Wednesday, November 26, 2014

Recovery and Equality

NEW YORK – The global economic crisis is exacerbating an existing human crisis. Prior to 2008, there were widespread inequalities: lavish lifestyles for some, while half of the world’s children were living on less than $2 per day, suffering from malnutrition and limited access to health, education, drinking water, and adequate housing. As the crisis unfolded, millions confronted deteriorating living conditions.

Today, while global attention focuses on Europe’s woes, the economic crisis continues to inflict devastating social consequences worldwide. In a new book from UNICEF’s Division of Policy and Practice, A Recovery for All: Rethinking Socioeconomic Policies for Children and Poor Households, analysis of the latest international data shows that unaffordable food, pervasive unemployment, and dwindling social support threaten much of the world’s population.

For starters, after two major international food-price spikes in 2007-2008 and 2010-2011, people in nearly 60 developing countries are paying 80% more, on average, for local foodstuffs in 2012 than they did before the crisis. As a result, poor families’ food security is threatened, as they are forced to reduce the quality or quantity of their food.

Furthermore, labor markets around the world are providing fewer jobs and lower salaries, increasing the incidence of poverty among employed people, which has already trapped nearly one billion workers and their families. Moreover, two of every five workers worldwide are unable to find a job, while rampant youth unemployment, coupled with a quickly growing pool of young laborers – more than one billion are expected to enter the world’s workforce between 2012 and 2020 – is further complicating labor-market recovery.

Finally, access to public goods and services is under growing pressure in the global shift toward austerity. In 2012, 133 countries are expected to reduce annual spending by an average of 1.6% of GDP, with 30% of governments undergoing excessive contraction (defined as cutting expenditures to below their pre-crisis levels).

In fact, while the world remains fixated on austerity in high-income economies, developing countries are implementing extensive austerity measures of their own. As a result, developing economies are expected to reduce expenditures by an average of 1.8% of GDP in 2012 – nearly twice the pace of their developed-country counterparts, which are adjusting by 1% of GDP. And many cost-cutting measures worldwide disproportionately affect the poor.

A review of the 158 most recent International Monetary Fund country reports reveals that governments are considering four major types of fiscal reform:

·         In 73 countries, governments are considering cutting or capping wage bills, thereby reducing the salaries of public-sector workers, who provide essential services to the population.

·         Governments in 73 countries are seeking to reduce or cancel subsidies, including on food and fuel, despite record-high food prices in many regions.

·         Cuts in social-protection programs are under consideration in 55 countries, at a time when governments should be looking to scale up benefits.

·         Many governments are pursuing other budget-slashing strategies, such as tax increases on basic goods and services that are consumed by the poor (in 71 countries), which may further contract economic activity.

These reforms could have serious and irreversible consequences, especially for infants and young children. Households worldwide are experiencing increased hunger and malnutrition, worsening health outcomes, lower school attendance, higher rates of child labor and domestic violence, and greater vulnerability to future shocks. Meanwhile, social unrest is increasing as people lose faith in governments and public institutions. Indeed, citizens in high- and low-income countries alike are the victims of a crisis that they did not create.

But the current crisis also presents an opportunity to rethink socio-economic policies. This requires abandoning the myopic focus of the past, which denied so many a decent living, and instead basing macroeconomic and fiscal policy decisions on their potential to foster human development and employment-generating growth.

Contrary to claims that investments aimed at improving the lives of children and poor households are not affordable, especially during this period of global adjustment, policymakers do have options, even in the poorest countries.

There are six broad methods – all supported by United Nations policy statements – by which governments could find additional fiscal space: re-allocating expenditures; increasing tax revenues; lobbying for increased aid and transfers; tapping into fiscal and foreign-exchange reserves; borrowing and restructuring existing debt; and adopting a more accommodative macroeconomic framework.

Policymakers must consider the variety of financing options that are available to governments everywhere to bolster much-needed investments in labor-intensive growth, food security, social protection, health, and other necessary public services.

The simultaneous adoption of fiscal austerity in countries worldwide is driving the global economy toward recession, imposing human costs that are detrimental to high-income and developing countries alike. It is time for global leaders to turn the current blight of unemployment, food insecurity, and austerity shocks into a virtuous cycle that promotes development and prosperity for all people. An inclusive recovery is not only feasible; it is an imperative of social and economic justice.

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.

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    1. CommentedZsolt Hermann

      We are in a very unique situation today.
      Although everything the article details is true, the very system that produced the inequalities is collapsing creating a very interesting scenario.
      If we do not change course within the short time we still have before a total, inevitable collapse, since this constant quantitative growth, exploitative system is unsustainable and started self consuming, not only the poor or developing countries will have very difficult situations but even the richest countries.
      The crisis is non-selective, it is like a vast tsunami washing away everything in its way.
      And since the perception of poverty, loss is relative, those who have the most at present will feel their loss most severely, completely devastating them.
      If I am poor today, an economic collapse will effect me, but I am already poor, thus I will survive as before.
      But if I have everything, the greatest luxuries possible and lose everything, then I might face such a devastated state that I cannot continue, and cannot survive, or only do so in a very miserable manner.
      Thus those people who still have the means and power would have any wisdom, they would explore all the opportunities of how to prevent the collapse by changing themselves and the system before it is too late.
      The question of course if they have the wisdom, although all the information is around us, we just need to use it.

        CommentedGary Marshall

        Hello Zsolt,

        Thanks for supplying the world with a bunch of inscrutable garbage.

