Human Development and Wealth Distribution, By Dominique Strauss-Kahn, Managing Director, International Monetary Fund
IMF News, November 1, 2010
Source details
- Canonical URL
- Human Development and Wealth Distribution, By Dominique Strauss-Kahn, Managing Director, International Monetary Fund
Other formats
Bibliographic details
- Authors: Dominique Strauss-Kahn
- Published: November 1, 2010
Overview
- Speech delivered in Agadir on November 1, 2010; presented "As prepared for delivery".
- Central thesis: inequality undermines human welfare and economic stability; globalization must be reshaped into "a new globalization for a new world—a globalization with a human face" where "growth and equity always go together."
Globalization: gains and risks
- Findings:
- Globalization has helped "hundreds of millions of people break the bonds of poverty" and enabled unprecedented sharing of information and technology.
- New economic powers have arisen, "forever shifting the balance of economic power."
- Globalization also produced "a large and growing chasm between rich and poor—especially within countries."
- Inequality has coincided with stagnant real wages that "failed to keep up with productivity" in many countries.
- "Ominously, inequality in the United States was back at its pre-Great Depression levels on the eve of the crisis."
- The previous growth model was "unbalanced and unsustainable"—driven by "too much borrowing in some countries, made possible by too much saving in others."
- Historical reference:
- Adam Smith quoted: “The disposition to admire, and almost to worship, the rich and the powerful and…neglect persons of poor and mean condition…is the great and most universal cause of the corruption of our moral sentiments.”
- Characterization: this observation was made "over 250 years ago."
Inequality and macroeconomic fragility
- Findings:
- Inequality can wear down social fabric; "More unequal countries have worse social indicators, a poorer human development record, and higher degrees of economic insecurity and anxiety."
- Inequality may have helped create the unsustainable pre-crisis model: "In countries like the United States, borrowing seemed to allow ordinary people to share in the rising prosperity."
- The Great Recession resembled the Great Depression in preceding patterns: increases in the income share of the rich, a growing financial sector, and a major rise in debt.
- Consequences of inequality in poorer countries:
- Dampened economic opportunity through restricted access to finance.
- Diversion toward unproductive activities.
- Greater vulnerability to shocks because fewer people can draw on savings.
Human and social costs of unemployment
- Key statistics:
- "The crisis threw over 30 million people out of work."
- "In the coming decade, more than 400 million young people will be looking for their first job."
- "An estimated 70 million fewer people escaping poverty by 2020" due to the crisis.
- Findings on effects of job loss:
- Unemployment causes substantial and long-lasting loss of earnings, especially among youth.
- Job loss increases risks of health problems and premature death.
- Job loss harms children's educational outcomes and reduces confidence in public institutions and democracy.
- Risk of a "lost generation, distanced from the labor market, and marginalized from society."
Policy agenda: priorities and recommendations
- Rebalance global growth:
- Surplus countries should shift from external to internal growth engines and rely more on domestic demand.
- Support measures: stronger social safety nets and investment in infrastructure to achieve "new growth" that is "more stable and fair, marked by lower inequality."
- Encourage investment in green technology and innovation to tap productivity potential.
- Financial sector reform:
- Shift the culture "away from the culture of risk and recklessness" and put banks "back in the service of the real economy."
- Acknowledge "substantial progress" post-crisis but emphasize remaining "unfinished business."
- Jobs and labor policies:
- Priority: "end the scourge of unemployment" with policies that generate jobs and "decent jobs."
- Labor market policies should focus on job creation, better education and training, and support for small businesses.
- Strengthen workers' bargaining power and collective bargaining while avoiding dual labor markets that create "stark divisions between protected insiders and excluded outsiders."
- Tax, expenditure, and social protection:
- Use tax and expenditure policies to support fairness and stability.
- Ensure adequate social safety nets, including "decent unemployment benefits."
- The IMF is working with the ILO on the concept of a "social protection floor for people in poverty or vulnerable situations."
- In IMF lending programs, emphasize protection of the poorest and most vulnerable through strong social safety nets.
- Encourage progressive taxation to promote equity through redistribution.
Low-income countries and global solidarity
- Responsibilities for richer countries:
- Honor commitments on aid ("keep their Gleneagles promises on aid").
- Channel financial support to help low-income countries cope with climate change.
- "Tear down the barriers to trade that block exports from low-income countries."
- Increase assistance to fragile states at risk of being left behind.
- Responsibilities for low-income countries:
- Rebuild policy buffers and mobilize domestic revenue.
- Create fiscal space to invest in infrastructure and strengthen social safety nets to enable pro-poor growth.
- Regional focus:
- North Africa: urgent need for economic opportunities for youth given a "demographic time bomb"; more regional integration and openness recommended.
Conclusion
- Inequality is both a moral and stability concern: quoted Tony Judt—“Inequality is corrosive” and "it rots societies from within…it illustrates and exacerbates the loss of social cohesion…the pathology of the age and the greatest threat to the health of any democracy."
- The IMF's mandate centers on economic and financial stability as the "sure foundation of human development."
- Warns that the last great period of globalization ended in conflict and devastation; the recent crisis was a wake-up call and "We avoided a second Great Depression, and we learned many lessons. But we still have a long way to go."
- Final imperative: pursue "a new globalization" that combines openness with equitable and stable global growth.
Human Development and Wealth Distribution, By Dominique Strauss-Kahn, Managing Director, International Monetary Fund — November 1, 2010 (As prepared for delivery).