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|A well-managed crisis?|
|Tuesday, 22 December 2009 00:08|
The global financial crisis mutated into an economic crisis and now a jobs crisis.
Many government policy failures were at the root of the crisis. But it seems clear that swift government responses have made for a well-managed crisis, especially in East Asia. Many countries in the region (like Korea, Japan, Philippines, Thailand, Malaysia, Vietnam, Laos, Cambodia and Bangladesh) adopted aggressive stimulus packages, which include jobs in public infrastructure, creation of green jobs, and assistance for the unemployed in the form of training and social protection.
Another Great Depression has probably been avoided.
The world economy is already growing again -- 3 per cent in 2010 according to the IMF -- with Brazil, China and India leading the way. Job losses have been much less than anticipated, 20 million for the 51 countries surveyed by the ILO. While Asia has lost millions of jobs since the crisis started, employment is returning and unemployment decreasing.
But according to the ILO's recent World of Work report 2009, we must be careful. There may be a hidden jobs crisis. Another 5 million jobs are at risk. Enterprises have been holding on to workers, often thanks to government support. But many of these workers may be working shorter hours. This makes sense. For companies, it avoids the costs involved in firing and re-hiring. And it eases the pain for workers. But, in part because of this labour hoarding, job hiring will be slow to take off -- indeed, unemployment will likely continue to rise for some time. A return to pre-crisis employment levels could take some years.
And what's more, there could be permanent economic and social damage from the crisis. Over 40 million workers -- especially low-skilled, migrant and older workers -- are at risk of dropping out of the workforce as they lose hope of finding a job. This aggravates social hardship and reduces future growth potential. New entrants to the jobs market will also face problems in finding a job.
In developing countries people who lose high quality jobs may end up in the informal sector. For example, former textile workers in Cambodia are turning to prostitution. And most developing countries provide little or no social protection. Social protection remains weak in most parts of Asia. Three-quarters of workers do not receive any form of unemployment benefits.
So while the "patient-economy" is still fragile, we should not withdraw the stimulatory medecine. We could fall back into recession, and a negative feedback loop as less jobs mean less demand and less production. And the ultimate cost of more permanently unemployed could be higher. Government stimulus needs to focus on employment, social protection and skills -- not financing bonuses for investment bankers.
But we still have to fix the financial sector, and that has not yet happened. In places like Wall Street and the City (London), a sort of casino capitalism developed as investment bankers played a game of irresponsible risk taking. One result was an overgrown financial sector. In the past 30 years, the financial sector's share of the GDP almost doubled in the US and EU. Also, it attracted our best and brightest -- not just economists, but scientists and mathematicians who were paid lots more than their friends in the productive sector.
Just before the crisis, the financial sector's share of corporate profits had jumped to 42 per cent from 25 per cent in the early 1980s. And the pressure for more and better financial returns pushed down the share of workers in the overall economic pie, and led to a culture of short-termism. If we don't fix financial sector regulation, the risk is of a return to business-as-usual. The financial sector should be an enabler or a supporter of the real economy, not the driver of the real economy.
More fundamentally, the financial crisis was partly caused by the inequities of globalization. In most countries, the rich are getting richer, and the poor are getting poorer. But the poor still have to live, and were tempted by the fancy finance sold by loan sharks that seemed -- and indeed was -- too good to be true! The bottom line is that the crisis has increased a perception of unfairness and trust in our society. Better social protection can help in rebuilding trust, as well as helping us prepare for the next crisis.
All that said, the last 20-30 years has seen exceptional economic growth and poverty reduction. To some extent, the global financial crisis can be seen as globalization's subsequent and consequent orgasm. Sure, the crisis is costly. But a few percentage points of growth is a small cost to pay for the preceding massive increase in prosperity.
And what is most reassuring is that compared with past episodes, our capacity to manage crises is a whole lot better than it used to be.
World of Work Report 2009