Friday, November 21, 2014

A Global New Deal

NEW YORK – Recent political developments, including the defeat of incumbent governments in France and Greece, suggest that the public’s tolerance for economic policies that do not reduce unemployment has collapsed. Indeed, given the alarming economic and employment situation in many countries today, with no prospect of recovery on the horizon, further political turmoil is likely unless policymakers change course accordingly.

The economic crisis has wiped out more than 50 million jobs after years of weak, job-poor growth and increasing inequality in the world’s rich countries. Since 2007, employment rates have risen in only six of the 36 advanced economies, while youth unemployment has increased in a large majority of both established and emerging markets.

In the near term, the global crisis is likely to become worse as many governments, especially in advanced economies, prioritize fiscal austerity and tough labor-market reforms, even as such measures undermine livelihoods, incomes, and the social fabric.

Meanwhile, despite quantitative easing, many companies have limited access to credit, depressing investment and reducing job creation. Easy credit before the crisis encouraged over-investment in those sectors, such as housing, that were thought to be profitable. It is no surprise that the resulting excess capacity now discourages private investment in the real economy.

With inequality and unemployment higher, and incomes and domestic markets shrinking, everyone hopes to recover by exporting – an obviously impossible solution. Developing countries, long encouraged or even compelled to export and otherwise embrace globalization, have been abruptly told to switch course: to produce for the domestic market and to import more. The irony is that this advice comes after much of their former productive capacity has disappeared.

But, having suffered currency and capital-account crises with greater openness, many emerging-market economies still feel compelled to accumulate huge reserves to protect themselves in the face of greater global financial volatility. While financial globalization has not enhanced growth, it has exacerbated volatility and instability. Meanwhile, national “policy space” for economic recovery has shrunk since the crisis.

Public investment and basic social protection can help to turn this around, by creating millions of jobs. But, despite strong evidence to the contrary, the presumption that public investment crowds out private capital continues to discourage government-led economic-recovery efforts.

Historically, in fact, most advanced economies have lived with far higher fiscal deficits than they have today, and not only during wartime. Such deficits have financed strong, sustained, and inclusive growth not only in their own economies, but also abroad – as with the United States’ Marshall Plan, so central to European post-war reconstruction and recovery.

But now, because governments’ deployment of overwhelming financial resources to save selected private institutions deemed too big to fail caused sovereign debt to increase dramatically, officials have imposed fiscal austerity in deference to bond-market demands. Meanwhile, eurozone countries are constrained not only by this fiscal fetish, but also by their lack of exchange-rate flexibility.

Moreover, multilateral cooperation for global recovery has been disappointing since 2009 – the year of the G-20’s London and Pittsburgh summits, including the Global Jobs Pact, on which there has been little meaningful progress since. As a result, the past three years have witnessed little movement toward developing and implementing a strategy for strong, sustained, and inclusive recovery. Instead, we have seen creeping protectionism, and not only on the trade front.

So, how can the world escape a cul-de-sac constructed by the short-term perspective of financial markets and electoral politics?

Although inclusive multilateralism has been battered by various challenges, including its seeming messiness and slow progress, it remains the best option for various reasons. The United Nations system must be bolder, but powerful interests must also allow it to play a bigger role.

In 2009, recognizing that market forces alone will not generate the investments needed for climate change mitigation as well as affordable nutrition for all, UN Secretary-General Ban Ki-moon proposed a Global Green New Deal, including proposed cross-border, public-private partnerships, especially to generate renewable energy and increase sustainable food production.

Under recent French leadership, the International Monetary Fund, after decades of promoting economic – especially financial – liberalization and globalization, has become more careful, if not skeptical, of its own previous policy analyses, prescriptions, and operations. Likewise, recent initiatives by the International Labor Organization – such as Fair Globalization, the Global Jobs Pact, and the Social Protection Floor – are all directly relevant to addressing the current stasis.

Unique among international organizations, the ILO’s inclusion of both workers and employers as social partners in its tripartite governance allows it to help lead the undoubtedly difficult processes needed to ensure strong, sustained, and inclusive recovery and growth. So, perhaps more than ever in recent decades, inclusive multilateral institutions are on the same page. Now their efforts need the support that they deserve.

This column was produced within the framework of the EC-funded “V4Aid” project. The views expressed do not necessarily represent the view of the EU.

  • Contact us to secure rights


  • Hide Comments Hide Comments Read Comments (4)