        When you have something of value to offer, why not speak then.

        The poor do not survive catastrophe by their own means and resources; for they have none.

        They survive by taking from others; the ones that do have. What do you think modern economic theory is based upon?


    2. CommentedProcyon Mukherjee

      A great article that back-drafts a grim future as the unwinding of economic reforms assume the role of austerity more than the role of creating conditions of employment generation.

      The case is better demonstrated by the rally of one single item against the fall of all the rest of the indicators, the stocks of the world’s leading companies, that is backed by a performance which does not necessarily preclude employment generation as a criterion (in fact most of the innovations are directed towards less on the contrary); the investors cheer the quarterly gains, while precious little is added to the stock of jobs that could turn the economy around.

      This leads me to the conclusion that as individuals we have moved to the narrow confines of selfishness that draws us away from the collective, apparently as good for one leads to the worse for the other, as that seems the way we have designed the incentives of our times.

      Procyon Mukherjee

        CommentedGary Marshall

        And how have free spending governments in Europe and elsewhere vanquished the problems facing modern economies, Procyon?

        Hasn't it been that reflexive, socialist, and costly pander to the collective by the always wasteful government that has caused such high unemployment, high taxes, exorbitant charges and deficient basic public goods?

        It wasn't selfishness that created wondrous and inexpensive home computers, cell phones, networks, huge reservoirs of information, fuel efficient vehicles, air, rail, and motor vehicles, abundant food and energy products.

        All of it was based upon the desire to succeed and grow, to prove oneself by offering something of value.

        How does the success of Steve Jobs and his mini-computer take away from so many others? Didn't his customers have a choice in purchasing his product?

        Do we have a choice in funding corrupt and squandering government?

        Now what government in this world, the real world, can make such a claim, can say that they provided worthy goods for the costs involved?

        You should really step back from utter ignorance and examine your senseless beliefs.

        Is that too selfish of me? Does such a demand so greatly harm the benign collective?


    3. CommentedGary Marshall

      I would think the lack of education, good drinking water, and housing has something to do with corrupt governments the world over taking the money of others and lucratively diverting it to their own selfish pursuits. Its sort of like what happens to all that money given to these poor countries for special development projects. It often ends up in the Swiss bank accounts of the countries leaders.

      Unicef has certainly funded a hell of a lot of corrupt doings in the third world. In fact, the UN is full of it.

      What the author describes is a symptom of a problem. Not the problem itself.

      The provision of public goods is under attack from the very people who provide them. Not content with an honest wage, they demand ever increasing amounts of a community's income, putting large cities in jeopardy. Just look at California. Lots of money for high speed railways to nowhere, but no money for the streets that everyone uses.

      When governments shed their corrupt and squandering practices, there will be plenty of money for all sorts of valued public goods. And there will be far more economic growth.

      To solve a problem, one should not connive at its source while pointing at its symptoms. Those that cannot face facts are little better than contemptible cowards.


    4. CommentedHorace Finkelstein

      The fundamental driver of poverty, and a major contributor to inequality, is chronic under-education. This book accurately highlights the immediate need to address the deteriorating living conditions of the poor, but does not focus on the core driver necessary to create the "virtuous cycle that promotes development and prosperity for all people." Chronic under-education keeps poor people poor. A child certainly needs food and shelter before anything else, but neglecting their innate capacity for intellectual development not only conscripts them into poverty for the remainder of their lives, but it deprives the world of their forgone achievements.

        CommentedHorace Finkelstein

        "A child certainly needs food and shelter before anything else...". The South African press article offers a glimpse of the cycle of poverty - children born to poor and under-educated parents generally do not receive the educational support from them necessary to break the cycle of poverty. This is particularly true in terms of early childhood education (birth through age 5) when 90% of brain development takes place. This raises two key points: 1. A child who learns to read well by 5 years old, and can count to 50 and do simple arithmetic, and has learned to solve various puzzles, WILL have a much greater chance of breaking the cycle of poverty DESPITE terrible living conditions. and 2. While better educated parents provide this early childhood development to their children, the state needs to step up and fill this void for poor children whose conscription into poverty begins at age 6.

        CommentedPaulo Sérgio

        You cannot divorce nourishment and shelter from the equation. Nourishment, Shelter and Education is the Holy Trinity at the very core of a productive future.

        An article in the South African press captures this quite well. This follows Human Opportunity Index studies in the country and a recent scandal concerning the non-delivery of primary school texts seven months into the year. Here is the url:

    5. CommentedA. T.

      Unfortunately the cycle is self-reinforcing. It is not only bad policies that increase (entrenched) inequality, but (entrenched) inequality that produces bad policies – if decision-makers are also those with disproportionate wealth and power, then during hard times their focus will always be on minimising their own short-term pain. Such is human nature – when your own well-being is decreasing, it becomes harder to empathise with the travails of (distant) others. Forfeiting a portion of a wealth raise comes much more naturally than voluntarily choosing to reduce one's relative well-being at a time when its absolute amount is also being reduced.

      In practice, this seems like a difficult circle to square. I certainly cannot see mere appeals to one's better angels ever working. Perhaps a focus on the entrenchment part of "entrenched inequality", rather than the inequality part would be easier to sneak through. After all, most people, regardless of position, tend to be loth to openly oppose equality of opportunity, and it is inequality of opportunity that is responsible for entrenched inequality of outcomes.