Austerity doesn’t work: a new way forward needed

18 September 2017

The shortcomings of austerity measures were laid bare today at an UNCTAD meeting, pressing home the message of the organization’s new Trade and Development Report.​

Panelists at UNCTAD’s Trade and Development Board discussed how policies implemented to improve fiscal performance, boost economic growth and improve inequality, have been unsuccessful in enhancing dynamism in global markets.

“Austerity is a failure and we must be very blunt about that,” said Mr. Richard Kozul-Wright, Director of UNCTAD’s Division on Globalization and Development Strategies and at the helm of the Trade and Development Report, entitled ‘Beyond Austerity - Towards a Global New Deal’, which was released last week.

“A shortage of global demand remains the biggest drag on global growth,” Mr. Kozul-Wright said, pointing to UNCTAD research which compares the impact “extreme austerity” has had on countries on Europe’s periphery with the performance of emerging economies which have not been constrained by austerity measures.

His comments came after a rich analogy from UNCTAD’s Deputy-Secretary, Ms. Isabelle Durant, who said “austerity is not a monster to be slain, but one to be tamed” in today’s volatile global context.

Mr. Kozul-Wright also presented recent research on automation and the impact robotization could have on employment.?

Asking whether we are entering a “jobless world”, he explained how robotization is similar to other technological shifts that the world has seen before, and argued that while robots will lead to some jobs being lost, other jobs will be created. However, the lack of investment globally means many of the displaced workers will not be able to find jobs in emerging sectors.

The panel discussion proceeded with comments from Oxford University’s Professor Ngaire Woods, who reminded delegates how governments around the world are confronting a "dramatic” lack of trust. Citing research conducted by the marketing firm Edelman, she told the session that voters will often trust information from their peers and Facebook friends more than from established government sources.

“There is a significant correlation between trust in government and economic growth,” Professor Woods continued, referencing studies which showed populations in growth countries such as Indonesia and China say they place much more trust in their elected officials than countries facing sluggish growth rates. “When economic growth slows, people ask much tougher questions of their government.”

The final speaker from the session encouraged delegates to consider the merits of a basic income. Professor Guy Standing, from SOAS University of London, told the session that basic income strengthens freedom because people acquire bargaining power.

“The emancipatory power of basic income is more powerful than the money value paid out,” he said, before presenting the results of a pilot study in India which produced datasuggesting that a basic income leads to improvements in health and nutrition, school performance and economic activity.

The Trade and Development Board meets up to three times a year in between the quadrennial editions of the UN Conference on Trade and Development.

The current session, which began on Monday last week and runs until this Friday, is taking stock of the work done since the UNCTAD XIV summit, held in Kenya in July 2016. The "Nairobi Maafikiano" report, adopted by governments there, highlighted the link between trade and sustainable development.