    Please login or register to post a comment

    1. CommentedJonathan Lam

      Gamesmith94134: A global New Deal
      In the nature of development of human spices; we provided livelihood of the people with much of the finite resources that our intelligence put them to sustain values and purposes. As technology advanced, globalization made it plausible to shift its natural resources from one place to another through trades. Then, our political sovereignties adopted monetarism capital resources dominated the trades and its other sources including Human resources and natural resource.
      Our present crisis was the long oblivion that they misused the resources and misled by the successes of the scientific advancement like efficiency and strength. Based on the levels of miscalculation of balance on the outcome of the values including financial; the polity made the obvious attempt to promote monetarism to gain controls of the natural resources that efficiency undercut the human resources and the finite natural resources were manipulated under the few. First, shortage of natural resources made the price surge. Many gained from the surge and continue such practice to sustain a higher pricing; so, under-funded capitals made the sovereignty debts from the trade externally. It is the macro-economic that broke the financial system that the sovereignty debts. Insufficient funding cut employment during the spell of credit crunch, price on goods like real estate fallen to meet the demand of those can afford, sales are down and real estate devalued cause the domino effect on lower revenues for the governments. Through the micro-economic control system, supply and demand lost their rhythm and purpose to sustain value what workers supported. It causes the outflow of business establishments, then, the economy is ruined and un-retractable even under the measures of liquidity or stimulation.
      It was the imbalance of the tripartite comprised of capital resources, human resources and natural resources that make the monetarism or our present economies failed. Since the human resource and natural resource lost their coordination to comply with the demand of value and purposes. It is how the monetarism became unsustainable and collapsible. When government lost its goal in sustenance of value and purpose; its citizens demand more of natural resources to maintain livelihood. Then, it is the breakdown of the political or capitalist system no matter how Quantitative Easing worked to nationalize the markets or for what money can buy. The nature do have it ways to maintain it right to keep all its resource balance and check on its developments through the boundaries or limits of resources especially the human resource that is infinite and the major factor for growth. Finally, human resource is the only factor that is expanding, natural resource is limited on the boundaries; and capital resource is relatively only a standard that we apply to value we can afford and share proportionately. Disaster arrives when either one is off its balance.
      We should understand by now how important is the balance of control in the capital resources, human resource and natural resources which no money can buy at least up to a point. The present finance system may not remand the deficits since capital resource override the human and natural resources that created the micro-economic failure that dragged down the macro-economic. As much of the trade war begins, now many sovereignty nations is struggling to maintain its harmony for its people. Mr. Jomo Kwame Sundaram gave good points on the control of the United Nations system in retribution of wealth through the programs by UN and accepted the initiatives of the International Labor Organization that are relevant to addressing the current stasis. Moreover, it is advisable for the United Nations system to redraw the boundaries of the resources for what the present system failed to maintain or how globalization had undercut the weaker nations for self-protection to maintain its resource from abuse. Nationalize marketing must be prohibited or hegemony should be examine by the boundary of the nations or continents and the weaker nations with lesser resources can be relieved from controls of the newer system. Therefore, reforms on financial and political are needed to bring on the integrity and harmony to the world; so, each capital, human, and natural resources can be identified, distribute and redistributed through the mechanism of UN’s political system with partners to World Bank, global financial reforms using it principle of boundaries or continents and human supervisions like the international Labor Organization and alike. So, tripartite resolution to the three resources must be improvised to meet the infinite rise of the population, sovereignty nation must pay respects to the natures of its resources and it must be integrated through the globalization to sustain its balance and limits to the boundaries.
      Perhaps, I am under the influence of my readings of the present financial crisis and distracted by the nationalize market, zombie bank and fiat money. Knowingly, the resolution initiated by the troika is not sufficient to maintain its claims of sustainability and liquidity, but the breakup of the Euro-dollar regimes would be more than disaster to the perpetuity growth of the population and loss of values in trade to sovereignties. By illustrating the concept of balance I hope some are convinced that balance of nature should be respected including its resources and boundaries. The last chance is the integration of nations and banks through the reforms or adopted the United Nations resolution to initiate the urgency of need to improvise its reforms; so, once the absolutism by the Euro-dollar regimes yield to the rights of others faithfully. Three for three must apply, and no more tea time on nationalize market, zombie bank and fiat money.
      May the Buddha bless you?

    2. CommentedLuke Ho-Hyung Lee

      What’s really the matter with the economy? I believe it is the outdated market process without the necessary infrastructure in place, that is, the information based supply chain infrastructure. Thus it is almost impossible to solve the current economic crisis by means of existing economic policies or stimulus plans, as the Modern Information Age progresses. Unfortunately, it seems that our economic experts have never considered this at all in their ruminations about the economy. I would strongly suggest you see this article: “To have Prosperity or to have Decline...”

    3. CommentedProcyon Mukherjee

      The downturn left a looming output gap and the capacity overhang would still need some time to bridge. This raises the question that when free markets allow the shortage to help market participants reap the benefits, it leaves the excess exposed to intervention by strong participants; in this case the bond markets have a bigger voice or so it seems.

      Truly speaking this asymmetry in actions between shortage and excess and the lack of commitment to stymie the effects of excess by the regulators and the greater polity leaves us partly in this muddle.

      Procyon Mukherjee

    4. CommentedZsolt Hermann

      The problem is we keep repeating mantras even if they do not make sense.
      One is that we are going to return to growth, because we think constant growth and constant expansion is possible and it is a worthy goal. But it is not. We live in a closed, global, finite system where constant quantitative growth is simply impossible, and today more and more scientists, economists even politicians are waking up to this fact.
      Moreover today about 90% of production is about useless, excessive, moreover harmful products we simply do not need for a comfortable, normal, healthy human life.
      We simply chase those products due to the overhyped, mass hypnotic marketing machinery "implanting desires" in us we normally would not even dream about.
      We look at unemployment as a tragedy, but in truth we do not need a huge amount of workforce to cater for our necessities in order to live a normal, harmonious human life in the 21st century.
      According to certain studies 10-15% of humanity can comfortable supply what we need for all 7 billion or even more people.
      In order to create a sustainable future for all of us we would need to return to a necessity and resource based lifestyle that would immediately improve our life quality instead of the forced slavery we are immersed in today to maintain the overproduction and over consumption.
      So what we need to work out is not how to create billions of more useless jobs, but what to do with the population that does not need to work, how to create societies where people would work for 2-3 hours a day, how to distribute the available sufficiently enough resources in a just manner to each and every human being, so they could live a harmonious, healthy lifestyle according to their locality, culture and the necessary standards of the 21st century.
      The rest of the time could be dedicated to build the right, positive human connections we have lost in our competitions for profit, and eve more importantly the free the time should be used for a global, integral education program teaching each and every human being the nature of the interconnected and interdependent system we exist in, how we can play a crucial and balancing role within the system, in short how to survive and prosper within the conditions our evolution is providing us with.
      If we follow these steps we will see the present ceaselessly increasing unemployment is not a tragedy but it is actually freedom from the slavery we have been living in chasing the "American Dream".