History has shown that crises on this scale lead to social and political instability with unpredictable and often tragic results.
Working families have an enormous stake in the response of governments and the international institutions to this crisis. How protracted and deep the global recession proves to be depends on how timely and well-focused government action is. However, for more than two decades social cohesion has been under stress as a result of growing inequality in most countries.
Today, those who are losing homes, jobs and pensions as a result of the financial crisis for which they bear no responsibility, are being called on–as taxpayers–to bail-out those who are responsible. This produces a strong political cocktail that governments would do well to heed. While short-term action to save the banking system, stop major companies going under and stimulate demand to help the recovery of the real economy are all necessary, there can be no return to “business as usual” once the recovery is underway. This is a point OECD appears to accept in principle, but what about in practice, in the analysis and advice they give to their member governments?
This most serious economic crisis since the Great Depression must mark an end to an ideology of unfettered financial markets, where self-regulation has been exposed as a fraud and greed has overridden rational judgment to the detriment of the real economy. A national and global regulatory architecture needs to be built so that financial markets return to their primary function: to ensure stable and cost-effective financing of productive investment in the real economy. Moreover, governments must acknowledge the urgent need to begin work on a more inclusive, just and democratic system for the governance of global markets.
Trade union leaders from the G20 countries took these messages to the leadership of the international financial institutions and heads of government in meetings in Washington DC in November on the eve of the G20 crisis summit. They presented a joint declaration prepared by the TUAC and the International Trade Union Confederation. This “Washington Declaration” called on governments to:
Initiate a major recovery plan to stabilise global capital markets, move economies rapidly out of recession, stave off the risks of a global depression and get back on the track of creating decent work. There should be further coordinated interest rate cuts as necessary. Governments should bring forward infrastructure investment programmes that can stimulate demand growth in the short term and raise productivity growth in the medium term. Now is the time to move forward with a “Green New Deal” to create jobs through alternative energy development and energy saving and conservation. Tax and expenditure measures should be introduced to support the purchasing power of middle and low income earners. Development assistance budgets need to be maintained to the Least Developed Countries (LDCs) to help meet the Millennium Development Goals (MDGs) with the adoption of binding commitments and a timetable to meet the UN target of 0.7 % of GDP.
Ensure that a financial crisis on such a scale never happens again. For two decades most governments, together with the International Financial Institutions (IFIs) have promoted the lightly regulated ‘new financial architecture’ that has characterised the global financial markets responsible for this crisis. Governments have now been forced to intervene to save the banking system; the quid pro quo must be properly regulated financial institutions. The agenda must cover: the public accountability of central banks; countercyclical asset requirements and public supervision for banks; the regulation of hedge funds and private equity; the reform and control of executive compensation and corporate profit distributions; the reform of the credit rating industry; the ending of offshore tax havens; the taxation of international financial transactions; proper consumer protection against predatory lending and aggressive banking sales policy; and active housing and community-based financial service public policies. The new system needs to reflect the requirements of all regulators; bank regulators, tax and competition authorities, and governance and consumer bodies in each country. There must be no more piecemeal approaches to reform.
Establish a new structure of economic governance for the global economy. This must go beyond financial markets or currency systems to tackle all the imbalances of growth and capital flows that contributed to the crisis. Just as the post-World War II economic settlements included the strengthening of the International Labour Organisation (ILO), in parallel with the creation of the United Nations, the new post-crisis settlement must address international economic governance. Governments must start work on the necessary structures. But this debate should not be held between bankers and finance ministry officials behind closed doors. Trade unions must have a seat at the table.
Combat the explosion of inequality in income distribution that lies behind this crisis. The new system of economic governance must tackle the crisis of distributive justice that has blighted the global economy. It must ensure more balanced growth in the global economy between regions, as well as within countries, between capital and labour, between high and low income earners, between rich and poor and between men and women.
The declaration adopted by governments at the end of their meeting was clear on the need for co-ordinated stimuli, but was short on detail. Indeed, the subsequent wrangling and time delays in putting measures in place are worrying. Fiscal deficits are being cited as constraints, yet there is no choice: governments must step in as investors of last resort as the private sector has seized up.
Better to incur deficits to support the recovery of the real economy than to face a collapse of public finances, not to mention investor and consumer confidence, due to the accelerating contraction of the real economy.
The G20 conclusions were more detailed on the areas where financial market supervision and regulation must be reformed–counter-cyclical capital requirements for banks, reformed executive pay, supervision of credit rating agencies, codes for hedge funds and private equity, reformed accounting standards, tighter regulation and transparency of offshore financial centres.
But on more open and legitimate governance and on social justice the G20 was silent. The silence must end, and trade unions will be returning to the debate with leaders in the weeks and months ahead, in the UK on the eve of the April 2 G20 summit, at G8 Labour Ministers meeting in Italy in May and at the OECD Ministerial Council Meeting in June and the subsequent G8 summit.
Working people need action. They require a seat at the table in these meetings and institutions. They have understandably little confidence that bankers and governments meeting behind closed doors will get it right this time. In fact, many business people and governments share this distrust. There must be full transparency, disclosure and consultation. The global union organisations are ready to play their role in this process.Note: TUAC celebrated its 60th anniversary in December 2008, having been founded in 1948 as a trade union advisory committee for the European Recovery Programme, known as the Marshall Plan.
More details on www.tuac.org©OECD Observer No 270/271 December 2008-January 2009