A stress test for the OECD?

John Sweeney is on the left and leads from the front ©AFL/CIO

To be useful in helping countries to move out of the crisis, it is necessary for the OECD to look at its own history as an organisation and draw the right lessons for the future.

Today, as OECD ministers meet and we debate how to attain a "cleaner, stronger, fairer world economy" at the OECD Forum, we face the most serious economic crisis since the Great Depression. Recovering from this crisis, addressing the underlying economic imbalances that caused the crisis and reforming the structure of global economic governance are the most serious challenges that governments have faced since the Second World War.

Sixty years ago, when the Trade Union Advisory Committee (TUAC) was formed, under the European Recovery Programme, the world was emerging from a long night of global depression and war. The industrial nations were creating the arrangements of the post-war global economy: the Marshall Plan and the reconstruction of war-torn economies, and the establishment of the United Nations and the Bretton Woods institutions.

Coming out of the Great Depression and the Second World War, the founders wanted a global order in which nations could grow and people could thrive. Governments regulated currencies while giving nations the space to stimulate growth. They curbed speculation while fostering real investment.

They emphasised rapid growth, full employment, social protection and labourmarket institutions to allow wages to rise with increasing productivity. The system they created was far from perfect. Much of the world was outside their focus. But in the industrial world, we enjoyed a quarter century of rapid growth and development. And, with full employment and strong unions, we built the vibrant middle classes that are the foundation of our democracies.

Government actions, at both the national and international levels, were guided by a Keynesian consensus featuring a balance between free markets and effective government regulation, full employment, robust social protection and strong unions.

In reaction to the stagflation of the 1970s, however, the Keynesian consensus on economic policy collapsed and was replaced by neo-liberal policies that placed undue confidence in free markets, reduced the regulatory role of government at all levels, reduced social protection and weakened unions in the name of labour market "flexibility".

In response, much of TUAC's advocacy, from the early 1980s until today, has been to resist government polices that have slowed economic growth, produced serious structural imbalances in exchange rates, privileged financial innovation over effective regulation, weakened social protection and unions, and produced growing inequality within and between countries. As the OECD meets in the midst of a global economic crisis, we may be at the beginning of a new phase of history. In 1948, the industrial nations had to create new institutions to revive investment and trade. In 2008, an expanding number of nations must engineer the recovery from a deep global recession, re-regulate global capital markets and create a more effective system of governance for an increasingly global economy.

We cannot return to a narrow interpretation of Keynesian policies designed for a much simpler period, but neither can we any longer tolerate the lack of effective global economic management and the excesses of free markets. We must chart a new course going forward to deal with the very different and more challenging global economy of the 21st century.

Just as the founders of the post-war economy had to understand and respond to the causes of Global Depression and World War, it is vital that we understand and respond to the causes of today's global economic and financial crisis.

A bursting housing bubble in the US triggered a global credit crisis and together they have dragged the global economy into a severe recession of uncertain depth and duration. We are now seeing negative growth for the developed world as a whole for the first time since the Second World War. Workers in the US, as in all other countries, are the real victims of this crisis. Workers are losing their jobs, their homes, their pensions and savings.

Housing prices are falling at the rate of 20% a year. One in ten mortgages is seriously delinquent or in foreclosure, and one in five is now "under water". Millions of Americans are losing their homes and trillions of dollars in home equity have been destroyed. Our credit market is choking on toxic financial assets, our major financial firms are collapsing and equity markets have lost over 40% of their value, punishing workers' savings and threatening our pensions. Employment is continuing to contract rapidly as hundreds of thousands of jobs disappear every month.

Moreover, the three elements of this crisis-housing, credit and employment-are now interacting to produce a particularly dangerous and destructive dynamic. As workers lose their jobs, they fall behind on their mortgages and lose their homes. As housing prices fall, credit markets tighten. And as credit tightens, the economy slows further and more workers lose their jobs. And, as we all know, a crisis that originated in the US now spans the globe, with those countries dependent on exports suffering most. Just how deep and long the recession will be-and whether we will fall into an even more serious deflationary spiral-will depend on timely, aggressive and well-targeted government intervention at both the national and the global levels. We have seen some action and it is significant that in the US-where the Obama Administration's stimulus package was larger and deployed faster than elsewhere-the fall in GDP is now projected to be less than in Europe. But more needs to be done.

The crisis is also the end of an ideology. For 35 years governments have worshipped at the altar of neo-liberal idols-financial deregulation, tight money, fiscal austerity and labour market flexibility. Corporations were freed from accountability, financial innovation and speculation blossomed into unsustainable "bubbles". Financial elites were empowered, while unions and parliaments were weakened.

We should be very clear: advocates of neoliberal policies got it wrong. De-regulation, they said, might create greater instability, perhaps an occasional crisis to discipline the foolish. But the discipline and insecurity, they promised, would be a small price to pay for the blessings of growth and prosperity offered by the free flow of capital and financial innovation.

Now we know the neo-liberal promise was a lie. The global crisis calls out for a radical revision of the neo-liberal policies and the economic ideas that support them. In the debates over the last three decades, TUAC got it right when we warned about the peril of financial deregulation and speculation. We warned of the folly of sacrificing full employment in a fight against inflation. We warned that without social protection and strong unions, inequality would grow. We warned that a global economy requires effective global governance.

We need imagination and new ideas to deal with a rapidly changing global economy. But the principles of reform are clear, and the Global Unions Declaration, drawn up in the TUAC Working Groups for the recent G20 meetings in Washington and London, and calling on governments to move with urgency to address the crisis, provides our starting point.

We began the process of engaging governments on the global crisis when the G20 labour leaders met in Washington DC and in London.We will continue the engagement when the G20 meets in Pittsburgh in September.

There remains the question of the role of the OECD in responding to the crisis and helping to guide the process towards more effective governance of the global economy. The OECD is well-placed to play a substantial, if not a leading, role in this process. The OECD represents a diverse array of the leading industrial countries that is an essential component of global governance-provided that the countries learn from each other and act in concert. And the OECD, unlike the G7 or G20, has a permanent secretariat with a serious research and policy capability to address the novel and complex issues raised by global governance.

To play a full role in the future of global economic governance, the OECD must move beyond the comforting, but now failed, neoliberal policies of its recent past and embrace a more pragmatic and genuinely "evidencebased" approach to the now urgent problems of effective global economic governance. The OECD must lead in the development of a new paradigm in economic policy.

TUAC was created 60 years ago and the OECD in its present form will celebrate its 50th anniversary next year. However, we must begin our thinking anew. I pledge to you that the AFL-CIO will join with other labour movements in the OECD and beyond to define and fight for urgent government action to address the crisis, restore balance between government and markets, re-regulate global capital markets and build more effective institutions of global economic governance for the 21st century.  

References

* American Federation of Labor-Congress of Industrial Organizations  Sweeney, John (2006), "Why workers count", in OECD Observer No 255, May

Visit the website of the Trade Union Advisory Committee to the OECD at www.tuac.org

See also www.aflcio.org 




Economic data

GDP growth: +0.6% Q2 2018 year-on-year
Consumer price inflation: 2.9% Sept 2018 annual
Trade: +2.7% exp, +3.0% imp, Q4 2017
Unemployment: 5.2% Sept 2018
Last update: 13 Nov 2018

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