Transcript ITUC Proposals for Jobs, Growth and Equity to Rebuild the

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]