Looking outward: the economic crisis and the developing world

"The UN estimates that up to 103 million more people will fall into poverty or fail to escape poverty because of the crisis. According to the International Labour Organisation (ILO), the unemployment rate is expected to increase by 0.6 per cent in 2009. About 45,000 jobs have already been lost in South Africa. In the Democratic Republic of Congo, 100,000 workers were made redundant because of smelter closures. In the Central African Republic, half of the workforce has been laid off from the Société d’Exploitation Forestière en Centrafrique (SEFCA). In the Zambian mining sector, 6,000 people lost their jobs in November 2008".

You can read the rest of this 'one-pager' on how the global economic crisis is hampering human development, issued by the International Policy Centre for Inclusive Growth, here.

Stiglitz Commission

Earlier this year, a Commission of Experts, chaired by Nobel Laureate Joseph Stiglitz, on reforms of the international monetary and financial system was established by the President of the UN General Assembly. According to its terms of reference, "the Commission will seek to identify the broad principles underlying needed institutional reforms required to ensure sustained global economic progress and stability which will be of benefit to all countries, developed and less developed. The Commission will suggest a range of credible and feasible proposals for reforming the international monetary and financial system in the best interest of the international community, identify the merits and limitations of alternatives, and will evaluate in particular those that are at the center of current global discussions."

Among a number of interesting recommendations, No. 37 proposes that:

"A major reform of credit rating agencies and their role in the financial system will have to be undertaken. When financial regulations make use of credit ratings, regulators must have a mechanism to evaluate the quality of ratings provided. They must also consider mechanisms for avoiding conflict of interest in the provision of ratings by the agencies, and may consider the scope for encouraging new actors so as to encourage competition in the business of credit rating. The reforms needed in this field and in the systems of information provision will be addressed in the final report of the Commission"

The Commission's recommendations can downloaded here.

Any comments?

Guest post by Duncan Green: Is the Crisis Deep Enough to Trigger the Changes We Need?

Duncan Green: The latest figures from the IMF, released last week, are shocking. The global economy is now in full recession, predicted to fall by 1.3% this year (at least until the next downward revision of forecasts). At first glance the developing world isn’t doing quite so badly as the rich countries – it is predicted to achieve sluggish positive growth compared to the horrible 3.8% fall in the advanced economies, but look closer at the numbers and the impact on poor people looks very worrying indeed. In per capita terms (i.e. allowing for population growth), developing country economies are shrinking, after years of progress. Using the World Bank estimate that a loss of 1% of global economic output pushes 20m people into poverty, in 2009 alone, 135 million more people will be living below $1.25 a day than would otherwise be the case. Stop and read that last sentence again. $1.25 a day.

That is what economists call a ‘shock’, and a big one. But the question that strikes me is ‘is it big enough?’ Crises are often needed to effect profound change – women won the vote in the UK after World War One had transformed their role in society; in the US the Great Depression led to the New Deal. Rahm Emmanuel, Obama’s chief of staff, famously remarked ‘You never want a serious crisis to go to waste’ and this crisis and there are signs that this crisis too is triggering some profound changes.

First, the geopolitical shift – the crisis has crystallized the rise of China. After keeping its head down during three decades of ‘peaceful rise’, Chinese diplomacy has suddenly become far more assertive, openly blaming the West for the crisis and calling for major reforms of the international financial system. The era of the G2 begins here. More broadly, the G8 is now looking increasingly obsolete – real power has shifted to the G20, with far greater recognition of the role of emerging economies such as Brazil and India, as well as China.

Second, the end of the Great Deregulation. Since finance was let off the leash in the mid 1970s, it has boomed and come to dwarf the real economy. By 2007 the daily flow of capital across borders was 100 times greater than world trade. Backed by the power to make and break economies, the whims and prejudices of financial markets acquired absurd political importance. That has now given way to an era of reregulation and shrinking. Good thing too.

But other impacts are worrying or absent. At the G20 in London this month, the world gave a huge cheque to the International Monetary Fund, in return for promises of reform. But it is far from certain that the IMF can transform itself from being a pro-cyclical devotee of the ‘Friedmanite tourniquet’ (in Polly Toynbee’s phrase) to being an advocate of the kind of Keynesian reflation that is needed in poor countries right now.

Climate change has so far taken a back seat and that is deeply worrying. The G20 largely ignored the issue, progress in the UN talks that culminate in Copenhagen in December is (appropriately, perhaps) glacial. Some argue that we should sort out the economic crisis first, and then turn our attention to the longer term issues such as climate change, but that is to ignore the role of crises in driving change.

The creation of the UN, World Bank, IMF etc – the global order of the second half of the 20th Century, was the product of both the Great Depression and World War Two. My fear is that we will need the climate equivalent of a World War before leaders act on the shift to a low carbon world. The scale, human impact and irreversibility of such a climate shock make that a very bad last resort.

Duncan Green is Head of Research at Oxfam GB. He was in Dublin last night to launch his book ‘From Poverty to Power: How Active Citizens and Effective States can Change the World’, which is published in Ireland this week. Duncan Green’s blog can be found on http://www.oxfamblogs.org/fp2p.

'From Poverty to Power' is available from all good book stores or visit or visit the From Poverty to Power site.