Finance and development ministers, government representatives from the Group of 20 developed and developing nations, and heads of multilateral institutions are all meeting this weekend for the semiannual International Monetary Fund and World Bank meetings. They’ve got a lot on their plate.
For starters, how to rebalance the world economy, and how to strengthen the green shoots of a fledgling global economic recovery. Rebalancing China’s undervalued exchange rate is stealing the spotlight in the discussions on global imbalances as the finance officials in the United States and Europe called out China earlier this week about their undervalued currency. But equally important is how to create jobs for the tens of millions of people worldwide cast out of work by the financial crisis and the Great Recession.
European governments, for their part, are turning tail from supporting employment-creation policies. Instead, they’re deciding to contract their economies through harsh budget austerity. The United Kingdom, Germany, France, Italy, Ireland, Portugal, Spain, and Greece are cutting budgets, employment, and wages in the mistaken belief that they will starve themselves back to good health. The IMF estimates that for every additional percentage point of GDP in fiscal austerity, the unemployment rates go up one-third of a percentage point and economic growth falls by half a percentage point.
European and American belt-tightening constricts demand and investment, which in turn fuels unemployment in developing countries, especially in the export sectors. It also changes the structure of employment in developing countries. Rather than entering the ranks of the unemployed, many take up informal forms of work where conditions are poorer, wages are lower, and social protections are fewer if not lacking all together. This means smaller export markets for American and European goods and services, too.
This cascading worldwide unemployment and contentious international economic imbalances are precisely the problems that John Maynard Keynes and others designed the IMF and World Bank to address. Meeting at these institutions in Washington, D.C., this weekend, it is time for these global governance institutions to put job creation back at the center of the agenda.
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