Saving the Lost Generation

By Dominique Strauss-Kahn

(Version in عربي | Español | Français | Norwegian | Русский)

Oslo was the scene this week of a remarkable event that brought together global leaders from government, business, trade unions, and academia to discuss what many of them said is the biggest issue facing the world today: the jobs crisis.

They spoke of the 210 million people currently out of work worldwide—the highest level of official unemployment in history. They spoke of the human impact in terms of persistent loss of earnings, reduced life expectancy, and lower educational achievement for the children of the unemployed. And they spoke of a potentially “lost generation” of young people whose unemployment rates are much higher than for older groups.

Fortunately, they also spoke of what can be done to save this lost generation.

The Oslo Conference—hosted by Prime Minister Jens Stoltenberg of Norway and co-sponsored by the International Labor Organization (ILO) and the International Monetary Fund (IMF)—the first such joint endeavor in 66 years—attracted extraordinary participation. By government leaders from Prime Minister George Papandreou of Greece to José Luis Rodriguez Zapatero, Prime Minister of Spain, and President Ellen Johnson Sirleaf of Liberia; by prominent Ministers such as Christine Lagarde of France and Ian Duncan Smith of the UK; by union leaders—Sharan Burrow of the ITUC, for example—and by some of the brightest minds in academia who are thinking about issues of growth, employment, and social cohesion.

This Oslo Conference was certainly a historic step in strengthening collaboration between the ILO and the IMF—it is no secret that we have not always seen eye to eye. But it was also quite inspirational in its atmosphere of cooperation and shared sense of urgency about the need for increased attention and focus on unemployment—and to bring that issue much higher up in the policy mix. The ILO estimates that, over the next 10 years, more than 440 million additional jobs will be needed to absorb new entrants to the labor force. So the challenge both today and in the years ahead is huge.

What is to be done? Naturally, there were a lot of different views expressed in Oslo. I certainly don’t claim to speak for everyone, but these are my main takeaways:

First, we cannot say the financial crisis is over until unemployment decreases. We need growth—but we need growth that increases employment. An economic “recovery” that does not translate into jobs will not mean much to most people. Frankly, most people will not notice whether growth is a percentage point or two higher. But whether unemployment is 10 percent or 5 percent is a big deal. And it is not just the pain it imposes on the unemployed, but also the anxiety it creates for many of the employed. And with 30 million more people having become unemployed since 2007, you begin to get a sense of the immense human cost involved.

Second, building on the previous point, job creation itself must be a priority and we need to use all the policy instruments available to achieve it. This includes using fiscal and monetary policies to support as strong an output recovery as we can—because output growth is the single most important determinant of employment growth. Even as many advanced economies face the need to stabilize or reduce high levels of public indebtedness, it is vital that this be done in a way that does not impair growth and jobs. In the same vein, financial sector reform needs to be aimed at making it a more make effective support of the real economy. For example, the financial sector can help to foster employment by helping to finance small businesses that have suffered limited access to credit during the crisis, but are the ones which can create the biggest amount of jobs.

Third, there are many lessons and best practices that we can apply to ease the pain in labor markets and accelerate jobs recovery. Here, Oslo generated many good ideas. Some governments have stepped up placement services and expanded labor market programs aimed at improving skills and job search. Others have implemented policies allowing firms to retain workers, while reducing their hours and wages–thus spreading the burden of the downturn more evenly. Another step is to allow unemployment benefits to be extended. Subsidies targeted at specific groups—the long-term unemployed and youth, for example—can also stimulate job creation.

Finally, cooperation is key. The consistent policy actions that many countries took during the crisis—through the deliberations of the G-20—helped to avoid the recession becoming a depression, and even more jobs being lost. This kind of cooperation will be even more important as countries exit from the crisis, and seek to restore growth and employment. Analysis undertaken by the IMF for the G-20 shows that the appropriate coordinated action over the next five years could increase global GDP by 2.5 percent, creating tens of millions of jobs. We should take advantage of the increased cooperation between the ILO and IMF to boost international coordination overall.

Specifically, in Oslo, we agreed that the ILO and IMF could usefully work together in two areas of policy development:

  • to focus on policies that promote job-creating growth; and
  • to explore the concept of a social protection floor for people living in poverty and vulnerable groups—within a sustainable macroeconomic framework.

These may not seem like earth-shaking developments. But, if indeed we can move forward our two organizations in this way, it can be an important step forward in helping the world to tackle the jobs crisis.

We all need to think differently and more creatively: about the new economic forces at play in the post-crisis world; about the better integration of employment policies with macroeconomic policies, nationally and internationally; and about how to develop a wider array of policies and programs that can provide work for all who want it.

That kind of thinking began in Oslo.

6 Responses

  1. [...] – Pour sauver la génération perdue, septembre 2010 2 – Pour l’égalité réelle, 2004 3 – Une alternative au CPE, mars 2006 4 [...]

  2. As I have argued for a long time, the current regulatory paradigm imposed by the Basel Committee on banks… that of higher capital requirements on what is perceived as risky and lower for what is perceived as not risky, goes straight against everything that financial history teaches us.

