The Priority of Growth and Jobs—the IMF’s Dialogue with the Unions

By Dominique Strauss-Kahn

I had the pleasure of addressing the 2nd World Congress of the International Trade Union Confederation (ITUC) in Vancouver a couple of weeks ago, and participating in a panel debate. I also met privately with some key union leaders.

For me, three main points emerged.

First, I was confirmed in my belief that, for the IMF, our interaction with the labor movement is extremely valuable. We make it a point to meet with unions, including in the context of our lending programs. Over the past few years, I have personally met international trade union leaders four times—on the eve of important G-20 meetings—as well as with individual union leaders. So the labor movement has a lot of influence on the way we work—even if they do not always think so.

As an example of how the labor movement has influenced our thinking, I mentioned in Vancouver our strong support for the fiscal stimulus back in 2008, especially geared toward measures that would create jobs.

We also talked about the IMF’s more recent approach to country lending programs—which has changed in a number of important ways. For a start, we understand the importance of setting realistic targets for reducing deficits. A target that demands too much too soon can damage the economy; it can also damage prospects for success.

In our recent lending programs too, we have been pushing for what I call “social conditionality”—specific measures to protect the most vulnerable from the tough medicine that is often needed.

It is also important to share the burden of adjustment equitably—as a country has a far better chance of pulling through a crisis if there is a sense of fairness in the program and a spirit of national solidarity.

The second message that came out in Vancouver was that the labor movement has a major role to play in supporting continued economic cooperation across the world. Collaboration is really the great legacy of this crisis, as countries came together to face common problems with common solutions. Because of it, we avoided a second Great Depression. Now more than ever, the world needs a renewed unity of purpose. The labor movement needs to keep pressing this point—as do we at the IMF.

What does cooperation mean in concrete terms? Well, in the IMF’s analysis for G-20 leaders in Toronto, we showed that with even greater policy cooperation, world growth could be boosted by 2½ percentage points over five years—creating 30 million new jobs.

To get there, all countries need to do their bit. Fiscal consolidation in advanced countries is unavoidable. They need to put credible fiscal adjustment plans in place now, mostly starting in 2011, as the recovery is still fragile. At the same time, economies with surpluses need to boost internal demand, by spending on social safety nets, improving infrastructure, and allowing exchange rate flexibility.

Fundamentally, growth is the answer—for jobs, for debt sustainability. That means unlocking productivity potential, innovating in areas like “green technology”, and making sure that all who want jobs can find jobs.

Financial sector reform is also crucial—and on this issue too, I believe we are on the same page as the labor movement. Excessive risk-taking—often fueled by greed—threatened the entire world economy and pushed millions into unemployment and poverty. We need to put the financial sector back in the service of the productive economy. This is why we support tougher and better regulation, especially to build capital firewalls against future crises. We also think that financial sector taxation can help reduce the likelihood and cost of future crises. Here, we have some differences with the ITUC—they support a financial transactions tax while we prefer a tax on profits and remuneration. But while we may differ on the means, we are united by the common goal of ensuring a fair and substantial contribution from the financial sector.

In fact, I believe the IMF and the labor movement share a number of important goals—and this was my third take-away in Vancouver. The goal of the IMF is global macroeconomic and financial stability. This is ultimately the best guarantee of steady employment growth and job security. But it’s more than that.

The IMF was founded after the Second World War, and our founders were determined never again to repeat the mistakes of the past—an economic nationalism that led to devastating war. Today, our overarching goal is bringing about better relations between countries, avoiding the economic roots of instability, social unrest, and conflict.

So while the IMF and the labor movement might have different views on different topics, our goals are ultimately the same—standing against narrow domestic interests, against nationalism, against war. And standing for better living standards for all, and for peace.

5 Responses

  1. [...] la crise 3 – Allocution de Dominique Strauss Kahn, Forum du développement humain 4 – The Priority of Growth and Jobs 5 – Le type de reprise mondiale qu’il nous [...]

  2. [...] in a panel debate and “met privately with some key union leaders” and concluded on his blog that “our interaction with the labor movement is extremely valuable”. He muses that [...]

  3. You use the word greed when referring to the financial sector. Greed really is a subjective term or in the eye of the beholder. Is it not greed that causes teachers’ unions to hold communities to ransom? Is it not greed that causes a handful of unionists with political connections to force protectionists policies that make everyone else in the economy worse off?
    The greed of the union movement knows no bounds. Is it not greed and lust for power that causes politicians to take actions that only benefit their constituencies at the expense of everyone else? Is it not greed that causes journalists to favor a candidate that will benefit them? Was it not greed that caused home “purchasers” to lie on mortgage applications to take advantage of rising home prices? The list is endless, because the word greed seems to only be used when referring to the other guy.

  4. Financial sector reform doesn’t begin and end with taxes. True reform would be to eliminate too big to fail and properly identify market participants within the financial sector. By allowing financial institutions to engage in various forms of activities within the financial markets, lending and becoming a ‘service to the economy’ becomes secondary to speculative practices that tie up any capital that would have otherwise gone to the real economy. Make no mistakes, we are no where near properly reforming the financial sector globally. Moreover countries will be reluctant to because of the imbalance these financial institutions represent to certain economies– so there will be a need to reduce size and therefore more economic pain before we can truly move on.

  5. Anyone saying “We need to put the financial sector back in the service of the productive economy” but who at the same time continues to lend support to lower capital requirements for banks when involved with those large enough to have been able to find triple-A ratings, and higher capital requirements when banks lend to whom should be their natural clients, the small businesses and entrepreneurs who most help us in the creation of the new generations of jobs… has little idea or no idea of what being “in the service of the productive economy” really means.

    Anyone out there who has heard of a bank crisis caused by something perceived as risky? Of course not! … they have all occurred because of something perceived as not risky…. and here we have our Basel regulators digging the banks even deeper in the whole they’re in, by fine-tuning the incentives for them to go even deeper into what is perceived as low-risk land. With financial regulators like these, who in the real economy needs enemies?

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