity for those at the bottom of the economic pyramid. By doing so, governments can improve prospects for employment recovery; support poor workers to better withstand future shocks, and promote a healthier, more stable foundation for the economy. If there is a failure to respond, an increasing share of the global workforce will end up working in the informal economy where, on average, incomes are low, risks are high, and protections are few. Simply put, the pre-crisis status quo will not do; a new stance on informality is required to meet the needs of the working poor in the present and in any post-crisis future.
Zoe Elena Horn
Re: E-Discussion: A Recovery for All? - Steve Miller, The New School
I would also like to throw a rock into the pond of this stimulating e-discussion, especially in these topics around employment. I would like to build upon an important issue mentioned recently in Deepak Nayyar's message, and relevant to UNICEF's own work: that of youth unemployment and how young people have been particularly hard hit (together with, as Paul Krugman points out, children).
According to ILO estimates, youth unemployment has risen by over 10 million globally since the onset of the crisis in 2007. The percent increase in youth unemployment globally was over twice that for the overall working population. However, this dramatic increase masks an even more striking trend towards decreasing youth participation in labour markets and growing informality and precarity of youth employment.
It is telling that those regions where unemployment rates showed the highest sensitivity to the financial crisis were the Developed Economies and the European Union, which saw an increase of 4.6 percentage points between 2008 and 2009, Central and South-Eastern Europe (non-EU) & CIS with an increase of 4.5 percentage points, and Latin America and the Caribbean where unemployment increased by 2.2 percentage points. Although increases were much smaller in the Middle East and North Africa, these two regions continue to show the highest absolute youth unemployment rates.
In Sub-Saharan Africa, youth unemployment rates remained stable during the crisis, which may be an indication that this region is less integrated in the global economy, and therefore less sensitive to the global financial shock that reverberated across most of the globe beginning in 2008.
However, the fact that youth unemployment did not shoot up in many parts of the world is certainly not good news: these are the regions where unemployment is a luxury which young people simply cannot afford. Rather, it is a manifestation of the lack of formal social protection systems in most of the region, which indicates that most young people were obliged to stay employed in the informal economy, even though it is likely that the income and working conditions which informal employment provided fell even further during the crisis (as discussed in Zoe Horn's message).
The ILO’s Global Employment Trends for Youth 2010 reports that the global financial crisis led to “an increase in vulnerable employment and casual labour in an ‘increasingly crowded’ informal economy.”* The report also demonstrates the underlying high incidence of young people working in the informal economy and phenomenon that was disproportionately impacted by the crisis:
". . .Workers living day to day in self-employment do not halt their income-seeking activities during times of economic shocks. In fact, the tendency is for more people to join the ranks of own-account and contributing family workers during times of crises in poor countries. If a worker in a low-income country loses a job in the formal sector – such as the garment worker in Cambodia – there is little chance of finding new work in the same sector as it continues to shrink, and social protection from the State is not sufficient to cover the living costs of themselves and their families; what choice does the person have but to take up whatever work they can find, regardless of the wage, condition and stability? The ILO’s Panorama Laboral 2009 confirms that this is exactly what happened in the Latin American countries studied. The report analysed the trends in six countries – Chile, Colombia, Ecuador, Mexico, Panama and Peru – between the second semester of 2008 and the same period in 2009 and found a 3.8 per cent increase in the number of own-account workers and 1.7 per cent increase in the number of contributing family workers (urban areas only). In terms of the overall informality of employment, the report also shows that in 2009 as much as 82.4 per cent of teenagers aged 15-19 years were engaged in informal sector employment, a slight increase from the 80.8 per cent share in 2007, compared to a share of 50.2 per cent for adults aged 30-64 years."**
The long-predicted explosive mixture of youth demographics and high rates of unemployment form the basis for the drastic transformations taking place in North Africa and the Middle East. Here, it is not only the unemployment itself which is driving young people to the streets, but the unfairness of this unemployment. However, government policy makers, driven as much by fear as by a desire for social justice, are grappling with how to create employment for young people.
The conventional wisdom on youth employment privileges two approaches: 1. Vocational education and training, and 2. Entrepreneurship development for self-employment. However, these approaches are not doing the trick.
Some crucial questions to be explored would be:
- Does vocational education and training create employment?
It would be great to hear some thoughts on these questions.
Voices of the vulnerable, Recovery from the ground up" (2010).
** ILO: Panorma Laboral, Lima, 2009, p. 52., quoted in “Global Employment Trends for Youth,” op. cit., p. 37.
Re: E-Discussion: A Recovery for All? - Nora Lustig, Tulane University
The new millennium brought good news for Latin America. After rising in the 1980s and 1990s, income inequality declined in 13 out of 17 countries-- while it has been growing in China, India, South Africa and most of the advanced countries-- (see figure below). Between 2000 and 2008, the Gini coefficient—whose value is above .50 for the region as a whole-- fell by around 1 percent a year. Inequality declined in countries which grew fast (Chile and Peru) and countries whose growth was modest (Brazil and Mexico); in countries with high inequality (Brazil) and in countries with comparatively low inequality (Argentina); and, in countries governed by the left (Argentina, Bolivia, Brazil and Chile) and in countries governed by non-leftist regimes (Mexico and Peru). Interestingly, in many countries the decline continued during the global financial crisis.
Two leading factors account for the decline: the wage gap between skilled and low-skilled workers fell and government transfers targeted to the poor increased*. The skill premium fell because the labor force is more educated and the unequalizing effect of skill-biased technical change and market liberalization petered out. Targeted transfers were expanded perhaps because with democracy politics have become more competitive. Large scale targeted cash transfers have blossomed in the region following the two pioneers Brazil’s Bolsa Familia and Mexico’s Oportunidades (earlier called Progresa). Although inequality declined in countries governed by leftist and non-leftist regimes, the social democratic left countries of Brazil under Ignacio “Lula” da Silva and Chile under Lagos and Bachelet have been more redistributive than their non-left and left-populist counterparts**. In the latter, expansive fiscal policies may become unsustainable if commodity prices fall.
In spite of the good news, there is no room for complacency. Latin America continues to be the most unequal region in the world. In mostly middle-income countries, millions of people with incomes of less than a dollar a day live side-by-side some of the wealthiest on earth. Sadly, one of the key equalizing forces—education—will soon lose its steam because of supply constraints and the low quality of basic education for the majority. In addition, despite the progress in making public policy more pro-poor, a large share of government spending continues to be either neutral or regressive, and in most countries the collection of taxes on personal income and wealth is very low. Even the most successful large-scale cash transfers programs such as Bolsa Familia and Oportunidades leave millions of the extreme poor out by design or mistake. Nor do countries have adequate programs to help the poor cope with rising food prices. Improving the quality of public services for the poor—especially in education--, expanding the supply of post-secondary education, closing the egregious coverage gaps in the safety net system and making public spending and taxes more progressive are key to continue on the path towards more equitable societies.
Figure 1. Yearly Change in Inequality (Gini Coefficient): circa 2000-2008; in percent
http://sedlac.econo.unlp.edu.ar/eng/) for Latin American countries; and OECD (2010) for China, India, South Africa and OECD-30.
-The average change in the Gini for each country is calculated as the percentage change between the end year and the initial year divided by the number of years; the average for the total is the simple average of the changes by country (13 countries in which inequality fell).
-Data for Argentina and Uruguay is for urban areas only. In Uruguay, urban areas covered by the survey represent 80 percent of total population and in Argentina 66 percent.
-The years used to estimate the percentage change are as follows: Argentina (2008-00), Bolivia (2007-01), Brazil (2008-01), Chile (2006-00), Costa Rica (2008-01), Dominican Republic (2007-00), Ecuador (2008-03), El Salvador (2008-00), Guatemala (2006-00), Honduras (2007-01), Mexico (2008-00), Nicaragua (2005-01), Panama (2006-01), Paraguay (2008-02), Peru (2008-01), Uruguay (2008-00), and Venezuela (2006-00).
-Using the bootstrap method, with a 95 percent significance level, the changes were not found to be statistically significant for the following countries: Bolivia, Guatemala, and Honduras (represented by black borders in the figure). In Costa Rica, the change is calculated between 2008 and 2001 because the sample weights changed since 2001.
-The years used in non-Latin American countries are as follows: China (1993-Mid 00s), India (1993-Mid 00s), South Africa (1993-08), and OECD-30 (Mid 80s-Mid 00s).
* See Lopez-Calva, Luis F. and Nora Lustig (2010) Declining Inequality in Latin America: A Decade of Progress? Brookings Institution Press and UNDP.
Re: E-Discussion: A Recovery for All? - Isabel Ortiz, Matthew Cummins, UNICEF
Using different estimation models, we find a world in which the top 20 percent of the population enjoys more than 70 percent of total income, contrasted by two paltry percentage points for those in the bottom quintile in 2007 under PPP-adjusted exchange rates; using market exchange rates, the richest population quintile gets 83 percent of global income with just a single percentage point for those in the poorest quintile. While there is evidence of progress, it is too slow; we estimate that it would take more than 800 years for the bottom billion to achieve ten percent of global income under the current rate of change. Also disturbing is the prevalence of children and youth among the poorest income quintiles, as approximately 50 percent are below the $2/day international poverty line.
Middle-income countries appear the most unequal. Gini index trends show that Eastern Europe/former Soviet Union and Asia had the largest increases between 1990 and 2008. Latin America remains the region with the highest level of income inequality, although the region is marked by significant improvement since 2000 as pointed by Andrea Cornia and Nora Lustig.
Overall, the extreme inequality in the distribution of the world’s income should make us question the current development model (development for whom?), which has accrued mostly to the wealthiest billion. Not only does inequality slow economic growth, but it results in health and social problems and generates political instability. Inequality is dysfunctional, and there is a grave need to place equity at the center of the development agenda, as proposed by the United Nations development agenda. An inclusive development agenda promoting employment-generating growth and universal social policies was a key ingredient to legitimizing governments and nation-building in the past. This differs radically from today’s standard development formula based on growth that benefits the highest income quintile accompanied by a few targeted safety nets for the poorest.
In the context of the global economic crisis, the paper argues that the urgency for equitable policies has never been greater. In particular, current trends in employment, commodity prices and government spending suggest that income inequalities are likely to be exacerbated during 2011. The paper concludes by advocating for policy actions at national and international levels to ensure a “Recovery for All” that is focused on pushing up the bottom billions.
Associate Director, Policy and Practice, UNICEF
Staff Consultant, Policy and Practice, UNICEF .
Re: E-Discussion: A Recovery for All? - Rick Wolff, The New School
In the United States, weeks of highly publicized debates brought Republicans and Democrats to a budget deal. To maximize public attention, they threatened a possible government shutdown. Both parties said that large government deficits and accumulated debt were "serious problems." They agreed that solving them required only spending cuts, not revenue increases.
More "historic compromises" with Republicans will only further reduce (or eliminate) even the modest tax burdens on corporations and the rich.
Both parties in Washington have sustained massive ongoing deficits supporting a crippled, state-dependent capitalism. Those deficits will continue to raise our national debt and continue to be used as excuses for cutting government services to people.
Read more on my recent article "
Re: E-Discussion: A Recovery for All? - John Weeks, University of London, and Barry Herman, The New School
[Facilitator's Note: Please find below corrections to the two messages sent on Tuesday by John Weeks and Barry Herman].
1. John Weeks
1. The debt service need not go to the rich. A deficit can be financed by monetarization (in which case the debt payments are to the public sector itself); by bond sales to the social security fund (interest goes to the public pension fund); or to middle class private pension funds.
2. Debt is the manifestation of an active, countercyclical fiscal policy and in itself should bother no one.
3. There is a well-known algebraic formula measuring debt sustainability, and the US public debt is nowhere near the critical values.
