From the TUC

IMF/World Bank meetings: with 30-70 million more jobless, did anyone come out well?

14 Oct 2012, by in Economics, International

Well, the ILO did. But the austerity fetishists continued to demand ever higher doses of a medicine we now know is making the global crisis worse, and the sinners repentant only advocated smaller doses less often. Some governments and institutions are beginning to ramp up the rhetoric on jobs, but the ILO’s detailed proposals for action seem to have been ignored. Above all, Ministerial participants in the annual meetings of the World Bank and IMF – such as the UK’s George Osborne – heard that the austerity isn’t working and that the unemployment crisis is ballooning out of control (accoding to Agence France Presse, “global unemployment is still more than 30 million higher than before the crisis,” said ILO Director-General Guy Ryder. “And nearly 40 million more women and men have stopped looking for work”), but stared back like transfixed rabbits.

Apologies for all the lengthy quotes in this article, but there’s a lot to cover!

The IMF and World Bank have, in the last fortnight, begun to change tack, with the IMF’s World Economic Outlook accepting that austerity has made matters worse and the World Bank’s 2013 World Development Report arguing that job creation should be the world economy’s top priority. New ILO Director-General Guy Ryder produced a detailed prescription for action, on the basis that:

“At their Summit in Los Cabos in June, G20 Leaders agreed in their Growth and Jobs Action Plan that ‘should economic conditions deteriorate significantly further, Argentina, Australia, Brazil, Canada, China, Germany, Korea, Russia and the US stand ready to coordinate and implement additional measures to support demand, taking into account national circumstances and commitments.’ It is now abundantly clear that such a deterioration is underway and additional measures are urgently needed.”

World leaders in Tokyo reneged on that promise.

The ILO proposals include fiscal and monetary stimulus; “mending the link between wages and productivity to dampen rising income inequality”; and a four-part policy agenda:

  1. supporting infrastructure investment by taking advantage of ultra-low interest rates;
  2. improving access to bank funding for SMEs, which is currently impaired by bank overhangs and restructuring;
  3. extending the coverage of social protection, an urgent need and an affordable option in all countries as recognized by the ILO social protection floor initiative; and
  4. improving job prospects for youth, one of the groups most exposed to the crisis with potentially long term scarring effects.

Instead, Ministers taking part in the International Finance and Monetary Committee meeting issued a communique which, while facing both ways in calling for action to create jobs at the same time as saying that “the implementation of credible medium-term fiscal consolidation plans remains critical in many advanced economies” clearly represented a victory for the austerity fetishists. IMF Director-General Christine Lagarde, despite only attempting to moderate the dodgy medicine of austerity, clearly lost out to hardliners like German Finance Minister Wolfgang Schäuble.

Lagarde, whose Chief Economist Oliver Blanchard was the one who revealed the IMF’s crunching gear shift on the impact on economic growth of austerity, was asked in the pre-summit press briefing what the impact of that shift should be, and she answered that the sickest patients should only get lighter doses of poison:

“time is of the essence, meaning that instead of frontloading heavily, it is sometimes better, given circumstances and the fact that many countries at the same time go through that same set of policies with a view to reducing their deficit, it is sometimes better to have a bit more time. That is what we advocated for Portugal; this is what we advocated for Spain; and this is what we are advocating for Greece, where I said repeatedly that an additional two years was necessary for the country to actually face the Fiscal Consolidation Program that is considered. …Second, … in the circumstances and given the multiplier reassessment that we have produced, we do not think it is sensible to actually stick to nominal targets. We think it is much more appropriate to actually apply the measures and to let the stabilizers operate. Now, as far as countries are concerned, clearly that applies to pretty much all countries that, particularly in the Eurozone, are applying that policy mix.”

The G24 – emerging and developing countries, led by Brazil, China and India – were more forthright about tackling the unemployment crisis first, and the deficits second (my emphasis, below). Brazilian Finance Minister Guido Mantega told Reuters that “we have been arguing for some time that single-minded and draconian fiscal policies may be counterproductive and have a tendency to backfire.”

And unlike the austerity fetishists in the developed world, the G24 did not believe all the heavy lifting on growth should come from the emerging economies. The G24 communique called:

“on advanced economies (AEs) to take decisive steps towards addressing the policy uncertainties that are impeding the restoration of confidence. We also believe that immediate and concerted action is needed to boost global growth through appropriate macroeconomic policies, the promotion of open trade and investment, the repair of financial sectors, particularly in the major financial centers and vigorous structural reforms, while preparing the foundations for credible medium-term fiscal consolidation, once the recovery is on a sound footing. … We reiterate our firm commitment to strong, sustainable and inclusive growth in our countries. The recent global crisis has brought to the forefront the challenge of persistent, if not growing unemployment, especially among the women and youth. We note the finding of the World Bank’s recent World Development Report that a focus on jobs is the most effective means to reduce poverty, empower people, and promote social cohesion. We agree to focus on job creation and the establishment of effective and fiscally sustainable social safety nets that protect the poor and vulnerable.”

The International Trade Union Confederation, of course, argued for all the right things – even a Robin Hood Tax – and General Secretary Sharan Burrow drew attention to the misery that the current austerity fetishism is causing. But at the moment, world leaders just aren’t listening to the evidence or to their people.

One Response to IMF/World Bank meetings: with 30-70 million more jobless, did anyone come out well?

  1. Tokyo stories: world leaders aren’t listening | Blog | Public Finance International
    Oct 15th 2012, 4:35 pm

    […] Owen Tudor is head of the TUC’s European Union and international relations department. A longer version of this post first appeared on the TUC’s Touchstone blog […]