Fixing Finance Is Not Enough : the Social Consequences of Monetary

INTERNATIONAL POLICY ANALYSIS Fixing Finance is Not Enough The social consequences of monetary and financial policies WERNER PUSCHRA AND SARA BURKE (EDS.) April 2012 n »We need courageous leaders who are willing to shift out of the current orthodoxy that austerity is the solution and that the weakest members of society will have to suffer the most because they are the most amenable to such measures. Some of those who are driving policy accept this approach because other options seem more difficult to implement. Some may not really appreciate how hard some citizens are affected. Some fear that they will be creating a situation of moral hazard if obligations are waived, even though many of those implicated in the crisis have been able to avoid any consequences. But do any believe that austerity, which reduces the productivity and spending power of citizens, will really work?« Alfred Gusenbauer, Chancellor of Austria (2007–2008); Member of Club de Madrid n »There has been a growing disconnect between profits and investment. The main factors be- hind this disconnect are that profits of non-financial corporations have increasingly been used to pay dividends and to invest in financial assets rather than to make productive investments.« Raymond Torres, Director, International Institute for Labour Studies at the International Labour Organization n »Issues relating to inequality or social cohesion should not be considered just as an add-on to mainstream economic policy, but such considerations should be embedded in all aspects of economic policy. In other words, the objectives of public policy include not only growth in output, maintaining employment, and price stability and financial stability, but also social cohesion.« Y. V. Reddy, Governor of the Reserve Bank of India (2003–2008) n The collected essays, from heads of governments and central banks, governmental advisors and experts from the United Nations, Bretton Woods Institutions, OECD, International Labour Organization and academia, raise the level of debate on the role of rising income, wealth and group inequalities, economic fragility and the need to shape policies for a sustainable international monetary and financial system to foster shared societies. WERNER PUSCHRA AND SARA BURKE (EDS.) | FIXING FINANCE IS NOT ENOUGH Contents Preface � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 3 Werner Puschra and Sara Burke 1 The political challenge of pursuing shared societies A Failure of Leadership and a Failure of Policy . .. 7 Alfred Gusenbauer Right for the Economy and Right for Humanity . 11 Alejandro Toledo Six Weeks Before Cannes – The Role of the G20 in Times of Crises ��13 Emmanuel Moulin 2 Inequality, the state of the multilateral order and the global financial crisis Inequality and the Global Crisis: Evidence and Policies ��17 Raymond Torres Income Inequality, Debt Leverage, and Economic Crises ��23 Michael Kumhof The World Needs Truly Multilateral Institutions ��29 Rogério Studart Inequality and the Global Financial Crisis – Can the IMF Ever Be Reformed? ��33 Pablo Pereira Rising Inequality and the Sharing of Macroeconomic Risk ��39 Jonathan Coppel In an Era of Systemic Shocks ��43 Rishi Goyal 3 Embedding social policy in financial and monetary policies Inequalities, Shared Societies, and the International Monetary and Financial System ��47 Y . Venugopal Reddy Rising Inequality is Bad for Growth ��55 José Antonio Ocampo How Can the IMF Contribute to the Correction of Social Inequalities and a Sustainable International Monetary and Financial System? ��57 Ulrich Volz 4 The challenge for development Why Bother to Create a Stable and Functioning System? ��61 Jomo Kwame Sundaram Global Inequalities and the Crisis – The Need to Bring Equity to the Development Agenda ��63 Isabel Ortiz Towards Equitable, Inclusive, and Sustainable Human Development ��69 Sigrid A .M . Kaag 1 WERNER PUSCHRA AND SARA BURKE (EDS.) | FIXING FINANCE IS NOT ENOUGH Preface Fixing Finance is Not Enough: The social consequences society and the growth enthusiasts who reject greater of monetary and financial policies is based on discus- taxation and advocate austerity measures on social ex- sions from a September 2011 conference organized by penditures rather than further restriction on markets� Friedrich-Ebert-Stiftung, Club de Madrid and Center of President Toledo follows this line and – from a »strictly Concern at the International Monetary Fund on rising business« standpoint – urges those in the business inequalities and the need for a sustainable international world to reflect on how investing