2. Barry Herman, The New School
Sometimes you learn things in the strangest places. The following was printed inside the cap of a recently purchased Snapple Iced Tea bottle: "If you had 1 billion dollars and spent 1 thousand dollars a day, it would take you 2,749 years to spend it all."
Visiting Senior Fellow
Graduate Program in International Affairs
The New School, New York
Re: E-Discussion: A Recovery for All? - Kevin Gallagher, Boston University
Without growth, the US won't ever be able to generate full employment and pay back its debts, which would generate disastrous results both in the US and across the globe. If the US started missing payments on interest or principal, interest rates would jump for new bonds. For evidence, just look at Greece, Portugal and other heavily indebted nations. A rise in rates would put a halt to the fragile recovery by choking off credit to businesses and households and also have dramatic effects on emerging and developing economies, such as significant capital flight from the rest of the world. Massive outflows of private capital from the rich to the developing world have been destabilising, triggering asset bubbles, currency appreciation and, now, inflation.
Exchange rates across the developing world could plummet, thereby decreasing purchasing power and increasing debt levels. Credit and capital could dry up. In other words, the part of the world that is tugging the globe out of the crisis could sputter, or worse.
Only the mostly east Asian nations that didn't follow the "Washington consensus" and have capital controls, pegged exchange rates and deep domestic markets would be able to withstand the pressure.
Growth in the US in the short and medium term is a good thing for the US economy – and the world. But when growth recovers, the US will have to raise taxes, make a structural shift towards a green economy and reduce military and other spending. But this is not the time – and holding the US bond market hostage is not the route to that inevitably necessary future.
See more at my recent article on The Guardian entitled "Why the US must raise its debt ceiling."
Re: E-Discussion: A Recovery for All? - Ann Pettifor, Debtonation
Will the recent volatility in commodity markets precipitate another financial crisis? What have global capital flows to do with food price spikes and the further impoverishment of millions of people? And what will it take to stabilise those flows?
These are some of the issues addressed by Yilmaz Akyuz of the South Centre in a recent paper, and addressed in my article:Coming soon: another global financial crash? Capital mobility and the commodity mania.
Read more here.
Re: E-Discussion: A Recovery for All? - Costas Lapavitsas, SOAS, and Andy Storey, University College Dublin
In Greece, a campaign for an audit commission was launched in March with the support of civil organisations, trade unions and political parties.
These preliminary investigations will establish facts to further the demand for a full democratic audit and a sovereign response to debt. What is ultimately necessary is full access to debt data, the power to examine witnesses, and even the ability to examine bank accounts. On this basis properly constituted audit commissions could make credible recommendations on debt that is illegitimate or simply unsustainable. The sovereign state could then take appropriate action, including repudiation of debt and cessation of payments.
Read more in our recent article in The Guardian "Can Europe escape the debt trap? Yes – and here's how"
Re: E-Discussion: A Recovery for All? - Harry Shutt, West Sussex, UK
1. What matters is not the aggregate level of debt (relative to GDP) but the actual or perceived ability of the government to service and ultimately repay it or roll it over. Hence the current dilemma of Greece, Portugal etc. This is simple market reality and is far from being a view confined to right-wing economists - see for example the views expressed by Professors Richard Wolff and Michael Hudson (particularly the former) in a recent interview for The Real News Network
2. Monetising debt (quantitative easing / money printing) can only, sooner rather than later, lead to intolerable inflation, as the US - following the Weimar / Zimbabwe example - is now demonstrating once again.
3. It would weaken the credibility of this discussion group if it were to give the impression that it largely discounts the damaging consequences of inflation on the poorest in particular, made still worse by the boost given to commodity speculation (particularly in basic foodstuffs) by monetary excess and the consequent global proliferation of dollars - in the absence of more productive outlets for investment in a world economy already paralysed by unserviceable debt. Is it not obvious that such pressures on the living standards of the most vulnerable social groups are a major source of the global unrest spreading from the Arab world?
This is not, of course, to argue for fiscal austerity, which the UK and Eurozone countries are busy demonstrating once again must lead to even greater disaster.
The reality is that, faced with a choice between these two equally ruinous strategies, we must accept that the present economic model based on the "free market" can only be retained at the cost of a slump lasting at least 10-15 years - which we may well think is an intolerable price to pay, socially and politically, even if it does not entail a world war such as followed the last such slump. How long must we wait for leadership to emerge from denial and take us in a more hopeful direction? For anyone looking for some pointers, please see some ideas contained in my previous submissions to this group -22 Feb 2011 - and my various books, which I struggle to find anyone to debate.
Re: E-Discussion: A Recovery for All? - Matias Vernengo, University of Utah
Re: E-Discussion: A Recovery for All? - John Weeks, and Sabri Oncu
[Facilitator's Note: Please find below two messages received, with many thanks, from John Weeks and Sabri Oncu. Find all messages in this discussion here].
1. John Weeks
I wish to thank Harry Shutt for his stimulating comments. It is always flattering to receive comments, and even more when they are thought provoking. I shall comment on his points in order.
Professor Emeritus of Economicshttp://jweeks.org
2. Sabri Oncu, Kadir Has University
All hyperinflations of the past few centuries had occurred because of foreign debts denominated in foreign currency or some currency other than the current one as was the case with the Weimar. There is nothing wrong with monetizing the domestic debt, if it is done carefully. This is the problem with the PIIGS or GIPSI, as an NYU colleague of mine was once suggested. GIPSI cannot monetize their debt because they cannot control their own money supply. Their money supply is controlled by the ECB.
Re: E-Discussion: A Recovery for All? - Harry Shutt, West Sussex, UK
I am grateful to Matias Vernengo, John Weeks and Sabri Oncu for responding to my last submission, which was itself provoked by John Weeks' recent contribution. Perhaps I can respond to their comments by giving my take on what seem to me the key issues at stake rather than addressing each particular point raised by them. At the same time, however, I should like to place the debate in the broader context of the attempted "recovery" from the global financial crisis of 2007-8, which I would contend is now visibly falling apart. In this connection permit me to recall that from the outset I have consistently pointed out that the policy mix of "extraordinary measures" of extreme monetary and fiscal laxity - rock-bottom interest rates, debt monetisation (QE), high fiscal deficits - could not possibly succeed in their avowed objective of ending the recession / depression and restoring global growth and financial stability as long as the economy remained crippled by a huge burden of public and private debt. This was spelt out in my paper Redistribution and stability: beyond the Keynesian / neo-liberal impasse (Jan 2009), which has been quite widely reproduced (IDEAs network, Monthly Review) as well as in my first contribution to this group (April 2010), the broad thrust of which Sabri expressed substantial agreement with at the time, even though he disagreed with me about the threat of inflation.
1. Macro trends. Although IMF data indicate that global growth recovered to 4.6 per cent in 2010, it is increasingly clear that this was a one-off response to the extreme counter-cyclical measures being implemented (including in China) and that this is not being / cannot be sustained. In the US the numbers (output, employment, housing) are still extremely weak and show that at best expansionist policies have prevented further steep decline for the time being. Meanwhile the fiscal position has deteriorated to the point where there is even talk of a downgrade of federal debt. The position is at least as acute in the Eurozone and the UK. The only positive performance has been in stock and commodity markets, which I (along with other commentators) would argue is an inflationary symptom of excess monetary creation, given that the funds created by public debt monetisation must inevitably flow mainly into purely speculative investment in the face of continuing excess capacity in the productive sectors and flat or declining consumer demand (still paralysed by private debt). Despite such indications of dangerous inflationary pressures all OECD governments are desperate to avoid meaningful interest rate increases, conscious as they are that this would only trigger another financial crash.
2. Inflation. It is worrying that Matias, John and Sabri all seem to believe that inflation is not a significant problem, either actually or potentially. Implicitly or explicitly they appear to endorse the traditional view that inflation cannot be a serious problem while there is major excess capacity - forgetting the "stagflation" experience of the 1970s, which was a crucial factor in discrediting Keynesian analysis at the time. (Perhaps they might reflect that one does not need to buy all the ideas of Milton Friedman in order to accept that inflation may have monetary causes). The reality is that, regardless of what the money supply data may suggest, actual consumer price levels are now rising more or less everywhere - even if they have not yet reached the hyper level. Even official data in the US (which significantly understate the true level) are already showing an annual increase of 3 per cent or more, while interest rates are close to zero (i.e. significantly negative in real terms), while a similar trend is apparent in every other major industrialized economy except Japan. The situation is worse in many "emerging" markets - e.g. China, India, Vietnam) where consumer price inflation is already in the 5-20 per cent range. I find it extraordinary that economists on the "left" should deny this is a problem, when it has always (I thought) been considered a self-evident truth that general price inflation tends to redistribute income and wealth from the poor to the owners of capital. The poor are also most seriously affected by price rises on basic foodstuffs and fuel (as emphasised by the paper on Escalating Food Prices circulated by Isabel Ortiz and colleagues in February).
3. Debt. As suggested before, capacity to sustain a given level of public debt is a function of investors' perception of the ability to service it, which depends on different factors in each case rather than any particular ratio of debt to GDP. Right now there seems to be a high degree of market scepticism regarding US Treasurys (I read reports that the Fed is having to buy up to 75% of new issuance in order to keep the effective interest rate down, with much of the rest being bought by the Chinese authorities). Regarding Sabri's point I would suggest that what counts is not the currency of issuance but the extent to which the debt is held domestically. Here Japan may offer a better example, since most JGBs are held domestically by investors willing to accept a low return (perhaps this also helps to explain Japan's exceptionally low inflation in spite of QE).
With regard to debt more broadly my three colleagues seem implicitly to believe that the present stimulative policies will ultimately succeed in restoring equilibrium without any need for substantially writing off the massive debts crippling the world economy - i.e. that renewed growth will enable them to be paid down to a more sustainable level. (One hopes none of them are cynical or naive enough to believe that promoting inflation as a means of devaluing otherwise unserviceable debts could offer a viable way out of the crisis). May I suggest the reality is more akin to the situation facing Argentina 10 years ago, which was only resolved by substantial debt default - but not before the criminally irresponsible intervention of the IMF had forced unemployment up to 60 per cent. At the global level, of course, such a wholesale repudiation / writing-off of debt - entailing huge capital destruction - would have catastrophic financial, macroeconomic and social consequences which could only be alleviated by drastic remedial state intervention .
Thus any realistic "Plan B" must entail collective action on a massive scale – at both national and international levels – to support activity and protect the most vulnerable. The ruling global élite, who stand to lose the most from the inevitable wipe-out of so much debt and equity, will of course do anything to try to avoid recognising this reality. But if we are serious about averting global disaster and giving hope to the world's poor we have no choice but to confront it. In the aftermath it will be essential to reorder economic priorities - putting less emphasis on growth and more on equitable income distribution (including such mechanisms as Basic Income so long advocated by Guy Standingand others) - see my submission of 22 February, 2011.
Re: E-Discussion: A Recovery for All? - Guy Standing, University of Bath, UK
Re: E-Discussion: A Recovery for All? - Carlos Fortin, IDS & Chile 21 Foundation
At the Foundation I am the Convenor of a Workshop on New Progressive Thinking which is focusing on the issue of inequality in Latin America. Your email about the precariat is very relevant to our concerns, and I am looking forward to reading the book. I have prepared a brief text criticizing Will Hutton’s last book which I produced to elicit discussion at the workshop. If you are interested, your comments will be most appreciated.
May I also mention two texts which came to mind reading your email, as they have strong echoes of you argument (you may already know them, and if so, my apologies). One is the book by Raghuram G. Rajan, Fault Line. How Hidden Fractures Still Threaten the World Economy (Princeton University Press, 2010), where he argues that the financial crisis of 2008-2009 was a result of growing income inequality in the United States, which created political pressures to which the response of governments and politicians was populist, i.e., an easy credit policy. Populism in this view was a direct consequence of inequality.
