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ITUC Proposals for Jobs, Growth and Equity to Rebuild the Global Economy Peter Bakvis, ITUC/Global Unions ILO-ITC-ACFTU Workshop: “Wage-led, Job-rich Recovery from Crisis” Beijing, 13-16 May 2013 2. Global crisis of 2008-2009 and its impact • Financial crisis that began in USA in 2008 and spread to the rest of world economy resulted in the worst global economic downturn since the 1930s • 2009: Recession in advanced and some emerging economies; slower growth in other developing regions • 2010: Year of recovery in all regions • 2011-2013: Renewed slowdown in all regions; recession in the Euro Area in 2012-2013 • According to ILO, there are 67 million more unemployed in 2013 than in 2007, before the crisis began 3. Summary of global and regional economic output (Source: IMF, World Economic Outlook, April 2013) 4. Stimulus followed by austerity • In 2009, in response to the Great Recession, G20 countries and many others adopt monetary and fiscal stimulus polices • Concerted anti-recession strategy explains rapid recovery in 2010 • Renewed slowdown in 2011 due to premature decision to remove stimulus and failure to address underlying causes of crisis • Decision to switch to austerity motivated by ideological choice, incorrect economic analysis and pressure from financial markets 5. Premature decision to end stimulus • Faced by worst recession since 1930s, G20 leaders agree at Summits held in London (April 2009) and Pittsburgh (September 2009) to adopt monetary and fiscal stimulus measures: – Low interest rates – Temporary public spending measures such as infrastructures or social safety nets and tax cuts • Reversal of policy takes place at Toronto G20 Summit (June 2010): – Led by conservative governments such as Canada, UK – Based on economic analyses that underestimate the impact of austerity measures (IMF fiscal multipliers) and exaggerate the impact of high public debt, as divulged in 2012-2013 – At breakout of Greek crisis, May 2010, financial markets demand austerity measures to reduce deficits 6. Self-defeating nature of austerity to reduce debts • Countries should adopt strategies to bring down very high debt levels, but not in the middle of recession when priority must be to restore growth • Countries that have sought to vigorously reduce their deficits through austerity programmes while in a downturn have experienced even worse recession and increased debt burdens • For example, Greece adopts strict austerity and structural adjustment measures as part of IMF-EU bailout in May 2010 • Greece’s GDP decreases for six years in a row, from 2008 to 2013 • Greece’s public debt/GDP ratio increases from 129% in 2009 to 178% in 2013, despite a partial debt write-down 7. ITUC’s proposals for gradual debt reduction that does not impede recovery • Fiscal adjustment should be delayed or its pace slowed and, if needed, external financial assistance extended over a longer period until a sustainable recovery is in place • Emphasis should be put on revenue-generating measures to achieve medium-term reductions of fiscal deficits rather than public expenditure reductions, which raise unemployment and impose a disproportionate cost on beneficiaries of social programmes • When additional tax revenue is needed, priority should be given to measures that reduce income inequality and enhance decent work: progressive income taxes, no exemptions for capital gains & dividends, carbon taxes, actions to prevent tax avoidance, measures to formalize informal economy activities, financial transactions taxes 8. Failure to address fundamental causes of 2008-2009 crisis: financial regulation • The crisis began as a financial crisis, resulting from an overleveraged and under-regulated financial sector, which encouraged excessive risk taking • Although the G20 Summit in September 2009 promised “sweeping reforms to tackle the root causes of the crisis and transform the system for global financial regulation”, only partial measures have been adopted and applied very gradually • For example, the Financial Stability Board, composed of major central banks and the international financial institutions, has announced some measures to regulate “too-big-to-fail” banks, which would only start to phase in from 2016 9. ITUC’s proposals for appropriate financial regulation • Implementing reforms to restructure the too-big-to-fail financial institutions, thus reducing real threats to public finances • Curbing bonuses and other irresponsible and excessive financial sector remuneration plans • Establishing strong controls over the non-bank shadow financial economy, hedge funds and private equity firms • Obligatory shifting of all forms of derivative trading to organized exchanges and restricting short-term trading strategies • Eliminating commonly used tax avoidance and evasion schemes, including transfer pricing and tax and regulatory havens • Putting in place strict regulations on credit rating agencies so as to end the current oligopoly situation and limit conflicts of interest • Supporting financial services that serve the real economy, such as cooperative banking, mutual insurance and public financial services • Financial transactions taxes to curb short-term speculative trading and generate needed revenue 10. Inequality: A root cause of economic crisis and instability • Income inequality has grown in almost all countries, with a few exceptions, in the past three