    Today, at long last, also the Lex Column in the Financial Times of September 16 ends with: “Historically, true crisis are caused by assets perceived as low-risk that aren´t.”

    Since realizing the above makes current bank regulations completely nonsensical, it will be interesting to see the reactions to the awakening.

  3. I have watched your video, Per, on the capital adjustment guidelines just announced by the bankers in Basel. You have made your points very clear, and they are compelling. .

    There is no doubt whatsoever in my mind that the Basel III guidelines are regressive, that they will add to the problem of unemployment in the name, but not substance, of financial stability in organizations that collectively have behaved very badly for a generation in sucking in capital and income to a sector that is now overweaningly bloated.

    Can there be any doubt at all that this situation, prevailing at a time when the economy has never been more productive and education never more widely available, is symptomatic of a malaise in leadership? As we speak, the U.S., for example, is experiencing the highest degree of income inequality in over a hundred years.

    Mr. Strauss-Kahn has brought to us here welcome news of growing collaboration between the IMF and the ILO to recognize and address the huge and growing problem of unemployment. And you, Per, have pointed out how absurdly irrational is the big-serving-the-big philosophy that has, seemingly for ever, animated the financial mathematics of Basel. These are good beginnings. The issues now require, in my opinion, starker revelations and more focused approaches to recognizing, first, the pathetic performance of financial regulators worldwide, and second the reluctance of the private sector, at this stage in the economic cycle to do anything about unemployment and income inequality, both of which arise, in my opinion from related philosophical roots — despite being loaded with undeployed cash.

    In the United States, the Tea Party phenomenon is giving vent to the anger of ordinary people at their betrayal by the elites in Congress and private corporations. Unfortunately that anger is often misdirected. But one thing is absolutely clear: the financial profession has been allowed by regulators to rape the rest of us with self-dealing casino-gambling contracts that create nothing but external liabilities for the rest of us. Dodd-Frank is doing something positive about that very slowly, but Basel III is regressive.

    In my opinion the Eurozone country leaders were on the right track in proposing early this past Summer to implement a financial transactions tax (FTT). That at least would institute something that does not depend on the will and courage of regulators, which as we have seen, are qualities that have never been up to the job. But what remains to be done is to make that FTT smart enough NOT to destroy functional speculative capital flows (the ones small business depend on the facilitate trade and investment), while being smart enough to make prohibitively unattractive the kinds of self-dealing by the financial establishment that has been ignoring or plaguing the rest of us for a generation.

    How might such an FTT be designed and implemented? A substantial beginning to answering that question is available in a paper entitled “Getting Ready for the Seoul G20 Summit: Why a ‘Calibrateable dsFCT’ Makes More Sense than Increased Bank Capital Buffering”. This paper has received inputs from financial journalists and research academics from around the world, and even from a central banker, and it is still evolving. Its current version of about 3-4 pages is available at:

    http://www.authentixcoaches.com/dsFCTFinReg.html

    You can help it to become something Mr. Strauss-Kahn and the ILO and others with a grasp on the nature and gravity of the situation we face can take confidently to the November Summit in Seoul. Please comment on it either here or on the blog facility offered at the end of the URL above.

    Angus Cunningham
    Executive Coach
    Authentix Coaches, Toronto, Canada

  4. Dominique Strauss-Kahn writes “For example, the financial sector can help to foster employment by helping to finance small businesses that have suffered limited access to credit during the crisis, but are the ones which can create the biggest amount of jobs”

    And then, the same week, Basel III announces higher capital requirements which, when keeping the same risk-weights, will only increase the arbitrary regressive regulatory discrimination against the small business.

    A Sovereign rated triple-A will not be affected at all by higher capital requirements since being risk-weighted at zero means that zero on whatever higher is still zero.

    Securities and borrowers rated triple-A, like those securities collateralized by lousily awarded mortgages to the subprime sector, and like AIG; and who are risk-weighted at only 20% will only be marginally affected.

    But all those small businesses and entrepreneurs on whom we so much depend on for our next generation of jobs, because they are perceived as risky they are risk-weighted at 100% and will have to bear and pay for the full load of capital requirements.

    With regulators like these of the Basel Committee, our chances of getting out of this crisis and finding jobs are meager indeed.

    In due time financial history books will regard the Basel Accord and the perceived-risk-phobia it brought on, as something absolute mindless from a financial regulatory aspect… but meanwhile what are we to do being stuck with the same growing-bigger-to-fail-bank, the same regulators and the same faulty paradigm.

    I invite you all to a Kindergarten class on financial regulators that will make it easier for you to understand the disaster of having bank regulators that are fixated on seeing the gorilla in the room and have completely lost track of the ball. http://bit.ly/c66DLp

  5. Yes, with some countries’ huge budget deficits, employment must be seen as a crucial issue to develop the global economy.

    To do this requires a broad strategy and the combined forces of sectors and between countries.

    It will be interesting to follow the continuation of the Oslo Conference which will hopefully lead to changes.

    Lena Bäcker

    Chief Economist

    Kommuninvest Sweden
    The Swedish Local Government Debt Office

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