The other is the basic text that was discussed at the December 2010 Convention of the French Socialist Party, entitled “Egalité réelle”, which has a section on déclassement, a concept close to your precariat:
Français sont ainsi exposés à une réalité sociale nouvelle : le déclassement. Le « déclassement » a de multiples visages : il prend la forme de plus en plus familière de jeunes promis à une vie moins confortable que celle de leurs parents. Mais le déclassement c’est aussi occuper un emploi de qualification inférieure à son niveau de formation initiale, c’est basculer d’un mode de consommation classique à une consommation « low cost », c’est pour la première fois retarder des soins, c’est abandonner un projet d’accès à la propriété, c’est prendre un emploi moins bien payé que celui que l’on occupait avant un licenciement. Le déclassement se décline sous de multiples formes et marque le pessimisme d’une société qui ne sait plus assurer de progrès collectif. Dans cette circulation des individus de haut en bas de l’échelle sociale, se forge toutes les colères et tout le ressentiment, éloignant les Français de leurs institutions démocratiques, effritant peu à peu la confiance en elles.
With kind regards,
Re: E-Discussion: A Recovery for All? - Magdalena Sepulveda, UN OHCHR
The challenge of recovering from successive crises must not overshadow the concrete legal obligations that governments have to respect, protect and promote human rights including economic, social and cultural rights. These obligations, enshrined in a multitude of human rights treaties at regional and universal levels, are not dispensable during times of economic hardship, but rather must guide the formulation of all government policies and initiatives, including fiscal and economic policy. Even in the context of severe resource constraints, whether caused by budgetary adjustment, recession, or other factors, States are legally required to devote the maximum available resources to ensure the progressive realisation of all economic, social and cultural rights as expeditiously and effective as possible.
Any deliberately retrogressive measures that have a direct or indirect negative effect on the enjoyment of human rights by individuals will violate human rights standards. This includes unjustified reductions in expenditures developed to implementing public services that are essential to the realisation of a number of rights, including those which guarantee basic health care, ensure access to primary education, or make available food and shelter. Other measures which threaten the realisation of these rights include cuts to social protection and social security systems, reductions in the minimum wage and large-scale hiring freezes and employment retrenchment, the implementation of regressive sales taxes, and the elimination of food subsidies. These and other austerity measures represent significant barriers to the enjoyment of human rights, particularly by people living in poverty who, despite being removed from the origins of the crises, have born the brunt of them.
Building a recovery from the crises presents a unique opportunity for the formulation of a transformative vision for the future, one which is aimed at the full realisation of human rights. The human rights framework orients the discussion about recovery away from deficit reduction and debt eradication, and towards the reduction of deprivation and the eradication of obstacles to the realisation of rights. Human rights do not set standards for growth or economic productivity; rather, they set standards for the quality of living that individuals are able to achieve and the calibre of services that they receive. There is no space in human rights for a trickle-down approach. From a human rights perspective, recovery must start with the poorest and most vulnerable.
The Independent Expert has also recently completed reports on her country missions to Ireland and Vietnam.
Re: E-Discussion: A Recovery for All? - Rick Wolff, The New School
Read more on my recent article "The Crisis Enters Year Five".
Re: E-Discussion: A Recovery for All? - Ilcheong Yi, UNRISD
Dear colleagues and friends,
I would like to highlight what theoretical responses in the social policy within development contexts are needed to take the opportunities and meet the challenges from multiple crises. My argument would be that a successful theoretical response in social policy needs to go beyond just a critique of neo-liberalist approach in social policy.
1. A more sophisticated explanation of the compatibility between economic growth and egalitarian social policy is needed
2. Social policy should think more actively about how to socialize consumption
3. Social policy needs to expand its scope from welfare state to welfare world
4. Social policy needs to shift its focus from biological needs to social needs
5. Social policy needs to design a framework for development-related strategic state interventions, i.e. planning for development
6. Sociology of knowledge from the perspective of social policy is needed
All the best,
Re: E-Discussion: A Recovery for All? - Lance Taylor, The New School, and Lena Dominelli, Durham University
[Facilitator's Note: Please find below two messages received, with many thanks, from Lance Taylor and Lena Dominelli. Find all messages in this discussion here].
Besides Rajan (see Carlos Fortin's message), a few other people make similar arguments from rather less conservative perspectives including Gabriel Palma in a 2009 piece in the Cambridge Journal of Economics and me in a recent book on Maynard's Revenge.
2. Lena Dominelli, Durham University
Re: E-Discussion: A Recovery for All? - Duncan Green, Oxfam GB
The researchers returned in March 2011 to eight community ‘listening posts’ in Bangladesh, Indonesia, Kenya, and Zambia, that were previously visited in 2009 and 2010, building up an increasingly valuable time series of how food prices and their impact have varied over time. Using focus groups and other participatory techniques, they asked: What has happened to prices and wages since last year? How are people adjusting to these changes? What do people think causes food price volatility, and what do they think should be done about it?
The overall impact of the 2011 food price spike has been to ratchet up inequality, producing a pattern of ‘weak losers and strong winners’. The losers – those already struggling in low-paid, informal sector occupations such as petty trading, street vending, casual construction work, sex work, laundry, portering, and transport – are doing worse. Small-scale farmers and small market and food traders have not generally done well, despite the high price of food. High input costs and the squeeze on people’s purchasing power has meant that profits from growing and selling food remain low for those with least scope to diversify and spread their risk.
These people are clearly worse off than last year. They strongly believe that the government is not on their side in their efforts to eke out a living. Regulations on where people can run their businesses or provide their services, police harassment, and unfavourable new laws mean that making a living has got harder, not easier, for many in this group over the past year.
But some groups – usually those who were already relatively better off – have done better than last year. Commodity producers and export sector workers have largely benefited from the global recovery, as have some people in other occupations linked to these groups.
People are adjusting to high food prices in complex ways. While some people are eating less and going hungry, the more usual pattern is for people to shift to lower quality, more boring food and less diverse diets.The effects differ greatly by gender: women come under more pressure to provide good meals with less food, and feel the stresses of coping with their children’s hunger most directly. Often women go without. These stresses push women into poorly paid informal sector work, competing among themselves for increasingly inadequate earnings. Men also feel the effects: the food price rises severely undercut their ability to provide for their families, leading to arguments in the household and fuelling alcohol abuse and domestic violence.
Talking to people living in poverty reveals just how multi-faceted the impacts of the food price spike are, touching on almost every aspect of life. People are spending less on personal items like clothes and cosmetics, and scaling down their social lives.
Government has provided some support, but this has generally failed to protect people from the effects of rising prices. The result of these adjustments is not generally starvation, but an overall increased level of discontent and stress. Poor people are having an even more difficult time getting by.
Poor people’s explanations of why governments have generally failed to act on food price rises revolve around two key perceptions: that governments do not care about poor people’s concerns; and that corruption at different levels of the system ensures that prices cannot be controlled – either because market inspectors can be bought off, national politicians owe big businessmen favours for help with election expenses, or cartels are permitted to operate.
Young urban men appear particularly angry about governments’ failure to act. With revolutions in the Middle East and other protests against governments in Europe, the stress and discontent fuelled by high food prices merits close attention by the G20 agriculture ministers. Hope they’re listening.
Read more at my recent post on this atFrom Poverty to Power Blog.
Dr. Duncan Green
Re: E-Discussion: A Recovery for All? - Donald Lee, UNDESA
From the mercantile monopolies of seventeenth-century empires to the modern-day authority of the WTO, IMF, and World Bank, the nations of the world have struggled to effectively harness globalization's promise. The economic narratives that underpinned these eras—the gold standard, the Bretton Woods regime, the "Washington Consensus"—brought great success and great failure. With a paralysed global trade round, the collapse in financial globalization, and the rise of unliberal China, the ‘stabilize, liberalize, privatize’ mantra of the early 1990s is outdated, a paradigm shift is imminent, but the old ways linger.
The balance of global forces is becoming more centrifugal: the U.S. role is declining in global economy; the EU is likely to remain preoccupied with own matters; China and the other emerging powers place, if anything, greater emphasis on national sovereignty. Global leadership will be in short supply.
The main locus of legitimate governance remains the nation state. We cannot simultaneously pursue democracy, national self-determination and the ‘hyperglobalization’ of the last 30 years. We have to moderate our ambitions regarding economic globalization. Recognizing the centrality of nation-states is more likely to contribute to a healthy global economy than trying to eviscerate it.
Read more on my recent bookThe Globalization Paradox: Democracy and the Future of the World Economy
Despite heightened efforts in reducing poverty since the early 1980s, poverty remains stubbornly high in many parts of the world. There has been modest, but insufficient progress globally towards the reduction of poverty and deprivation over the last three decades. If the spectacular reduction of poverty in China and other parts of East Asia over this period is left out, the record for the rest of the world is even more dismal. Wide ranging deficits in the human condition remain endemic and ubiquitous in most poor countries, but also in many rich countries with respect to certain vulnerable groups.
What is particularly disturbing is that these disappointing outcomes in many crucial dimensions of poverty have persisted despite several growth spurts at a global level, and even sustained growth in several large developing countries. This shameful failure has continued despite pious declarations and professed commitments by the global community to the worthy goals of the Millennium Declaration.
To make the situation worse, the mainstream perspectives on poverty and deprivation have fundamental limitations, contributing to considerable distortion and misunderstanding. For example, the World Bank's much celebrated dollar-a-day concept of poverty is found to be both narrow in its definition of poverty and deficient in methodology of measurement. This, in turn, led to poor and ineffectual policy prescriptions. Policies favoured by the dominant mainstream thinking within the international financial institutions and among donors since the 1980s have generally failed to address the issues of structural change, sustained economic growth and productive employment creation needed for durable poverty reduction. As a result, a large number of people around the world remain vulnerable to economic disturbances and shocks to personal circumstances.
Our recen book, "Poor Poverty: The Impoverishment of Analysis, Measurement and Policies," offers a critical appraisal of the conventional measures and analysis of poverty as well as of poverty reduction policies. In particular, it highlights the major limitations of the international community inspired policies and popular poverty reduction programs. It also compares the performance of two apparently successful countries - China and India - and identifies their failures in critical areas such as inequality (both regional and interpersonal) and structural transformation.
The book argues that without sustained productive job creation, poverty policies and programs will not succeed. Structural adjustment and other conventional policy prescriptions have resulted in reduced policy and fiscal space and hence greatly damaged economic development prospects, with dire consequences for poverty, inequality and destitution.
Economic growth needs to be stabilized with consistently counter-cyclical macroeconomic policies and institutions. Measures to promote structural change and reduce inequality are also crucial for development and poverty reduction. Universal social protection and more inclusive social provisioning should also be promoted.
Some chapters of this book and many other papers of interest for this e-discussion can be found at UN DESA Working Paper Series.
One thing that hasn't entered the discussion much is the fact that many efforts toward financial reform can get snared in trade and investment treaties. I've written elsewhere how this is the case with capital controls, and have a new piece out today regarding sovereign debt restructuring:
New Report on Sovereign Debt Restructuring from GDAE
Today GDAE Senior Researcher Kevin P. Gallagher releases a new report and policy brief showing how sovereign debt restructuring could be deemed illegal under thousands of international trade and investment agreements. Given that many economists think that Greece will inevitably restructure its debt in the not too distant future, these findings may have immediate repercussions. The report has been published by International Development Economics Associates (IDEAS), in India and is titled "The New Vulture Culture: Sovereign debt restructuring and trade and investment treaties." The United Nations Conference on Trade and Development (UNCTAD) has written a short summary of the report that is also available today, titled "Sovereign debt restructuring and international investment agreements."
Government debt is "covered" under an increasing number of trade and investment treaties. Therefore, private bondholders could file claims against governments - who are restructuring debt to prevent or mitigate a financial crisis - that effectively sue such a government for reducing the value of the initial bond purchase. Indeed, Argentina restructured its debt after its financial crisis in 2001-2 and over 100,000 Italian bond-holders have filed claims amounting to over $4 billion in attempt to recover the full value of their investments. Bondholders claim that restructuring can violate clauses of national treatment, expropriation, or fair and equitable treatment.
