Address to OECD Ministerial Forum, Paris, 28 May 2010
• The future of capitalism is uncertain as old economies seek comfort in failed strategies
It is just 18 months since the first G20 meeting in Washington during the Global Financial Crisis. That meeting was followed up in London where we saw the determination of developed nations to act in an unorthodox manner – with an agreement to invest at least 2% of national GDP to stimulate jobs, improve social security and protection measures, and to prop up the banking sector. This unprecedented agreement helped stabilise economies with local action, co-ordinated globally. Action that was co-ordinated, targeted and interventionist. It worked and it worked best where nations were boldest.
In my own country, Australia, a carefully targeted and immediate economic stimulus staved off the loss of hundreds of thousands of jobs, saving working people from the worst of a crisis they did not cause. The last major recessions of the early 80s and 90s in Australia resulted in a seven year lag to get back to unemployment levels of around 5%. This time it will take just seven more months.
China, Brazil, South Korea and the US (in some sectors) – just to name a few countries that responded quickly – can demonstrate clear results. Other nations like Germany, Netherlands and the Nordic and Scandinavian countries had automatic stabilisers that kept people in work, ensured demand didn’t collapse and reaped the benefits.
But even as these countries and others can point to successful intervention, protecting and driving jobs, stabilising demand and shoring up the real economy, fractures are appearing in labour markets all over the world.
There is inadequate growth in jobs in too many major economies.
The OECD Employment Outlook has shown the size of the OECD “Jobs Gap” to be 20 million. Beyond this, globally, there is a need to create an estimated 300 million jobs, with the impacts of the crisis being compounded by rapidly expanding labour forces in developing and emerging economies.
Precarious employment is growing and young people are at risk of being excluded through high levels of unemployment. With no income led growth strategy, this mix is and will continue to lead to frustration and political unrest as working people rail against being both the victims and the bankers of a crisis in capitalism. If the risk of a sovereign debt crisis is not managed with sensible transition and growth strategies this risk will escalate.
If the old orthodoxy is in place with the perpetrators of the GFC – the banks – again profiteering with huge bonus payouts, starving small and medium sized enterprises of affordable credit and gouging fees and charges, people will respond with frustration and distrust of politicians. Likewise if the price of IMF-driven solutions to sovereign debt is cuts to public sector jobs, health, education, pensions, and infrastructure investment along with deregulated labour markets, then not only is the disaster of economic contraction a given but increasing political opposition is also a given. The challenge to tackle the greed of unrestrained capitalism is not simply a political imperative to avoid social unrest but a recipe to ensure capitalism itself is sustainable.
• Fiscal responsibility, yes – but income-led growth is the key to rebalancing domestic and global economic outlook for all nations
Fiscal responsibility in the medium to longer term is a must for reforming the domestic and global economic architecture but managing the transition is the key with income-led growth strategies and jobs at the heart of the solution. Dramatic cuts the public sector with no growth plan will risk another downward spiral. Economies must be managed for growth not for the financial markets and global rules are essential for both sustainable capitalism and decent work.
• Harnessing development and green economy growth
The demand for energy and investment in the green economy is one of the potential success stories for growth. Topping $US6 trillion and growing there is now the challenge for all nations to make sure the regulatory and economic settings are in place to drive opportunities to ensure all countries can participate. Post-Copenhagen, the global appetite for governance with a cap on emissions, carbon pricing, climate financing for vulnerable nations and technology sharing must rebound quickly or global inequities will again create risk for both traditional jobs as well as risk failure to secure decent work from new areas of investment. Outside of self-interest business is sadly quiet in the face of their own risks in this regard.
• The possibilities of policy coherence and global governance versus the self-interest and limitations of nations will determine future of capitalism
The decisions of the next few months will determine much longer term risk or stability. Will all nations tackle financial reform of the banking sectors? Will the real economy be the beneficiaries of the constraints on speculative financial behaviour? Will nations facing sovereign debt crisis have the support, the space and the courage to develop growth strategies that protect and grow demand and jobs or will old orthodoxies force withdrawal of stimulus, public sector cuts and an economic contraction that will see more unemployment and less income in these economies – in turn forcing waves of migration, political tension and destruction of SMEs with all the global consequences we can map.
Will wealthy nations again fail to see that part of the solution to rebalancing the global economies lies in development or will we be bold enough to chart a course to achieve the Millennium Development Goals, fund the creation and initial support for maintenance of a social protection floor as an economic expansion strategy? Will governments and business accept that an affordable minimum wage further stabilises demand and will there be a strengthening of collective bargaining to more fairly distribute wealth and drive economic growth? Will infrastructure investment and industry policy, public services, skills and innovation be at the heart of jobs growth and facilitate the means to exit debt risk? Will governments have the stomach to drive progressive taxation arrangements, end the fraud and the greed of tax evasion and tax havens? Why won’t governments and international financial institutions see that a Financial Transactions Tax that ensures the financial sector should pay for some of the crisis is overdue?
The ILO’s Global Jobs Pact lays out much of this but will governments work together or will they try to retreat to perceived domestic interest when we know that without coordinated global action, policy coherence and the stability of global rules capitalism is indeed at risk.