”There is a growing awareness among economists, that inequality is detrimental not only to the social fabrics of a society but also to financial stability, economic efficiency and growth.” Ms Kristina Persson, President of Global Utmaning, held the opening speech at the seminar on Crises, inequality and politics, 2 November 2011.
Introduction to the seminar on Crises, inequality and politics, 2 November 2011:
There is a growing awareness among economists, that inequality is detrimental not only to the social fabrics of a society but also to financial stability, economic efficiency and growth.
The IMF has published a number of reports highlighting this in recent times. The IMF leadership has also expressed concern for the mismatch between an inflated financial sector in the world and the development of the real economy – growth and employment. I recommend you all to read the September Issue of Finance & Development, published by the IMF.
Global Utmaning is running four parallell programs: on Climate policy, Migration, Global Economy and Sustainable cities. Our program on Global Economy will address the question of how imbalances and economic crisis should be met from a European policy perspective. How can the European economic challenges be met in a sustainable way?
In this context it was interesting to note that Jonathan Ostry and Andrew Berg, prominent researchers at the IMF, have found that the single factor with the highest impact for sustained growth was income equality. It can be quite easy to get growth going, but it is not so easy to keep growing.
Equality is a result of policy and politics, not of markets. Today we live in a time of crisis – ecological crisis, climate crisis, social and economic crisis. To me there is one crisis that is more serious than all the others, that is the lack of political leadership in an interconnected world.
Globalisation has been driven by three powerful phenomena, all occurring at the same time:
a) technology, and IT in particular
b) an enormous increase of the globally active workforce, it increased by four times in 20 years (China and India) and
c) deregulation – which, among many other things has lead to hugely expanded financial markets.
And it all happened in a very short period of time – some 20-30 years – and has in a profound way changed the conditions for political action. At the same time, these three factors paved the way for increasing inequality.
But political thinking and institutions have remained more or less the same during the last 60-70 years, with the same national limitations and perspectives, even though globalisation demands global or at least regional solutions. The recent European debt crisis is an example.
Slow reaction or no reaction at all and a lack of a proactivity is building up serious threats around us. Which in turn aggravate the problems and make them more difficult to solve.
There are a number of similarities between the chain of events and circumstances that eventually led to the deep depression of the 30s (and the world wars) and our present situation. One is that they occurred after long periods of growing income inequality. And it will be – just as it was then – policy reactions that will decide if we will be able to handle the imbalances and avoid a recession – or worse.
Key to well-functioning economies is employment. Employment means incomes for people, taxes for public budgets, and people with hope… Today some 10 per cent are unemployed in Europe. According to the OECD, the number of unemployed in the 34 member countries was 44 million this summer, an increase by 13 per cent compared to 2007.
How will our societies, our democracies, cope with these levels of unemployment, that could become even higher than today? The need for policies to counteract this situation is immense.
The IMF has over the last 4-5 years, under the leadership of D. Strauss-Kahn and Olivier Blanchard, changed focus from the old so called Washington Consensus – which generally was interpreted as strong belief in free markets, minimal public sectors and low taxes – to instead strongly focusing on employment and social conditions in the world.
I won’t go any further into the topic of this conference or the IMF’s views. Let us instead listen to Michael Kumhof, once again a warm welcome to you!