Gallagher argues that such treaties thus undermine the ability of nations to recover from financial crises and broaden the impact of such crises. Gallagher calls for the reform of trade and investment treaties in the United States and beyond so they grant nations and the international community the policy space to prevent and mitigate financial crises.
Download the full report: "The New Vulture Culture: Sovereign Debt Restructuring and Trade and Investment Treaties."
Download the UNCTAD brief: "Sovereign Debt Restructuring and International Investment Agreements."
There have been non-trivial declines in inequality in the region. To overlook this fact is not helpful. There are a number of interesting questions because the decline in inequality has occurred in both high-growth commodity exporters (Argentina, Chile, Peru, etc.) and low-growth manufacturing exporters (Mexico and El Salvador, for example).
Please see my comment in this space a couple of months ago. Also, see:
Nancy Birdsall, Nora Lustig, and Darryl McLeod. 2011. Declining Inequality in Latin America: Some Economics, Some Politics, Tulane University Economics Working Paper 1120.
Nora Lustig, Luis F. Lopez Calva, and Eduardo Ortiz-Juarez. 2011. The Decline in Inequality in Latin America: How Much, Since When and Why, Tulane University Economics Working Paper 1118.
It's evident within-country inequality is back on the radar of some of the major international organisations including UNICEF and UNDP who are leading the wider UN body but, perhaps surprisingly, also the World Economic Forum and the International Monetary Fund.
The basic case is as follows: inequality matters because high inequality can inhibit growth, discourage institutional development towards accountable government and undermine civic and social life leading to conflict especially in multi-ethnic settings.
A number of new studies have pushed thinking forward and a new paper by Chilean Economist Gabriel Jose Gabriel Palma raises a number of questions about the middle classes in particular and their role in redistributive politics.
Five years ago the World Bank's World Development Report on inequalities was important in that it opened a wider debate on the interaction between types of inequality and how inequality reproduces itself across generations as a result of 'inequality traps' or persistent differences in power, wealth and status between socio-economic groups that are sustained over time by economic, political and socio-cultural mechanisms and institutions.
Since then, the impact of inequalities on economic growth has received considerable attention. For example, Klasen and Lamanna in one paper detailed how gender inequalities have held back economic growth and Grimm in another paper that health inequalities impede growth. Recently, the IMF too published a paper by Berg and Osty outlining how high inequality impedes the sustainability of growth spells. High inequality has also been linked to fragility and conflict (see Cramer or ; Stewart et al., papers).
However, exactly what's happening to within-country inequality isn't immediately clear.
The new Solt database of the main measure of inequality (known as the Gini after an Italian Sociologist who developed it) was analysed by Ortiz and Cummins at UNICEF who concluded the evidence showed:
Rising inequality in Asia, 1990-2008 but falling inequality in Sub-Saharan Africa over the same time period.
Ortiz and Cummins list a long set of countries where inequality significantly fell between 2000-2008. For example, inequality fell by more than 3 points in Thailand, Malaysia; Brazil, Peru, Argentina, Chile; Lesotho, Malawi, Ethiopia, Burundi, Mali, Sierra Leone, Burkina Faso, Uganda, Nigeria, Gabon.
However, a new paper by Chilean Economist Jose Gabriel Palma does a detailed study of within country inequality between 1985 vs 2005 suggesting the gini hides as much as it reveals.
Instead we need to look at each 10% of the population and what they get.
He finds that there is now a surprising similar picture in most countries, noting:
This might begin to explain some of the recent declines in inequality in Latin America as suggested in a paper by Birdsall et al., who argue that 'social democratic' regimes (eg Brazil, Chile and Uruguay) are more likely to reduce inequality than 'left populist' (eg Argentina, Bolivia, Ecuador, Nicaragua and Venezuela) and both are more likely to reduce inequality that non-left regimes (eg Colombia, Costa Rica Mexico, Peru) and that this is largely due to more social spending and more progressive spending especially so in the social democratic regimes (eg spending on cash transfers targeted to the poorest and greater increases in spending on health and education and increases in spending on basic services - in particular in education, greater increases in spending on primary and secondary schooling rather than on public universities.
These social democrats have strong support in the middle classes and this throws up the question posed by Birdsall et al:
Might the growing middle classes in countries like Chile and Brazil help lock in leftist social democratic political regimes (whether because or despite its concentration in the top quintile of households)? There is no evidence that a large middle class is necessary let alone sufficient to these regimes. But a growing global middle class does seem likely to reinforce effective government that manages moderate redistribution while retaining investor confidence in the likelihood of continuing growth and price stability. Put another way: When is the middle class large enough to become politically salient in supporting or at least tolerating the kind of social and other distributive policies that are good for them but turn out to be good for the poor - for example universal public education?
Food for thought - the middle classes as the new revolutionaries?
Research Fellow, Institute of Development Studies at the University of Sussex
I want to call your attention to the latest UNDESA World Economic and Social Survey 2011, entitled "The Great Green Technological Transformation.", recently published by the United Nations Department of Economic and Social Affairs.
In order for populations in developing countries to achieve a decent living standard, especially the billions who currently still live in conditions of abject poverty, and the additional 2 billion people who will have been added to the world’s population by mid‑century—much greater economic progress will be needed. Continuation along previously trodden economic growth pathways will further exacerbate the pressures exerted on the world’s resources and natural environment, which would approach limits where livelihoods were no longer sustainable. Business as usual is thus not an option.
Thus, in the next three to four decades, humankind must manage a fundamental technological overhaul or risk failure in fulfilling global commitments to end poverty and averting the catastrophic impacts of climate change and environmental degradation. This latest report analyses the options and challenges associated with the shift to more efficient and renewable energy technologies, with transforming agricultural technologies so as to guarantee food security without further degrading land and water resources, and with applying the technology required to adapt to climate change and reduce risks to human populations from natural hazards.
Governments will have to take a leading role through implementation of investment and incentive schemes designed to accelerate green technological innovation and structural change directed towards sustainable production and consumption. Strengthened international cooperation and significant adjustments in multilateral trade and financing mechanisms will be needed if developing countries are to effect the necessary technological transformation without compromising their aspirations regarding growth and poverty reduction. Recovery with a human face must and can also be sustainable.
[Facilitator's Note: Please find below a response received, with many thanks, from Alicia Puyana to Nora Lustig's and Anis Chowdhury's messages]
Dear Nora, yes you are right!
Nevertheless, we have to consider the sources of the decline and its sustentability. Growth is not the main reason, at least for Mexico. Focalized transferences and remitances are part of the explanation. Longer years of school attendance is considered an improvement since it reduces the inequality in human capital. But what about employment and wages? Real minimum wages have declined quite sharply since 1980 and the small improvement in the last year does not compensate the reduction. There are other researchers, such as Fernando Cortes that suggest a different result on inequality.
Thanks for answering me and recalling the attention to the path that poverty and inequality had in recent years. Let's hope it is permanent and is reflected in better employment and higher salaries.
The poor results in poverty reduction and the not always well-designed World Bank policies are evident. The criteria that one policy fits all has been particularly damaging together with the insistence in considering only income poverty and not income concentration and wealth concentration as the origin of poverty and income concentration. Latin America is a clear example that the income elasticity of poverty is small and high growth fails to reduce poverty in a consisting degree. The employment generated is one explication.
I would like to recall your attention to the book that CLACSO has just published a book which compares in a broad analysis the anti-poverty programmes in both Africa and Latin America. The book is called: Strategies Against Poverty Designs from the North and alternatives from the South. I think the book is a timely contribution to the debate you propose. The book can be accessed here.
I'd call for a few considerations to Alicia Puyana and D. Rodrik's comments. First, is it true that commodity prices are rising due to Chinese and Indian demand? I've heard persuasive arguments for the hypothesis that demand for commodities stems from expanding military actions all over the World.
Second, it's becoming a common place to say that countries not following WC policies are recovering their ability to grow, although some governments such as the Mexican one keep their their faith on "liberal" (WC) measurements. Would Carstens favour inward-looking policies for poorer countries had he been elected for the IMF?
Third, is it revaluation of South American (as well as European) currencies or the US dollar devaluation?
Fourth, it all seems that WC policies had the purpose to concentrate income and that can be shown as one of its major achievements. Nothing has been done to deter that; besides, in many countries income was already concentrated before the so-called "structural reforms" were put into practice. The police can take care of social unrest.
Fifth, social policies against poverty will alleviate poverty and will make a difference to many individuals, yet they cannot substitute development, so people living in "poorer" or "emergent" countries won't have as many opportunities, as many countries continue to face economic structures incompatible with generalized welfare. In my view, development must be addressed as such.
[Facilitator's Note: Please find below two messages received, with many thanks, from Richard Jolly and Anis Chowdhury in response to Andy Sumner’s message].
1. Richard Jolly, IDS
Thanks for this useful note. I am glad to know of Gabriele Palma’s latest. (He won the World Development prize in late 1970s with a brilliant essay on dependency theory.) I am interested that you cite Nancy Birdsall alone - rather than with Andrea Cornia who was I think the first to look at this data and analyze it in relation to the Left of Centre and Centre Right governments recently in power. Andrea’s piece (chapter 8, Democracy, the New Left and Income Distribution: Latin America over the last Decade) is in the book recently published in honour of Frances Stewart by Valpy Fitzgerald, Judith Heyer and Rosemary Thorp, Overcoming the Persistence of Inequality and Poverty (Palgrave) 2011.
I am also working my way through an interesting and careful volume, Globalization and Egalitarian Redistribution -edited by Pranab Bardhan, Sam Bowles and Michael Wallerstein(Russell Sage -Princeton) 2006.
Honorary Professor and Research Associate IDS
2. Anis Chowdhury, UNDESA
Just a quick short note: the Report on World Situation 2005 (UN-DESA) was on inequality, entitled, "The Inequality Predicament". It had a companion volume, Flat World, Big Gaps (eds. Jomo and Baudot). So, the UN has been in the lead on bringing back the issue to the forefront of policy debate.
A response to Fidel Aroche's first question, is it true that commodity prices are rising due to Chinese and Indian demand?
In fact it is neither this nor expanding military actions: the dominant cause of the rapid increase and high volatility in primary commodity prices over the past four years has been heightened speculative activity in commodity futures markets. In the period when global food prices were rising sharply in 2007-08, aggregate food grain consumption in both China and India actually fell. Subsequently the volatility has not been associated with real demand and supply movements. For example, global wheat prices doubled in the half year from June to December 2010, when global wheat output actually increased. This was driven partly by fears generated by the failure of the Ukraine harvest and the Russian ban on wheat exports, but largely powered by financial activity in the futures market.
While individual researchers have been arguing this for some time (http://onlinelibrary.wiley.com/doi/10.1111/j.1471-0366.2009.00249.x/abstract), along with some NGOs (http://www.eurodad.org/uploadedFiles/Whats_New/News/Food%20speculation%202%20pager%20final.pdf; http://www.iatp.org/files/451_2_104147.pdf; http://www.wdm.org.uk/stop-bankers-betting-food/betting-hunger) this is now increasingly acknowledged by international organisations, as evident in this report brought out by several of them (http://www.unctad.org/en/docs/2011_G20_FoodPriceVolatility_en.pdf). A recent report of UNCTAD (http://www.unctad.org/en/docs/gds20111_en.pdf) shows how this is bringing about significant movements of prices away from so-called "market fundamentals" adversely affecting both consumers and producers and generating wrong price signals Obviously underlying supply forces are playing an important role in the expectations that drive such market activity, but the role of increased demand from China and India - while it tends to be played up by the media - is much less relevant than is generally supposed.
