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Recent political developments, including the defeat of incumbentgovernments in France and Greece, suggest that the public’s tolerance foreconomic policies that do not reduce unemployment has collapsed. Indeed, giventhe alarming economic and employment situation in many countries today, with noprospect of recovery on the horizon, further political turmoil is likely unlesspolicymakers change course accordingly.
The economic crisis has wiped out morethan 50 million jobs after years of weak, job-poor growth and increasinginequality in the world’s rich countries. Since 2007, employment rates haverisen in only six of the 36 advanced economies, while youth unemployment hasincreased in a large majority of both established and emerging markets.
In the near term, the global crisis is likely to become worse as manygovernments, especially in advanced economies, prioritize fiscal austerity andtough labor-market reforms, even as such measures undermine livelihoods, incomes, and the social fabric.
Meanwhile, despite quantitative easing, many companies have limited accessto credit, depressing investment and reducing job creation. Easy credit beforethe crisis encouraged over-investment in those sectors, such as housing, thatwere thought to be profitable. It is no surprise that the resulting excesscapacity now discourages private investment in the real economy.
With inequality and unemployment higher, and incomes and domestic marketsshrinking, everyone hopes to recover by exporting – an obviously impossiblesolution. Developing countries, long encouraged or even compelled to export andotherwise embrace globalization, have been abruptlytold 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 productivecapacity has disappeared.
But, having suffered currency and capital-account crises with greateropenness, many emerging-market economies still feel compelled to accumulatehuge reserves to protect themselves in the face of greater global financialvolatility. 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 presumptionthat public investment crowds out privatecapital continues to discourage government-led economic-recovery efforts.
Historically, in fact, most advanced economies have lived with far higherfiscal deficits than they have today, and not only during wartime. Suchdeficits have financed strong, sustained, and inclusive growth not only intheir own economies, but also abroad – as with the United States’ Marshall Plan, so central to European post-warreconstruction and recovery.
But now, because governments’ deployment of overwhelming financialresources to save selected private institutions deemed too big to fail causedsovereign debt to increase dramatically, officials have imposed fiscalausterity in deference to bond-marketdemands. Meanwhile, eurozone countries are constrained not only by this fiscal fetish, but also by their lack of exchange-rateflexibility.
Moreover, multilateral cooperation for global recovery has beendisappointing since 2009 – the year of the G-20’s London and Pittsburghsummits, including the Global Jobs Pact, on which there has been littlemeaningful progress since. As a result, thepast three years have witnessed little movement toward developing andimplementing a strategy for strong, sustained, and inclusive recovery. Instead,we have seen creeping protectionism, and notonly on the trade front.
So, how can the world escape a cul-de-sacconstructed by the short-term perspective of financial markets and electoralpolitics?
Although inclusive multilateralism has been battered by variouschallenges, including its seeming messiness and slow progress, it remains thebest option for various reasons. The United Nations system must be bolder, but powerful interests must also allow itto play a bigger role.
In 2009, recognizing that market forces alone will not generate theinvestments needed for climate change mitigation as well as affordablenutrition for all, UN Secretary-General Ban Ki-moon proposed a Global Green New Deal, including proposedcross-border, public-private partnerships, especially to generate renewableenergy and increase sustainable food production.
Under recent French leadership, the International Monetary Fund, afterdecades of promoting economic – especially financial – liberalization andglobalization, has become more careful, if not skeptical, of its own previouspolicy analyses, prescriptions, andoperations. Likewise, recent initiatives bythe International Labor Organization – such as Fair Globalization, the Global Jobs Pact, and theSocial Protection Floor – are all directly relevantto addressing the current stasis.
Unique among international organizations, the ILO’s inclusion of bothworkers and employers as social partners in its tripartitegovernance allows it to help lead the undoubtedly difficult processes needed toensure strong, sustained, and inclusive recovery and growth. So, perhaps more than ever in recent decades, inclusivemultilateral institutions are on the same page. Now their efforts need thesupport that they deserve.
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