in poverty and in- monetary and financial system to foster shared socie- equality reduction, to create a more economically in- ties� Fixing Finance is the follow-up publication to New clusive society, would also lead to larger markets and Directions for International Monetary and Financial Po- higher returns� Lastly, French President Sarkozy’s eco- licy: Reducing inequality for shared societies, which was nomic advisor Emmanuel Moulin reflects upon the role based on discussions from an April 2011 conference at of the G20: »Do we need to change gears? Do we need the IMF on democratic reforms to promote equitable to change the G20 agenda? Do we need to do more? development and shared societies� At the earlier confe- Is G20 legitimate to tackle the crisis?« His view is that rence in April, there were skeptics who asserted that – the present global economic situation makes it all the while conversations about how to create more inclusive more important for the G20 to work toward coordina- social policies and debates about necessary monetary tion to foster global growth, to reform the international and financial reforms are both important – the two dis- monetary system and to regulate the global financial cussions are fundamentally unrelated, therefore little be- system, but that of particular importance for the social nefit is to be gained from linking them artificially, how- dimension, it must focus on youth employment and so- ever well-intentioned the effort� World events changed cial protection floors� many perspectives on this issue between the April and September meetings� Ongoing social protests related to In Section Two, on linkages between inequality, the the Arab Spring, the anti-austerity movements in Europe state of multilateralism and the global financial crisis, and even Occupy Wall Street in the U�S� convinced key Raymond Torres, Director of the International Institute advisors in a number of national and international orga- for Labour Studies at the International Labour Organi- nizations that the two discussions not only should, but zation points out that, while the global crisis was prece- must take place as part of the same policy conversation ded by a long period in which the top income earners if we are to build inclusive economic systems that are took an increasing share of GDP while workers’ incomes also resilient to financial and economic shocks� The pre- declined, this situation has not resulted in increased in- sent volume organizes discussions from the September vestment� This growing disconnect between profits and 2011 conference into four thematic areas: 1) political productive investment, he argues, needs to be correc- challenges to pursuing shared societies, 2) linkages bet- ted with a set of policies including more well-designed ween inequality, the state of the multilateral order and labour market institutions, progressive taxation and the global financial crisis, 3) what is necessary to embed social transfers� Michael Kumhof, Deputy Chief in the social policy in monetary and financial policy and 4) the Modeling Unit of the IMF’s research department, notes challenge for development� in his article on the links between income inequality, debt leverage and economic crises, that the U� S� expe- Section One, on political challenges, features the re- rienced two major economic crises over the past 100 flections of Club de Madrid members and former heads years – the Great Depression of 1929 and the Great of state, Alfred Gusenbauer (Chancellor of Austria, Recession of 2007 – in which sharp rises in income in- 2007–2008) and Alejandro Toledo (President of Peru, equality and household debt-to-income ratios may have 2001–2006)� Chancellor Gusenbauer sees a widening played a catalytic role� In his article on the state of mul- division in society – even among the rich – that does tilateral institutions Brazilian World Bank Executive Di- not follow traditional political lines� This is the division rector Rogério Studart argues that the present IMF and between those arguing for more progressive and effec- World Bank are not legitimately multilateral and asks tive taxation in order to contribute to the well-being of what it will take to build truly multilateral, global institu- 3 WERNER PUSCHRA AND SARA BURKE (EDS.) | FIXING FINANCE IS NOT ENOUGH tions that can help us address the risks – from poverty of better crisis prevention facilities and crisis resolution, and inequality to climate change – of global challenges including a sovereign debt restructuring mechanism, that cannot be tackled from a purely national perspec- and facilitating economic cooperation and

Load more