Andy Sumner's thoughts on this forum are very inspiring, and they provided an excellent overview on some recent work on inequality. He points out that inequality is ‘back on the agenda’ (though I never fully understand how it cannot be on the agenda, and whose agenda this might be). One may be less optimistic about the importance of the inequality agenda than Andy seems to be – in fact I think Ashwani Saith’s recent article in Development and Change rightly highlights that we seem to have gone back to business as usual after the post-2008 optimism – but this in no way ought or need to change our commitment to push it higher up the agenda, and the fact that inequality is coming down in a fair number of countries is reason to celebrate and basis to build on in the international debate.
I fully agree with Professor Jayati Gosh. Copper, which account for over half Chile's exports, has experienced the same phenomenon she describes for grains: price peaked above 4 dollars a pound in 2007-08, right in the midst of the crisis and at the same time demand was contracting severely and output still expanding. It then collapsed to 1.4 dollars a pound within a few days, only to rise again to new heights at 4.5 dollars a pound today, in perfect correlation not to the increase of global demand, which has in fact stagnated, or output, which has continued to increase, but to monetary expansion mainly in the US.
Re: E-Discussion: A Recovery for All? -Karirim Nwuke, UNECA and Raphael Kaplinsky, Open University
[Facilitator's Note: Please find below two messages received, with many thanks, from Kasirim Nwuke, UNECA, and Raphael Kaplinsky, The Open University]
1. Kasirim Nwuke, UNECA
"Bringing back the issue to the forefront" in the last sentence of your recent message says quite a lot. It underscores how little we know about the things we claim to know and the need for modesty. If economics had come up with a solution when the issue "first" surfaced, perhaps it would not have been brought back again. I am sure that a decade or two from today, the "issue" will again be brought back to the forefront. The circular way we operate in the social sciences reminds me of two very - in my view - important papers: Joe Stiglitz's "Knowledge for Development" and Hayek's Nobel Lecture "The Pretence of Knowledge."
With best wishes,
2. Raphael Kaplinsky, The Open University
All of this means that the fundamentals are moving in favour of commodities, particularly when growing competition in manufacturing is holding back the price of manufactures. It is because of these fundamentals that the financial community is investing in commodities as yet another asset. They are able to do so since liquidity in the global economy is high. The effect of their investments is to exaggerate both the upswings and downswings in commodity prices, and to increase volatility.
It is important to bear in mind that the financial sector consists, broadly-speaking, of two groups. The long-term index funds and associated investors push the long-term price of commodities beyond the fundamentals. The short-term hedge funds and their “friends” who are classic speculators. They exaggerate the downswings and contribute to heightened price volatility.
So, whilst we should recognise the harmful impact of financial speculators for (some of) the producers and for the consumers of commodities, it is in my view a major error to ascribe the commodity supercycle as being a consequence of their presence in commodity markets. We are increasingly moving from a world driven by Schumpeterian innovation rents to one which comprises a mix of Schumpeterian and Ricardian rents. This has major consequences for development strategies, and for poverty-focused development strategies in particular.
Re: E-Discussion: A Recovery for All? - Thomas Palley, New America Foundation
Re: E-Discussion: A Recovery for All? -Isabel Ortiz, Jingqing Chai, and Matthew Cummins, UNICEF
We would like to share an update of earlier UNICEF work on public expenditures in 128 developing countries, based on information published by the IMF. See:
Austerity Measures Threaten Children and Poor Households: Recent Evidence in Public Expenditures from 128 Developing Countries
Link to paper: http://www.unicef.org/socialpolicy/index_59872.html
In the wake of the food, fuel and financial shocks, a fourth wave of the global economic crisis began to sweep across developing countries in 2010: fiscal austerity. Serving as an update of earlier research by UNICEF, this working paper: (i) examines the latest IMF government spending projections for 128 developing countries, comparing the three periods of 2005-07 (pre-crisis), 2008-09 (crisis phase I: fiscal expansion) and 2010-12 (crisis phase II: fiscal contraction); (ii) discusses the possible risks for social expenditures; (iii) assesses the most common adjustment measures being considered by developing countries in 2010-11 and their potentially adverse impacts on vulnerable populations; and (iv) summarizes a series of alternative policy options that are available to governments to expand fiscal space and ensure a Recovery for All, including children and poor households.
While most governments introduced fiscal stimuli to buffer their populations from the impacts of the crisis during 2008-09, premature expenditure contraction became widespread beginning in 2010 despite vulnerable populations’ urgent and significant need of public assistance. Our analysis confirms that the scope of austerity is severe and widening quickly, with 70 developing countries (or 55 percent of the sample) reducing total expenditures by nearly three percent of GDP, on average, during 2010, and 91 developing countries (or more than 70 percent of the sample) expected to reduce annual expenditures in 2012. Moreover, comparing the 2010-12 and 2005-07 periods suggests that nearly one-quarter of developing countries appears to be undergoing excessive contraction, defined as cutting expenditures below pre-crisis levels in terms of GDP.
Regarding austerity measures, the scope of options under consideration in developing countries seems to have widened considerably since a pioneer expenditure analysis was carried out by UNICEF in October 2010 (“Prioritizing Expenditures for a Recovery for All”). An updated review of the latest IMF country reports shows that governments are weighing various cost-saving policies, including: (i) wage bill cuts/caps, including salaries of education, health and other public sector workers; (ii) elimination or reduction of subsidies, including for basic food items; and (iii) rationalizing social protection schemes by reforming pensions or further targeting social safety nets. Also widely discussed is the introduction or broadening of taxes, such as VATs, on basic products consumed by vulnerable populations.
The paper questions if the projected fiscal contraction trajectory—in terms of timing, scope and magnitude—as well as the specific austerity measures considered are conducive to the objective of adequately protecting children and poor households and the achievement of development goals such as the MDGs. The paper encourages policymakers and development partners to evaluate the potential human and development costs of foregone social expenditures and to consider alternative policy measures to ensure a Recovery for All.
Associate Director, Policy and Practice, UNICEF
Chief, Social Policy and Economic Analyses, Policy and Practice, UNICEF
Social Policy Specialist, Social Policy and Economic Analyses, Policy and Practice, UNICEF
Re: E-Discussion: A Recovery for All? - Sir Richard Jolly, Institute of Development Studies
The economies of most of Europe and the US are languishing, with global repercussions. As heads of state and ministers debate what can be done, we call on governments and development agencies to place the reduction of inequality at the heart of their recovery and development agendas.
Intersecting inequalities - cultural, social, political, geographic as well as economic - produce chronic poverty. Recent IMF research has shown that high inequalities in income slow recovery to higher growth. Millions of people are bearing the consequences, as they are excluded from social and economic opportunities. The human costs are disastrous. Compared to children of the top 20%, a child born in the lowest 20% income group is twice as likely to die before reaching age five, three times more likely to be underweight and less likely to attend school. The list goes on and on.
But the situation is not hopeless. At least 20 developing countries have reduced inequalities in recent years, including Malaysia, Brazil and Chile, and a few in Africa. The expansion of social protection, minimum wages and the purposeful use of public finance to reduce inequalities has begun to make a difference. We need to learn from these cases as we work towards the millennium development goals and consider what we might want to replace them with in 2015, the date set for them to be reached.
Following our participation at a round table last month, a new report (http://www.ids.ac.uk/idspublication/inequality-and-social-justice-roundtable-consultation) sets out our recommendations on how to add the reduction of inequalities to measures for accelerating poverty reduction. We are now establishing a broad coalition of NGOs, social movements, academics, UN agencies, governments and others to advocate for these approaches and the prioritization of equity and social justice in development agendas.
We invite you to join. For further enquiries, please contact Ewan Robinson at email@example.com
Richard Jolly, Institute of Development Studies
Maxine Molyneux, Professor Institute for the Study of the Americas
Re: E-Discussion: A Recovery for All? - Harry Shutt, West Sussex
Further to the submission from Richard Jolly and his fellow participants at the recent IDS Roundtable on Inequality and Social Justice it is good to read in their report the emphasis on the importance of mechanisms to redistribute income rather than merely relying on economic growth - which some of us would argue will henceforth be hard to sustain above very low levels in any event.
In the context it seems appropriate to draw attention again to another factor which can have a seriously adverse impact in real terms on income distribution, namely consumer price inflation. As emphasised in my earlier submissions to this discussion group (most recently on 31 May), there is a regrettable tendency among economic analysts and policy makers, in the present global disintegration, to assume that high inflation is a price worth paying in pursuit of a revival of growth - even though it is well understood that this must tend to result in income distribution being skewed even more in favour of higher income groups (and owners of capital) at the expense of the poor. Thus, for example, in the UK the Bank of England's Monetary Policy Committee has all but explicitly abandoned its attempt to keep inflation under control (its primary remit) even though the CPI rate of increase now stands at double the target level, as it embarks on another round of futile monetary expansion (so-called Quantitative Easing), which will only fuel further speculation - see below. In the developing world the effect of sacrificing price stability to growth at all costs is well illustrated in a recent article from The New York Times on China: http://www.nytimes.com/2011/10/10/business/global/households-pay-a-price-for-chinas-growth.html?pagewanted=3&hpw
It is of course important to recognise that monetary excess is not the only source of price inflation. It has been widely noted - as in a letter just submitted by 450 economists to the G20 finance ministers ( http://www.wdm.org.uk/stop-bankers-betting-food/hundreds-economists-tell-g20-regulate-speculation-food-prices ) - that unregulated global commodity markets stimulating speculation have been a major source of the rising food prices currently affecting the poorest in particular. The remedy, of course, is to reverse much of the deregulation of global markets that has occurred over the past 30 years with a view to restoring the price stability which is in the interest of farmers as well as consumers - but not of speculators.
The ruling vested interests will of course mobilise all their lobbying resources to prevent any such restriction on their power to speculate at the public's expense. By the same token, as noted in my submission of 31 May, they are bound to resist any attempt to make them accept responsibility for the gambling debts they have already run up, given the catastrophic losses they would incur in the ensuing market meltdown. But since the capacity of taxpayers and citizens to buy up these largely worthless assets has now reached its limit (at least in Europe) we stand on the brink of a nightmare scenario from which (as I also suggested in my last submission) only massive state intervention - involving exchange controls, price controls and effective public control of financial and other enterprises - can save us. Let us hope we can at last find leadership up to the challenge.
Re: E-Discussion: A Recovery for All? -Ha-Joon Chang, University of Cambridge
Three years on from the 2008 financial crisis, the world economy is tottering on the brink of another serious downturn. Of the major economies Britain has been doing the least well, with three successive quarters of flat economy. It has committed itself to a radical fiscal retrenchment and refused to tax the financial sector more heavily, so it cannot use fiscal policy to reboot the economy. The coalition is not the only government that has become the prisoner of its own ideologies. The victory of the Republican anti-government ideology over a weakened Barack Obama has locked the US into the prison of fiscal rectitude.
Re: E-Discussion: A Recovery for All? - Alice Amsden, MIT
Ha Joon Chang argues that the developing world is too weak to pull the rest of the world towards economic recovery. True in the aggregate, but not for all sectors, many of which are key to Third World income, such as mining. According to China's Vice Minister of Land and Resources, "China's mineral market resumed its past strength following the global financial crisis as the Chinese government put in place a stimulus package plan of CNY 4,000 billion," or a staggering USD 600 billion.
"Further, this tremendous investment in the mining industry triggered increases in production across a range of mineral products," such as coal and iron ore.
In 2011, "China's mining industry is having further robust growth. The renewed strength of China's mineral market has exerted a positive influence on the development of the global mining industry," as well as the mining equipment industry, which produces crushers, milling machines, sand making machines, and a wide range of products widely used in mining, metallurgy, building materials, water and other large-scale projects.
The United Nations and other organizations should encourage governments to heavily promote specific sectors that are key to income and employment maintenance, as well as to create social safety nets for vulnerable workers.
