A Global Shared Societies Agenda (Bretton Woods Project)

22 April 2012

Chair: Clem McCartney, Club de Madrid

Presentations

Maria Aguero, Club de Madrid: We want democracies that deliver; need social inclusion and social cohesion as part of sustainable development agenda

Hugh Bredenkamp, IMF

Global events have changed views, including in the IMF
Historically IMF had no role in the social dimension of macro policy; financial programmes adapted first (1970s through the 1990s), then surveillance work (recently)
Worries about overreach and conditionality led to macro-criticality test
Following Arab spring – need not just growth or growth + safety nets; need fairness, and economic opportunities; need a more joined up policy perspective – equity and inclusion need to meet with growth and economic focus
IMF is now doing three things:

Building a conceptual understanding of inclusive growth; now have a working group on this in the Fund (supervised by Min Zhu, with an advisory board with external people)
We are incorporating into financial programmes – comprehensive review of the Funds programme in the last decade; will highlight IMF push for social protection, consideration of distributional effect of tax policy; will make recommendations for how to go further; but must tread carefully because of conditionality concerns
Collaboration with other institutions – we should not replicate others; ILO collaboration for social protection floors in 6 pilot countries; G20 study with ILO & WB; dialogue with ILO/unions; collaboration with WFP/UNICEF on food security

Fund is convinced of need to promote social inclusion and cohesion

Petre Roman, former prime minister of Romania

If economic system collapsed in Romania, it was b/c economics weren’t there; we were uncompetitive
Three keys things that I think are necessary for social cohesion

Minimum wages
Development of small and medium enterprises
Good management of natural resources

Sometimes have to do things that are correct and right but unpopular

John Bruton, former prime minster of Ireland

The IMF’s work on inequality is very important; because of risk of extremism like the 1930s
Increase in inequality can be explained in Ireland from: rapid development, people and money can move – so can’t put too many restrictions; nature of celebrity promotes inequality; technology
Ideas: move from tax allowances to tax credits; take account of regional differences; a good tax collection system; need better explanation from politicians to citizens
Need to change the policy that we can burn sovereign bond holders of Greece, but not burn the bond holders of a private bank (Anglo Irish Bank) – ECB does not explain this to anyone, this is why they can pursue it
Stability & Growth pact – enforcement was too political (and too focussed on deficit but not debt); need to cover balance of payments issues not just deficit and debt
Also need more mobility of people in EU, including recognition of qualitifications

Jack Borman, formerly IMF

Reservations about language of “shared society” – need to be more specific
Four things we need:

Proper governance and institutional structures – including to prevent crises, and deal with them when they come; need orderly bankruptcy procedures so that we don’t socialise losses
Reasonable political and economic stability
Shared opportunity, esp around education
Positive and widely available incentive structures (ie not perverse as in finance)

National states are not in control of destiny, only national policies – but international and other countries policies are important – this is why international monetary system matters

Governance of IMF is ineffective and unfair – need to go faster and further
Surveillance – how to get teeth into it; see Palais Royale Initiative ideas on quantitative limits that trigger tougher surveillance
IMFC should be preeminent body, not the G20 finance ministers – Argentina is not a model to follow – merge the G20 and IMFC to make it constituency based

On inequality – are there thresholds for triggering greater redistribution?
Fund has done great on transparency; but need more on financial sector, incl supervision
Military spending should be listed specifically in the fiscal documents – it is immoral
The IMF is a political institution because of membership; staff must be non-political; but political decisions happen (eg Vietnam, Zaire) so maybe we should be more political in the decision making

Francois Bourguignon, Paris School of Economics

Definitions are important

WDR 2006 on development and equity was key – first accepting of the word “inequality”
Equity is about opportunities, equality is about income or outcomes
Two levels – national and international (annex-anted then between countries or people globally)

Alternatives on global inequality

Global inequality (between people) was going up for 2 centuries but for 2 decades it has been going down
International inequality (between countries) is driving change in global inequality
Within country it is flat overall; in many countries inequality is increasing (esp OECD, China), but in some it is decreasing (Brazil and Mexico for example)

Inequality/efficiency relationship is very complex

Ex-ante (opportunities and assets) should include things like access to health, education etc
Ex-post inequality determined by ex-ante inequality and the structures of the market and economy; but then feedback to the opportunities

There is no global blueprint for delivery to national authorities
Could make the case for a globalization of policies

National social cohesion as a global public good – an institution to monitor and advise on these – because they impact on other countries

Hugh Bredenkamp

A lot of complexity and questions, the IMF mandate for surveillance comes from acceptance of global public good in economic policy
On SDRM need – this will come back after the crisis, people do not want to talk about the general issue in the midst of a crisis because of sensitivity, understand catch-22 of lack of drive in between crises
On governance – acceptance that power needs to change, just need step-by-step changes to be worked out
On surveillance – we are not where we need to be on spillovers and multilateral aspects – it is in the “integrated surveillance decision”; membership not ready for an articles of agreement change
On norms for imbalances – we don’t have support from membership; External sector report – broaden assessment of country stability on exchange rates to look at domestic policies more broadly
Evaluating different political systems – This is an idea ahead of its time, won’t be support for this?

Discussion (selected contributions)

Stephen Pursey, ILO

Once a convention is adopted, country needs to report on it, and can be complained about
Minimum wages: what ILO doesn’t say is how much, but how to go about setting them; Abiltiy to pay for smaller enterprises, comparability with other countries, that’s discussed by trade unions/ employers, recommendation is made to a govt to accept or reject. Often this seems to end up with minimum wages somewhere around 40 % of median wages
Social protection floor is a very basic level, countries at all levels of development could aspire to have this
On surveillance questions quite big difference between advanced and developing economies about willingness to make commitments; emerging markets very reluctant to get too tied down, feel it’ll affect their ability to catch up, converge;
To address minimum/maximum income, how to treat different levels of development? Can you have system that’s differentiated, or should you be arbitrarily fair?

Carlos Braga, World Bank

peaks in inequality means political institutions should bring it back down, question is are the institutions good enough; while some pessimists argue this level of polarization was never seen before, we have seen inequality before;
The accountability and credibility of int’l organizations is in whether they can prevent the polaarisation leading to greater inequality
Some countries better prepared than others to cope with this increase in inequality.

Steve Killelea – peace index coming out this year, measuring national peacefulness; studying the various various variables that are found to be important; looking at spending on “violence containment industries” this is 16% of GDP in the US; social inclusion can be a capitalist argument

Bjorn Gillsater, UNICEF – lots of inputs on inequality (NGOs, UN institutions, IFIs, businesses, academics); governments fail when extractive, succeed when inclusive; Rio+20 also important to have social/inequality aspects, but must also be in post-2015 framework; UNICEF collaboration with IFIs shows the need for ex-ante PSIA and distribution analysis

John , OECD - interface of politics and economics important, need to invest more in knowledge and understanding; the tax system has become less redistributive – are there new and smarter forms of taxation that can move it back in the other direction

Amar Nour, Arab organisation – is the decline in global inequality a matter of convergence or of levelling the playing field? Increase in national inequality is evidence of the need for the “shared societies” project; we need incentive systems that level the playing field

Ramesh Muttukamaru – interconnectedness is the key, making inclusivity and sustainability crucial; need to look at the role of CSOs, private sector, international actors, not just the role of the nation state