Raymond Torres

Recovery prospects are being seriously hampered as a result of risk of a return to pre-crisis policy settings. By the end of 2009, the world economy was slowly recovering, aided by stimulus measures implemented by governments since the onset of the crisis. However, recent pressures for a return to orthodox policies in the context of an unreformed financial system threaten these fragile achievements.

Fiscal stimulus measures helped put a floor on the global crisis…

The crisis led to a significant policy response by governments and monetary authorities. In advanced countries, interest rates were drastically reduced and have been maintained at a low level. Massive rescue packages to avoid a collapse of financial institutions were implemented – mainly in developed countries. And most countries that had a budget space implemented fiscal stimulus measures in the form of discretionary tax cuts, higher government spending or a combination of both. These fiscal measures were crucial to revive the economy given the weakness of monetary policy tools in a context of “deleveraging” in the private sector and among financial institutions. According to ILO estimates, the fiscal stimulus measures amounted to around 1.7% of world GDP.(1)

Heiner Flassbeck

The current global recession and fear of increasing redundancies has shifted the emphasis of the German labour movement from one concerning pay claims to employment security. Employment security has become the name of the game. Even the metalworker’s union IG Metall is openly putting employment security before pay claims in their demands. So wage rises and hour cuts can be foregone, so long as not too many heads roll in the workplace.

I would like to argue that this emphasis is a serious mistake and that employment security achieved through wage restraint is likely to have negative effects across the economy and retard Germany’s exit from the recession. While wage restraint may preserve jobs within a firm, this has knock-on effects that will only serve to deepen the recession through their impact on demand. The current crisis brings into stark relief the failure of unions in Germany to examine seriously the impact of working-time reduction and the associated wage reduction, or lesser wage increases, on demand in the economy as a whole.

Ronald Janssen
“Bashing the Greeks” has become a very popular sport these days. The main thought on the minds of the financial markets as well as a lot of politicians in Europe is that Greece has only itself to blame for the trouble it is in. After entering monetary union by rigging the statistics, it is argued, Greece went on a huge “spending binge”, making public finances unsustainable. This is now even threatening to undermine the financial stability of European monetary union as such. The more “moderate” version of this sort of thinking suggests that Greece should take its medicine and drastically cut all government expenditure and all wages (in both the public and the private sector). The less “moderate” version simply says that Greece should never have been allowed to join the monetary union in the first place and should now be thrown out of it.

Neva Makgetla

South Africa has been harshly affected by the international economic crisis, which led to a fall in the GDP and an even sharper contraction in employment. While job losses levelled out in the last quarter of 2009, the crisis will continue to shape long-run development. In particular, it points to the need for a development strategy that builds more on domestic and regional demand and that focuses explicitly on employment creation as central to a cohesive and equitable society.

South Africa’s GDP declined by approximately 3% between the last quarter of 2008 and the second quarter of 2009, and then increased in the third quarter of 2009. In comparison, the fall in employment proved steeper and more prolonged. The economy lost around a million jobs, or 6%, between the fourth quarter of 2008 and the third quarter of 2009, and gained only 90 000 back in the last quarter of 2009.

Bob Kyloh

The global economic crisis that commenced in 2008 has had devastating effects across rich and poor nations. But the impact on growth, employment and incomes has not been uniform across countries. Economic performance has depended critically on the policy response adopted by governments. Other authors writing for this Column have made a convincing case for an income led growth strategy in response to the recession. At least one country has clearly demonstrated the benefits of this approach.

Australia is often referred to as the “lucky country”. The recent economic performance of this resource rich nation has helped reinforce this notion. Indeed recent economic achievements down-under may be partly due to the good fortune of rebounding commodity prices and expanding Asian markets. But the terms of trade actually moved against Australia in the last eighteen months and net exports detracted significantly from economic growth in 2009. Economic recovery is actually the result of public policies that boosted the disposable incomes of low and middle income families when aggregate demand was plummeting.

(by Andrew Jackson)

As the communiqué from the Pittsburgh G20 summit put it, “it worked”. Unprecedented macro-economic stimulus in the form of ultra low interest rates and large government deficits has pulled the global economy back from the abyss, at least for now. But what comes next? Conventional economic wisdom is setting the stage for deep and damaging cuts to public expenditures if labour and the progressive left do not win the argument for public investment led growth and increased fiscal capacity.

Now is definitely not the time for a quick return to budget balance. Not only is the recovery very fragile, interest rates are likely to remain low. This means we can finance public expenditures which create jobs now while raising our productive potential and the future tax base. Debt incurred today to create a larger economy tomorrow is no burden on future generations.

(by John Evans)

I do not need to remind anyone reading this column that the financial crisis, which took a dramatic turn for the worse in September 2009, has plunged the world into a deep recession in which workers in industrialised and emerging countries are losing their jobs, their homes and their pensions. For those in developing countries, the consequences are even more acute. According to the ILO, globally, 60 million more workers will become unemployed this year, with an extra 240 million workers earning below one Euro a day.

The collapse of production in the last quarter of 2008 and the first half of 2009 was on a scale unseen since the 1930s. The talk of the “green shoots” of recovery is more a dream of financial markets than reality for the workers losing their jobs. There is a vicious circle where unemployment – which almost doubled in OECD countries in 2009 and will continue to rise to above 9 per cent in 2010 – also leads to collapsing house prices, driving asset prices down, pushing the financial sector into further crisis and leading to further bankruptcies and job losses in the real economy. We have not yet reached the bottom as far as unemployment is concerned, and the OECD World of Work report published in December 2009 warns, on the basis of current policies, that industrialised country unemployment will not return to pre-crisis levels before 2013.