Dept. of Urban Studies, MIT
Re: E-Discussion: A Recovery for All? -Isabel Ortiz, Jingqing Chai, Matthew Cummins, UNICEF
It is often argued that social and economic investments that benefit children and poor households are not affordable or that government expenditure cuts are inevitable during adjustment periods. But there are alternatives, even in the poorest countries.
Our paper “Identifying Fiscal Space: Options for Social and Economic Development for Children and Poor Households in 182 Countries” (http://www.unicef.org/socialpolicy/files/Fiscal_Space_-_17_Oct_-_FINAL.pdf) offers an array of possibilities that can be explored to expand fiscal space.
(i) re-allocating public expenditures,
(ii) increasing tax revenues,
(iii) lobbying for increased aid and transfers,
(iv) tapping into fiscal and foreign exchange reserves,
(v) borrowing and restructuring existing debt, and/or
(vi) adopting a more accommodative macroeconomic framework.
To serve as a general advocacy resource, the annex provides a summary of the latest fiscal space indicators for 182 countries.
The need to increase fiscal space for social and economic investments has never been greater. Just at a time when populations are most in need of public assistance, fiscal contraction is intensifying and spreading quickly across the developing world. Analyzing IMF data for 128 countries, our earlier paper “Austerity threatens children and poor households” (http://www.unicef.org/socialpolicy/files/Austerity_Measures_Threaten_Children.pdf ) shows that 91 developing countries are planning to reduce public expenditures in 2012 - many undergoing excessive contraction, defined as cutting expenditures below pre-crisis levels in terms of GDP.
It is essential to find fiscal space to ensure social spending and investments necessary for sustained equitable results for children and human development. Given the significance of public investment in enhancing the prospects for equitable, inclusive economic growth and social development, including the achievement of the MDGs, it is critical that governments explore options to ramp up social spending and employment-generating economic investments during—and in support of—the recovery. Each country is unique, and fiscal space options should be carefully examined—including the potential risks and trade-offs associated with each opportunity—at the national level and considered in an inclusive dialogue of alternatives to ensure a Recovery for All.
Associate Director, Policy and Practice, UNICEF
Chief, Social Policy and Economic Analyses, UNICEF
Social Policy Specialist, Social Policy and Economic Analyses, UNICEF
Re: E-Discussion: A Recovery for All? - Nouriel Roubini, New York University
This year has witnessed a global wave of social and political turmoil and instability, with masses of people pouring into the real and virtual streets: the Arab Spring; riots in London; Israel’s middle-class protests against high housing prices and an inflationary squeeze on living standards; protesting Chilean students; the destruction in Germany of the expensive cars of “fat cats”; India’s movement against corruption; mounting unhappiness with corruption and inequality in China; and now the “Occupy Wall Street” movement in New York and across the United States.
While these protests have no unified theme, they express in different ways the serious concerns of the world’s working and middle classes about their prospects in the face of the growing concentration of power among economic, financial, and political elites. The causes of their concern are clear enough: high unemployment and underemployment in advanced and emerging economies; inadequate skills and education for young people and workers to compete in a globalized world; resentment against corruption, including legalized forms like lobbying; and a sharp rise in income and wealth inequality in advanced and fast-growing emerging-market economies.
Of course, the malaise that so many people feel cannot be reduced to one factor. For example, the rise in inequality has many causes: the addition of 2.3 billion Chinese and Indians to the global labor force, which is reducing the jobs and wages of unskilled blue-collar and off-shorable white-collar workers in advanced economies; skill-biased technological change; winner-take-all effects; early emergence of income and wealth disparities in rapidly growing, previously low-income economies; and less progressive taxation.
The increase in private- and public-sector leverage and the related asset and credit bubbles are partly the result of inequality. Mediocre income growth for everyone but the rich in the last few decades opened a gap between incomes and spending aspirations. In Anglo-Saxon countries, the response was to democratize credit – via financial liberalization – thereby fueling a rise in private debt as households borrowed to make up the difference. In Europe, the gap was filled by public services – free education, health care, etc. – that were not fully financed by taxes, fueling public deficits and debt. In both cases, debt levels eventually became unsustainable.
Firms in advanced economies are now cutting jobs, owing to inadequate final demand, which has led to excess capacity, and to uncertainty about future demand. But cutting jobs weakens final demand further, because it reduces labor income and increases inequality. Because a firm’s labor costs are someone else’s labor income and demand, what is individually rational for one firm is destructive in the aggregate.
The result is that free markets don’t generate enough final demand. In the US, for example, slashing labor costs has sharply reduced the share of labor income in GDP. With credit exhausted, the effects on aggregate demand of decades of redistribution of income and wealth – from labor to capital, from wages to profits, from poor to rich, and from households to corporate firms – have become severe, owing to the lower marginal propensity of firms/capital owners/rich households to spend.
The problem is not new. Karl Marx oversold socialism, but he was right in claiming that globalization, unfettered financial capitalism, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct. As he argued, unregulated capitalism can lead to regular bouts of over-capacity, under-consumption, and the recurrence of destructive financial crises, fueled by credit bubbles and asset-price booms and busts.
Even before the Great Depression, Europe’s enlightened “bourgeois” classes recognized that, to avoid revolution, workers’ rights needed to be protected, wage and labor conditions improved, and a welfare state created to redistribute wealth and finance public goods – education, health care, and a social safety net. The push towards a modern welfare state accelerated after the Great Depression, when the state took on the responsibility for macroeconomic stabilization – a role that required the maintenance of a large middle class by widening the provision of public goods through progressive taxation of incomes and wealth and fostering economic opportunity for all.
Thus, the rise of the social-welfare state was a response (often of market-oriented liberal democracies) to the threat of popular revolutions, socialism, and communism as the frequency and severity of economic and financial crises increased. Three decades of relative social and economic stability then ensued, from the late 1940’s until the mid-1970’s, a period when inequality fell sharply and median incomes grew rapidly.
Some of the lessons about the need for prudential regulation of the financial system were lost in the Reagan-Thatcher era, when the appetite for massive deregulation was created in part by the flaws in Europe’s social-welfare model. Those flaws were reflected in yawning fiscal deficits, regulatory overkill, and a lack of economic dynamism that led to sclerotic growth then and the eurozone’s sovereign-debt crisis now.
But the laissez-faire Anglo-Saxon model has also now failed miserably. To stabilize market-oriented economies requires a return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of unregulated markets and the continental European model of deficit-driven welfare states. Even an alternative “Asian” growth model – if there really is one – has not prevented a rise in inequality in China, India, and elsewhere.
Any economic model that does not properly address inequality will eventually face a crisis of legitimacy. Unless the relative economic roles of the market and the state are rebalanced, the protests of 2011 will become more severe, with social and political instability eventually harming long-term economic growth and welfare.
Chairman of Roubini Global Economics
Professor of Economics at the Stern School of Business
New York University
Published at: http://www.project-syndicate.org/contributor/1095
Re: E-Discussion: A Recovery for All? - Andy Storey, University College Dublin
Debt audits have been initiated in Brazil, Ecuador and elsewhere in order to untangle the web of secrecy that often surrounds debt and work out who lent what to whom, when and for what purpose. Typically, there is an expectation that some, at least, of the debt will be found to be "illegitimate", and can therefore be repudiated. For example, in 2007 President Correa of Ecuador established a debt audit commission, which reported in 2008 that a portion of the country's debt was indeed illegitimate and had done "incalculable damage" to Ecuador's people and environment. The price of illegitimate debt subsequently collapsed in the open markets, and Ecuador got rid of it easily. Despite predictions of economic disaster the country registered 3.7% economic growth in 2010, and the forecast is for growth in excess of 5% in 2011.
Modelled on such examples, a campaign for a Greek debt audit commission was launched in March of this year with the support of civil society organisations, trade unions and political parties. And in Ireland, two NGOs - Action from Ireland (Afri) and the Debt and Development Coalition Ireland (DDCI) - together with the trade union UNITE commissioned specialists in accountancy, finance and economics to carry out an audit of the Irish debt. Their work was published in September and casts a fascinating, often shocking, light on the Irish debt crisis.
A particularly important finding concerns the overall scale of the debt when one factors in "contingent liabilities", bills yet to be presented for payment. An example of a contingent liability is short-term liquidity support from the Central Bank of Ireland to the Irish banks (partly to compensate for a flight of deposits), which the state has guaranteed, and which seems to be based on shaky collateral, including prior government promises to the banks of phased recapitalisation payments. As the audit notes, "This is a circular arrangement whereby notes given by the state to the bank are then used by the bank to borrow more from the state. The result is that Irish people are guaranteeing loans made to illiquid and possibly insolvent banks on the basis of previous promissory notes issued by the Irish government to the same banks".
When the contingent liabilities are counted, the Irish national debt stood, according to the audit, at €371.1 billion on 31 March 2011. This is equivalent to almost 300% of Irish income. Of this, €279.3 billion (over 75%) is accounted for by the state-covered debts of the Irish banks, and this, as the audit notes, is before taking into account the likelihood that much of the direct government debt of €91.8 billion may itself have arisen from the banking crisis. In other words, the audit proves conclusively that the Irish debt crisis is a crisis of private (subsequently socialised) debt, not public debt - the allegedly 'bloated' nature of the Irish public service, or 'generous' welfare entitlements, did not cause this crisis. As the audit puts it, "it is clear that the bulk of Irish government debt has arisen directly from the banking crisis, the decision in September 2008 to rescue all of the Irish banks". Alarmingly, the audit notes that the headline figure of €371.1 billion may be an underestimate. For example, the audit does not count unguaranteed bonds issued by the banks (and therefore not legally the responsibility of the Irish state) as part of the debt but, to date, the Irish government has been repaying these bonds also.
Who then is getting all this money? Another hugely important finding from the audit concerns secrecy, what the audit describes as "the anonymous nature of bonds, and the culture of confidentiality and secrecy which surrounds them". We simply do not know to whom the debt is owed and to whom it is being repaid. And yet the bondholders are obviously exerting enormous influence, directly or indirectly, over Irish government policy with attempts to ensure that the bondholders take a 'haircut' (some write-down in the value of the debt) being strenuously resisted. The audit argues that "The importance of the holders of the debt in determining policy suggests that their relationship to the Irish state is more controlling than is usual for bondholders, and strengthens the case against their anonymity".
The audit does not make any judgement on whether the debt is legitimate or not - this was a fact finding exercise, not a campaigning one. But it is obvious to those of us who are campaigners that the Irish people are being asked to repay a debt that was, overwhelmingly, not of their making and from which they gained little or nothing - this constitutes a prima facie case of illegitimate debt. And the lack of transparency means that faceless market actors are exercising enormous influence over Irish government policy, which violates fundamental democratic principles that power should be exercised in an open and accountable manner. The organisations that sponsored the audit are now discussing and planning how best to raise awareness of these issues and mobilise action against the challenges of debt and austerity.
School of Politics and International Relations
University College Dublin
Re: E-Discussion: A Recovery for All? - Patricia Justino, IDS
A recent Economist article ('Unrest in Peace', 22 October 2011) explores the reasons behind recent wide-scale protest movements in Western countries, citing research that links the rise in social instability with austerity measures and increasing inequality. The article relates this outcome to events long witnessed in the emerging world, citing our research on India as a case in point. Indeed, given the current economic and social climate, our findings on the relative importance of redistributive policies for reducing civil unrest have important implications.
Governments typically intervene in the mediation and resolution of forms of civil unrest with a mix of carrot-and-stick approaches. Our empirical analysis, based on data for a panel of fourteen major Indian states, found that while using coercive means to quell unrest may be effective in the short term, in the long term it can cause discontent amongst disadvantaged or disenfranchised populations, leading to greater conflict.
Compared to the use of police, redistributive transfers appear to have a more significant impact on the reduction of unrest across states. By redistributive transfers we refer to transfers that benefit those in need without necessarily distorting private investment decisions and harming economic growth. These might include programmes of public employment, investment in basic education and primary health care, food security programmes and so on.
