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Steps Out of the Global Development Crisis

As world leaders gather in New York to review the progress of the Millennium Development Goals set a decade ago, the enormity of the task ahead is clear. As the economic crisis spread across the globe, the government quickly adopted stimulus packages to stave off collapse. The fixes were temporary, though, failing to address immense structural challenges of trade imbalances, wage inequality and declining natural resources combined with growing populations. The developmental goals included global partnership, environmental sustainability and universal education. But divisive politics and opposition from the few who profit from reckless development subvert the agenda. Resistance to comprehensive plans to tackle global development – mitigating its social and environmental impacts – means no long-term resolution for unemployment, poverty and conflict, explains economist Jens Martens. Relentless pursuit of economic growth without attention to employment, environmental protection and basic social comforts remains a recipe for global disaster. – YaleGlobal

Steps Out of the Global Development Crisis

The crisis isn’t over – not without global partnerships on unemployment and environmental sustainability
Jens Martens
YaleGlobal, 20 September 2010
Millennium of hunger: Indian children seek nourishment near a garbage dump

BONN: Throughout the developed world, the global economic and financial crisis appears to come to an end. The G20 ministers of finance already discuss exit strategies. Major international banks such as Goldman Sachs or Deutsche Bank once again enjoy quarterly profits totalling billions. As if there had never been a crisis, hedge funds are more active than ever before on the international finance markets.

However, the tsunami waves sent out by the global crisis are just reaching the developing countries, hitting them with full power despite the time lag. The crisis is having a dramatic social and economic impact on the South.

The International Labour Organization (ILO) estimates that the number of registered unemployed had grown by 34 million between 2007 and 2009. In addition, millions of people have been pushed into informal employment owing to a lack of social security systems. The number of people living in extreme poverty is on the increase again, too. According to estimates by the World Bank, up to 263 million more people can expect to live in poverty by 2015 than would have been the case without the crisis. The number of people living in hunger exceeded a billion in 2009 – the highest number in human history. The number is expected to decline this year, but remains higher than before the crisis.

Despite a time lag, the global financial crisis
is having a dramatic social and economic impact on the South.

Given this grim scenario, the prospects of achieving the internationally agreed development goals, including the Millennium Development Goals, or MDGs, by 2015 recede ever more into the distance. Combined with the climate crisis and the unresolved food crisis, the financial crisis has turned into a global development crisis.

So far, governments have not delivered an appropriate response to dramatic consequences of the crisis. In particular, G20 crisis management has given too little consideration to the needs of people in poorer countries.

Without doubt, the crisis has brought about changes in economic policy discourse. The blind faith of neoliberal economists in the self-regulatory forces of the market has been shaken. So far, however, these changes have not been reflected in any corresponding substantial shifts in policies. Instead, a trend towards business as usual is again becoming apparent. One example is an observation by Holger Schmieding, Bank of America’s chief economist for Europe. Given the collapse of Lehman Brothers, he noted:

“Lehman was an accident. Now the accident site has been cleared, and traffic can roll again.”

This is precisely the wrong approach. Instead, a comprehensive program is needed to tackle the global development crisis at its roots, mitigating its social and environmental impact and preventing future crises. In addition to effective regulations and reforms in the global economic and financial system, fundamental shifts towards a Green Welfare State and a holistic rights-based development paradigm are necessary.

To prevent the economic crisis from becoming a long-lasting crisis, combating unemployment needs
to be a top priority.

Coping with current crises is impossible without the state playing a more active role. Remedying the social and environmental impacts of the crisis and overcoming the structural problems of poverty and environmental destruction require an active employment policy, social security systems, and an economic policy in harmony with the environment and climate. To this end, three initiatives have been formulated within the United Nations system that governments ought to speedily implement:

First, in order to prevent the economic crisis from turning into a long-lasting, worldwide employment crisis, the Global Jobs Pact adopted by the ILO needs to be fully implemented. Combating unemployment needs to be a top priority for the governments. This applies in particular to the increasing levels of youth unemployment. Here, public investment in infrastructure, employment programmes that ought to be oriented on the ILO agenda for decent work and the introduction of minimum wages to counter the growing phenomenon of the working poor should be of top priority. An active employment policy must also deal with problems of increasing informal work arrangements and precarious employment relationships, both of which affect women.

Second, the ILO has pointed out that access to social security is a human right. But in times of crisis in particular, an effective social-security system is also economic and political necessity – reducing poverty, strengthening the purchasing power of people and hence domestic demand, and preventing social tension and societal conflicts. The ILO has developed the concept of a Global Social Protection Floor based on four pillars:

  • universal access to public healthcare for all;

  • guaranteed state allowances for every child;

  • universal basic pension provided by the state for persons in old age or with disabilities;

  • guaranteed state support for unemployed and underemployed people living in poverty.

Such basic social security ought to exist in every country and would prevent people from falling into poverty as a result of economic crises.

An effective social-security system is economic and political necessity for reducing poverty, strengthening purchasing power and preventing conflict.

Third, a massive investment in environmentally friendly technologies and measures to reduce energy consumption is required to limit the threat of climate change. The UN Environment Programme (UNEP) has taken up proposals for a Green New Deal and developed them into a global initiative. UNEP is calling on the governments to invest at least US$750 billion, about 25 percent of the stimulus packages worldwide, in five areas:

  • improving energy efficiency of buildings;

  • developing renewable energies;

  • establishing sustainable transport systems;

  • protecting the planet’s ecological infrastructure including freshwater systems, forests, soils and coral reefs;

  • investment in sustainable agriculture, in particular organic farming.

Changes in politics are not enough. There is a need for a more fundamental change of the dominant development paradigm. The current crises reflect a model of development that is oriented on a modernization approach, blind to environmental and human rights issues and confusing economic growth with progress in society. The model regards combating poverty as a primarily technical challenge in which the category of social justice plays no role.

Current crises reflect
a modernization approach to development, blind to environmental and human-rights issues.

A coherent analysis of the common causes of the multiple crises and their interdependencies is needed now. This presupposes overcoming the current fragmentation in the development discourse of politics, science and civil society. Depending on the respective actors, this discourse focuses on narrow topics such as poverty alleviation and millennium development goals, climate change, trade and investment, and human rights and conflicts.

A holistic model of development, based on six cornerstones, must be re-considered:

  • environmental sustainability,

  • social justice,

  • economic efficiency,

  • democratic participation,

  • cultural diversity,

  • international responsibility.

A model of this kind must be based on international law and universal human rights, including the rights of women and children.

From 20 to 22 September, the UN General Assembly convenes an MDG Summit in New York. The next UN Summit on Sustainable Development will take place in 2012 in Rio de Janeiro – 20 years after the Earth Summit 1992. The time between these summits provides an excellent opportunity to reflect on the obvious shortcomings of the traditional development and growth model – and promote discourse on new models of welfare and development.
 

Jens Martens is economist and director of the European office of Global Policy Forum in Bonn, Germany. He can be reached at: jensmartens@globalpolicy.org
 
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