decades • Taxation systems and social safety nets play an important role in reducing inequality, but it is important to focus on the labour market as the primary mechanism for distributing income: in most countries, wages have not kept up with increased labour productivity • There is a growing recognition that less inequality is socially desirable, but also that it is a necessary condition for achieving more stable and sustained economic growth • Some analyses, even those produced by the IMF, point the finger at income inequality as a root cause of the 2008-2009 crisis 11. Income inequality has increased in past 30 years (Source: IMF, Finance & Development, September 2011) 12. Labour income shares in developed economies (Source: ILO, Global Wage Report, December 2012) 13: Labour income shares in developing & emerging economies (Source: ILO, Global Wage Report, Dec 2012) 14: Labour income share in China, 1992-2008 (Source: ILO, Global Wage Report, December 2012) 15. Growth trends in wages & productivity in developed economies (Source: ILO, Global Wage Report, Dec 2012) 16. Explanations for declining labour share in national income: From ILO’s Global Wage Report 2012/13 • • • • Technological change: By decreasing demand for less skilled workers, tech change has driven down labour share in developed countries but had opposite effect in developing countries Globalization: Trade and investment liberalization has intensified competition and driven down labour share in both developed and developing countries Financialization: The aggressive drive for short-term returns from the financial sector is the most important reason for the decline in labour’s share, according to the ILO report Labour market institutions: The weakening of labour market institutions and welfare state measures is an important cause of decline in labour’s share, especially in developed countries The last three factors have contributed to the declining bargaining power of labour. 17. Economic impact of declining labour share and inequality • The declining income share invariably leads to a decrease in national consumption and an increase in exports, and has an uncertain impact on national investment • The net effect on aggregate demand is also uncertain • Some countries, such as China, have experienced several years of high export-led growth • But other countries with declining income share have experienced large trade deficits • In one large trade-deficit country, the US, declining real wages were compensated for by increased consumer debt through the loosely regulated financial system, leading to near financial collapse in 2008 • More unequal countries appear to be less successful in maintaining sustained periods of growth (see Slide 18) 18. More inequality seems to spell less sustained growth (Source: IMF, Finance & Development, September 2011) 19. The way forward: Suggestion from ILO’s Global Wage Report 2012/13 • Financial difficulties and lack of growth have reduced the demand in the major US and European markets, meaning that countries’ export-led growth strategies stand to be no longer sustainable • Global Wage Report 2012/13 (ILO): “Relying on easy credit turned out to be unsustainable, and export-led growth strategies based on trade surpluses were also often only possible in combination with the debt-driven consumption in deficit countries.… Unless surplus countries allow for more wage-based consumption on both domestic and imported goods, the result could be a protracted period of economic stagnation, or even recession.” • Need to “rebalance” at both the national and global levels, placing emphasis on measures to close the gap between productivity and wage increases 20. ITUC’s proposals for jobs, growth and equity (i) • • • • • • In view of the low or declining levels of coverage, countries should protect and promote collective bargaining between trade unions and employers to determine wages and working conditions National and sector-level bargaining can be important instruments, particularly to protect the wages of workers in smaller enterprises Minimum wages should be set in all countries according to national circumstances and increased regularly in line with the cost of living and productivity (key to reducing income inequality in Brazil) Social security and social protection – old-age pensions, access to health care, income protection in case of job loss – must be made available to all workers In developing countries, universal basic coverage through the Social Protection Floor can be achieved with costs of around 1-2% of GDP, according to the ILO Properly designed employment guarantee schemes can play useful role 21. ITUC’s proposals for jobs, growth and equity (ii) • To combat economic stagnation, countries should increase public investments in key growth areas that have been effective in creating jobs, particularly recognizing the importance of “green economy” and climate-related investments • Universal social protection and quality public services must be financed through progressive taxation, that such that higher incomes are taxed at a higher rate than lower incomes, and that capital as well as labour income is taxed (see Slide 7) • Measures to adequately regulate, with international cooperation, the financial sector so as to end its destabilizing role, put it at the service of the real economy and end practices that have contributed to increased inequality (see Slide 9) • [email protected]