The econometric modelling took into account other factors that have been shown to contribute to the onset of conflict, including the extent of poverty in states and across groups; the level of overall state income; and the level of education in each state. It found that the correlation between redistributive transfers and civil unrest is almost always negative and statistically significant: higher levels of redistributive transfers are associated with decreases in civil unrest. This effect is particularly significant in the long-term: the number of riots decrease by 0.3-0.4% for each extra rupee per capita spent on social services in the same period, but by 10.5-12.1% for every extra rupee per capita spent on social services in preceding period. Policing is also found to decrease civil unrest in the same period that it is used. However, the use of policing tends to increase civil unrest in subsequent periods.
Results suggest that the level of redistributive transfers across India has been sufficient to avoid the escalation of civil unrest. Whether intentional or not, and despite the small amounts spent, transfers have had a significant impact on the prevention and reduction of civil unrest in India, particularly in the medium term. The results of this analysis yield important lessons for other countries where social cohesion tends to break frequently but large-scale conflict may be avoidable.
In many developing and emerging countries that are neither high-functioning democracies nor efficient dictatorship regimes, the only way avoid conflict in the long term may be to reduce inequality. Some countries in Latin America, such as Brazil, Mexico and Peru, have exhibited across the years a combination of high income inequalities (much higher than India's) and high potential for socio-political conflict, while other countries have shown signs of deterioration of relatively successful social development policies (for instance, former Soviet Union republics, Egypt, Libya). This can result in increases in civil unrest. Instead of addressing the reasons that motivate population mobilisation, the use of police and military force does little more than enhance the causes of unrest rooted in perceived social injustice. In addition, the continued use of coercive force by security forces may cause resentment and further mobilisation that can increase the risk of the escalation of unrest.
The implementation of adequate programmes of redistributive transfers may have an important role to play in the establishment and/or maintenance of stable socio-political environments in those countries. Given recent events in established democracies it appears that in Western countries too, what governments need are more policies that directly address the root causes of social discontent.
Dr. Patricia Justino
Fellow, Institute of Development Studies, UK (www.ids.ac.uk) Director, MICROCON (www.microconflict.eu) Co-director, Households in Conflict Network (www.hicn.org)
Re: E-Discussion: A Recovery for All? - Raymond Torrres, ILO
The International Labour Organization (ILO) report, World of Work Report 2011: Making markets work for jobs, released this week warns that the cooling global economy risks pushing the world into a double-dip jobs recession and triggering an outbreak of social strife unless governments take urgent action to stimulate employment growth.
The report provides a grim analysis of the future of global employment, private enterprises are in an even weaker position to retain employees since the start of the financial crisis and austerity measures implemented by governments have contributed to the growing numbers of unemployed.
We have reached the moment of truth; we have a brief window of opportunity to avoid a major double-dip in employment. 80 million jobs need to be created over the next two years for global employment to return to pre-crisis levels. Yet at the current rate, it would take at least five years for employment in developed countries to return to pre-crisis levels ' one year longer than projected in last year's report.
In a new addition, the annual study features a "social unrest" index highlighting global levels of discontent related to perceived economic inequality. Marking an uptick in popular anger in advanced economies such as those of the European Union, the report warns of a significant aggravation of social unrest in over 45 of the 118 countries surveyed. As the recovery derails, social discontent is now becoming more widespread, public dissatisfaction is also simmering in the Middle East and North Africa and, albeit to a much lesser extent, Asia.
There is also a glimmer of hope. We are calling on governments to resist cuts in social programmes, an increase in active labour market spending by half a per cent of gross domestic product (GDP) would increase employment by between 0.4 per cent and 0.8 per cent, depending on the country.
The study's release comes on the eve of the summit later this week of the leaders of the G-20, the world's largest economies, where participants are set to address social and economic issues related to the worsening global downturn.
Re: E-Discussion: A Recovery for All? -Aldo Caliari, Rethinking Bretton Woods Project
As the Group of 20 Leaders prepare to meet in Cannes to discuss and shape global economic policies, 190 organizations and networks from over 52 countries call on hem to give primacy to their duties to respect, protect and fulfill human rights in commitments on financial regulation.
The statement formulates demands on the following issues on the agenda of the G20:
- Endorsement of worldwide stimuli measures according to human rights principles;
- Reforms to prevent speculative activity in financial markets from undermining the enjoyment of human rights;
- Action to limit the damage to public funding of financial institutions that collapse due to excessive risk-taking
- Regulations of bank capital requirements consistent with human rights standards;
- Agreement to increase the relative fiscal pressure on the banking sector and to cooperate to increase transparency and mutual accountability in revenue mobilization;
- An agreement to drastically reduce greenhouse emissions which contribute to climate change.
Full statement available at
Rethinking Bretton Woods Project
Center of Concern
Re: E-Discussion: A Recovery for All? -Roberto Bissio, Social Watch
The first decade of the 21st century was a lost decade in the fight against poverty, in spite of the excellent performance of the emerging economies. This week the Social Watch, a network of citizen organizations monitoring social policies around the world, launched a Basic Capabilities Index (BCI) derived from well-being indicators which shows very slow progress in the last twenty years. This index contradicts the assessment of the World Bank, according to which extreme poverty would have halved around the world between 1980 and 2005.
By looking at basic well-being indicators like malnutrition, child delivery and primary education instead of focusing on income, the BCI is closer to reality than the one-dollar-a-day line of the World Bank. The world average inhabitants doubled their income from 4.079 dollars in 1990 to 9.116 dollars in 2011, but the world Basic Capabilities Index barely increased in these twenty years from 79.3 to 87.1 points. A slowdown was registered during the first decade of the 21st century, when the index moved up three points, while progress amounted to five points between 1990 and 2000.
The figures do not allow yet to assess the whole impact of the crisis that started in 2008, since social indicators are gathered and published much slower than the economic numbers. Yet, Social Watch member organizations have already verified in their own countries that the world's most vulnerable sectors are indeed the ones carrying the largest burden of austerity measures.
Before the crisis, gross income was growing fast while progress in education, health and nutrition was advancing slowly. If industrialized countries enter into a prolonged period of stagnation or recession, the situation of the most vulnerable sectors at global level can only become worse.
The countries holding the top positions in the list according to BCI values this year are Japan, Norway, Netherlands, Switzerland and Iceland. The worst ranked countries are all in Africa: Chad, Sierra Leone, Niger, Somalia and Guinea Bissau.
For more on the BCI click here and click here for the 2010 Social Watch Report which deals with the impact of the financial crisis.
Coordinator of Social Watch
Re: E-Discussion: A Recovery for All? - Barry Herman, The New School
The Government Leaders of the Group of 20 (G20) have all gone home now, as have the invited political and institutional guests, the press corps, and the uninvited civil society demonstrators. Many commentators will say that the Summit did not produce any policy results that justify the meeting. And yet, below the surface, the G20 is succeeding in something important. It is, in effect, institutionalizing the role it gave itself as executive committee of international development policy.
That is, while the G20 efforts to manage global aggregate demand, exchange rate management and stronger regulation of the international financial sector have not worked out quite as planned, the Group is solidifying its role in directing the system of multilateral institutions. The Leaders are quite explicit about this, as paragraph 93 of the Cannes Summit Final Declaration says:
93. We reaffirm that the G20's founding spirit of bringing together the major economies on an equal footing to catalyze action is fundamental and therefore agree to put our collective political will behind OUR economic and financial agenda, and the reform and more effective working of relevant international institutions (emphasis added).
However, not only was the G20 not asked by the international community of nations to take on this role, it is not doing a good job of it. It is being selective in the issues on which it works and it looks to the private sector to come to the rescue where official cooperation (at least from traditional sources) is and will be lagging. This is most clearly seen in the activities and conclusions of the Development Working Group (DWG) that the G20 set up at the Seoul Summit last year as part of its Multi-Year Action Plan. While the G20 Final Declaration calls for the "prompt implementation of our Multi-Year Action Plan" (paragraph 70), which the DWG had closely followed in its work program, at least the Cannes Summit Final Declaration is not as unbalanced as the DWG report to the Summit; e.g., the Leaders introduced some discussion of official development assistance (albeit without meaningful commitments); made reference to innovative sources of financing for development (probably thanks to Bill Gates); made reference to environmental sustainability and the fight against climate change (alas, no progress here); and implicitly left open more of a role for the public sector in infrastructure investment (while mainly seeking ways to attract private investors). Moreover, the international social agenda seems to have been stripped down to nationally defined social protection floors for the poor in low-income countries (why not some minimal international guidelines?) and worrying about creation of decent jobs. Yes, this helps, but there is much more.
The distortion of the international agenda would be less of a concern if the 20 only agreed to undertake analyses themselves and then collectively act on them, but member governments do not seem to have agreed to any new individual policy steps. Rather, the G20 "tasks" the multilateral institutions to develop policy proposals in particular areas and then to undertake G20 decisions to implement them. However, the G20 is not the governing body of the institutions charged to carry out the work (drafters of the outcome documents are usually quite careful in how they phrase their instructions to institutions, but sometimes instead of phrases like "call on" or "request" one sees "We have tasked...," as in paragraph 14 of the Leaders Final Communiqué addressed to IOSCO, the International Organization of Securities Commissions).
Your present correspondent happened upon the work of the DWG somewhat by accident in July. As it is was not much discussed in public forums, I was moved to try to explain what G20 policies were being developed and how they compared to international policy. guidelines. The assessment I drafted is based on the report of the DWG after its September meeting (not made public), which differs from the report published in November only in that the call for only private finance to plug the infrastructure investment gap was modified to include public sources, albeit adding a mention of private-initiated infrastructure investment, which seems a curiosity); in addition, a trade paragraph in brackets was accepted in full in the final text of the report.
For the interested reader, this paper, "G20: Wrong International Forum for Development" is posted on the web site of a new international analytical NGO based in Germany, Social Justice in Global Development (www.socdevjustice.org). The paper is a somewhat detailed assessment (for which I apologize) of the topics addressed by the DWG, namely: infrastructure investment; International trade; private investment, job creation and skills; agricultural production, food security and humanitarian needs; domestic resource mobilization (i.e., taxes); social protection of vulnerable populations; remittance transfers and other issues.
Graduate Program in International Affairs
The New School
E-Discussion: Austerity measures driving global economy towards recession - Heiner Flassbeck, UNCTAD
Fiscal austerity policies being implemented by countries are driving the global economy towards a recession. Greater attention should be paid to high unemployment, which is a more pressing problem than budgetary deficits.
The countries threatened by recession and deflation should avoid intensified austerity measures because these are unlikely to produce the intended outcomes and could propel the world into a renewed bout of recession, or even into an outright depression.
The vicious circle induced by fiscal contraction, weak financial institutions and financially fragile households is fuelling a crisis of confidence and holding back investment and job creation in the private and public sectors simultaneously.
The economic contraction will affect emerging and developing economies alike, and contingency plans need to be prepared. Unless there is a rapid policy turnaround, the world is in danger of repeating the mistakes of the 1930s.
The Group of 20 (G20) major economies initially seemed to recognize the threat of fiscal austerity to the global economy, but recent actions have not been consistent with that recognition. In particular, the fiscal restraint in the countries with current account surpluses and very low long-run interest rates in Europe, point precisely in the wrong direction. A fragile global economy has a significant interest in the implementation of expansionary, rather than contractionary, fiscal policies in key economies.
Only the former can open a path towards lower fiscal deficits and falling public debt ratios. A ‘lost decade’ for the world economy would risk the development gains achieved during the recent years, and throw into question the ability of democratic governments to tackle the most urgent challenges of our age.
UNCTAD has released its annual Handbook of Statistics, a wide-ranging survey of numerical information on international trade flows, commodity prices, maritime transport, and the economic performances of developing countries. Trends revealed by the publication include volatile prices for commodities since the beginning of this century and long-term economic gains by several developing countries between 1981 and 2010.
China’s share of world exports in goods and services, for example, grew by over eight percentage points, and its share of global gross domestic product (GDP) expanded by nearly seven percentage points. Over the same period, the United States’ share of world exports in goods declined by 3.5 percentage points and its portion of global GDP fell by nearly 2.5 percentage points. Countries in the European Union saw a decline in services export share of eight percentage points for the period.
Those statistics provide evidence of the growing prominence of developing economies in the global economy.
The Handbook also shows that commodity price indices displayed record volatility from 2001 through 2010, climbing at an annual average rate of 12.2 per cent per year, a sharp change from the two preceding decades, when they increased by only 0.5 per cent per year (1981 to 1990) and then fell by 1.3 per cent per year (1991 to 2000).
The price of rice, the most important staple food for a large part of the world’s population, showed the sharpest increases between 2001 and 2010, climbing by an average of 15 per cent per year.
See a recently published UNCTAD policy brief on these matters here: http://www.unctad.org/en/docs/presspb2011d12_en.pdf
Division on Globalization and Development Strategies
Re: E-Discussion: Austerity measures driving global economy towards recession -Roberto Bissio, Social Watch
The world’s most vulnerable groups in its poorest countries, such as women, poor farmers and indigenous populations, have been affected in multiple ways by the global financial and economic crisis, including through retraction of credit availability, recession and by reduced official development assistance from countries seeking to protect their own budgets. In that context, the Social Watch report 2012 shows that countries like Brazil, China and India, in which anti-crisis policies were basically directed to support the poor in different ways, have recovered faster from the crisis than industrialized countries, which bailed out banks and rich people.
Still, there is a worrying trend whereby even countries enjoying economic growth and budget surpluses are implementing austerity packages, as pointed out by Ortiz, Chai and Cummins in a previous message to this network. Many of the services being cut are human rights citizens are entitled to.
The Social Watch Report 2012 points out that policies to meet human rights are at the same time sound economic policies. Yet, a gap is identified in terms of sustainability. Sustainable development was defined by the Earth Summit in 1992 as the set of policies that meet the needs of the present without compromising the ability of future generations to meet their own needs. But in the current national and international governance there is no defender of the rights of future generations. "The right to a future" is the title of the report, which this year includes contributions from citizen organizations in 66 countries about the performance of their governments regarding sustainable development ahead of the Rio+20 United Nations Conference on Sustainable Development in June 2012.
The report contains data of the most recent measurement of the Basic Capabilities Index (BCI), and index that combines infant mortality rates, the number of births attended by trained personnel and enrolment rates in primary school. The global BCI shows progresses between 1990 and 2011, although in general the progress slowed down between the previous decade and the next one. Furthermore, this edition includes the Gender Equity Index (GEI) and the new Social and Economic Rights Fulfillment Index (SERF Index), which determines the extent to which countries are meeting their obligations to fulfil five human rights enumerated in the International Covenant of Economic, Social, and Cultural Rights: the right to food, the right to adequate shelter, the right to healthcare, the right to education, and the right to decent work.
The report concludes that growing inequalities and unregulated finances are expropriating people everywhere from their fair share in the benefits of global prosperity. Our children will inherit the burden of deforestation, desertification, erosion of biodiversity and climate change. To revert this trend, the promise of universal dignity brought by human rights has to be enforced and the rights of future generations need to be recognized and properly defended.
Re: E-Discussion: Austerity measures driving global economy towards recession - Duncan Green, Oxfam
Northern winter, Southern spring + Gramsci rules: looking back on 2011. Here’s my contribution to the flood of ‘2011 retrospective’ articles, published on The Guardian site this week.
What you make of 2011 depends on your vantage point. The year’s events look completely different depending on whether you are sitting at the bottom or the top, in the old north or the old south.
From the bottom, this was a year of protest and revolution, toppling tyrants and throwing up new governments in Tunisia, Egypt, Libya and (probably) Yemen. So far, thankfully, fears about the negative impact of such revolutions on women’s rights or religious tolerance have not been realised; that’s something to watch out for in 2012. In Madrid, Washington, London and dozens of other cities, a rather more sedate protest movement raised the question of whether a single global movement is emerging. I’m sceptical, though certain themes – of inequality, greed and injustice – emerged in common. What was universal was “active citizenship” – people taking matters into their own hands – in many cases, with historic results.
The geopolitical order, too, continued in ferment, as the “emerging economies” and “low-income countries” carried on booming, in stark contrast with what I recently heard referred to as “the formerly rich countries”. Can it only be two years since the old certainties and power of the G8 officially handed over the baton to the new order of the G20? This year’s aid conference in Busan and climate summit in Durban brought further progress, with China and other emerging economies accepting new levels of global responsibility to accompany their growing economic and political might. With China the world’s second largest economy and largest emitter of greenhouse gases, the north-south frame of the 1970s is now as redundant as the east-west divisions of the Cold War.
Seen from the bottom, or the old south, many of the changes are positive and uplifting. Not so the view from the top, the old north. For all its internationalism, the aid industry and international NGOs such as Oxfam have substantial European DNA, and it is hard to shake off the Euro-gloom narrative of crisis, fragmentation and decline that hangs over the continent.
Across the Atlantic, the crisis feels more political than economic, as decades of partisan venom have poisoned Washington’s bloodstream, leaving a US too consumed by infighting to show the global leadership required.
Globally, northern gloom is compounded by the gulf between science and politics, as political systems struggle to adapt to the growing evidence binding planetary issues to human activity. While in some ways achieving surprising progress, the Durban climate change summit kicked the can of ecological constraints down the road, making it increasingly likely that the world will experience catastrophic levels of climate change over the course of this century.
At Oxfam, this cognitive dissonance between bottom-up optimism and top-down malaise informed our new Grow campaign, a four-year global effort to grapple with the issue of “food justice in a resource-constrained world”. Feeding the 7 billion, without destroying the land and water that they and future generations will depend on, requires both a transformation in how we behave (production, consumption, investment) and how we think (materialism, solidarity, fair shares for all).
So roll on 2012. From the bottom, we should see resolution (and maybe revolution) in Yemen and Syria, and further developments across the Arab world. If recession and economic crisis bite, as seems likely in Europe, at least, there will be little political bandwidth for global diplomacy and leadership of the kind needed at the Rio+20 environment and development summit in June. But the planet and its people cannot wait for a more propitious political moment, and organisations such as Oxfam will be pushing for global responses before it is too late. Our state of mind is perhaps best described by Antonio Gramsci’s “pessimism of the intellect; optimism of the will”, echoing the dissonance that described the world in 2011.
Dr. Duncan Green
Head of Research
Re: E-Discussion: Austerity measures driving global economy towards recession - Rick Wolff, The New School
Following Duncan Green, my contribution to the look back at 2011 focuses on Europe’s debt crisis, its phantoms, and their global implications.
Over the last weekend, Fitch – the major rating company that, with its fellow majors, Moody’s and Standard and Poor, dominate the business of assessing the riskiness of debt instruments – took a highly publicized step. It downgraded the credit-worthiness of the sovereign debts of many European countries. What a spectacle! These rating companies were distinguished by their laughably inaccurate [to be extremely polite] assessments of the risks associated with asset-backed securities. Those assessments contributed to the economic crisis we are living through. Now the world is supposed to hang on – as against laughing at - their credit reports.
Europe’s debts - and social tensions swirling around them - are clearly problems. Governments collapsing in Greece, Italy and Spain show that, among other signs of the obvious. The rating companies’ downgrades of European debt are rather like downgrading the likelihood of good weather while the rest of us are already rushing to close the windows against pouring rain.
Still worse are the usual media reports and discussions of the Fitch action. They are once again full of eerie references to steps European governments must take “to satisfy the markets.” This strange metaphorical abstraction – “the markets” - is portrayed as some sort of Frankenstein monster threatening to eat Europe’s children unless the parents support government austerity programs. Those austerity programs are, of course, already making those parents and their children suffer.
Lets take a momentary step back from what is an ideological – or better said, propagandistic – usage of the term. “The markets” is a conceptual device that serves to hide and disguise those particular corporations that stand behind and work those markets to pursue their interests. The politicians’ and mass media language makes it seem as if self-interested pursuits by those corporations were rather the machine-like operations of some unalterable, fixed institution. We need to remember that markets, like all other institutions, are human inventions filled with a mix of positive and negative aspects and open to change. After all, the mixed effects of markets have made them objects of deep suspicion and skepticism at least since Plato and Aristotle profoundly criticized markets as enemies of community thousands of years ago.
The chief creditors of European governments today are banks, insurance companies, large corporations, pension funds, some other governments (mostly non-European), and wealthy individuals. When politicians and media speak of the need for European governments to “satisfy the markets,” what they mean is to satisfy those creditors. The chief influences among those creditors are the major banks that represent and/or advise all or most of the rest of them. The major European banks were and are the major recipients of the costly bailouts by those European governments since 2008. Indeed, those bailouts sharply increased the indebtedness of European governments because the latter paid for those bailouts by borrowing.
The bailouts worked in Europe much as they did in the US. Banks had speculated badly in asset-backed securities and their associated derivatives leading up to late 2008. When borrowers (eg., mortgagees in the US) increasingly defaulted on the loans comprising those asset-backed securities, the values of the latter collapsed. Banks stopped trusting one another to repay loans between them – central to the global credit system – because all banks knew that they all held huge amounts of asset-backed securities whose values had collapsed. Each major bank feared that others – like itself - might have to default on its debts.
Bank transactions with one another stopped and thereby produced a credit “freeze” or “crunch.” In modern capitalist economies, businesses, governments, and consumers have all become more credit dependent than ever. Such a freeze or crunch therefore threatened wholesale economic non-functioning (collapse).
The solution was for governments to intervene massively to unfreeze the credit system. They did this along multiple fronts simultaneously, so serious was the crisis. First, governments lent freely to the major banks who could not borrow from each other. Second, governments guaranteed various sorts of loans and debts so banks who had feared to lend would resume lending. Thirdly, governments borrowed massively so private lenders – especially banks - would have a safe and profitable outlet for their loanable funds. In these ways, as agent of the people, European governments unfroze and rebooted a collapsed private credit system at enormous public expense. They thereby enabled the survival and continued profitability of the banks and their major clients.
Over the last year or so, those banks and their clients – freed by government bailouts from worrying about loans to one another – have begun to worry about their loans to European governments. They fear one thing: aroused and angry publics. People in the streets may not permit their governments to impose “austerity.” The people may not accept government cuts in basic public employment and services so the saved money can instead pay off creditors that were bailed-out at public expense just a short while ago.
So the creditors are now pressing governments to ensure the safety of the national debt (to themselves). The Fitch downgrade is part of that pressure. The references to “satisfying the markets” simply disguise the whole outrageous process. The crisis drama deepens: creditors’ pressure on governments increases austerity policies that increase mass opposition that frightens creditors who increase their pressure on governments……….
The contradictions driving this vicious cycle agitate all of European society and the global economy interlinked with Europe. European governments fear the creditors and fear their rising domestic oppositions to austerity.
They express irritation against Fitch and the other rating companies for making their dilemma worse. They have no solution, bend toward “satisfying the markets,” and thus pursue austerity in fits, starts, and retreats. Like animals frozen in the headlights of oncoming disaster, the players in this absurd European drama issue redundant credit reports (Fitch), hold endless and fruitless conferences and summits (Sarkozy, Merkel et al), and twitch with anxiety as general strikes proliferate and governments teeter and fall. Meanwhile, phantoms like “the markets” haunt the media analyses and politicians’ statements, serving mostly to fragment and obscure what is happening.
Richard D. Wolff
Professor of Economics Emeritus, University of Massachusetts, Amherst
Visiting Professor, Graduate Program in International Affairs, The New School
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