Post on 15-Jan-2016
The Economic Recession: how will it change policy and welfare?
Professor Philip HaynesUniversity of Brighton
The Economic Recession
• Long period of growth• Economic goals above social goals
• ‘Economic Growth is not an end to itself. It is a way to create employment, to banish poverty, hunger and homelessness, to improve the lives of most people.’ Manmohan Singh. Prime Minister of India, 2004
• What were the benefits of GDP growth?– Not uniform– OECD report 2009 Unequal growth: unequal recession
Trends in income inequality: Point changes in the Gini coefficient over different time periods
Source: OECD, 2008 – Growing Unequal, figure 1
CANADA
DENMARK
FINLAND
FRANCE
GERMANY
ITALY
JAPAN
SPAIN
UK
USA
OECD-24
-0.030-0.020
-0.0100.000
0.0100.020
0.0300.040
0.0500.060
0.070
Change Mid-1980s to Mid-2000s
Mid-1990s to Mid-2000s
Mid-1980s to Mid-1990s
Causes of recession
• Global– Large instabilities and extremes,
• Commodity power – i.e.: oil rich countries• Specialisation – i.e.: banking and monetary services• Balance of payment – exporting versus importing models
• National– High debt (UK/USA) Unrealistic demand (UK/USA) Over
Supply (China, India)• National – Global– Slow down in trade, crisis of lending, increased state
intervention
Globalisation
• End of national restrictions on currency and trade• Increased migration, travel, communication• Caused more national specialisation?– UK, services; Taiwan, manufacturing
• Created more global economic instability• Poor countries that cannot compete• Rapidly developed countries vulnerable to market
extremes – currency instability, capital flows
Globalisation
• Large trade and monetary imbalances• Asia– Trade surplus– Individual savings– Corporate investments overseas– Foreign currency reserves
• West– Trade deficit– Corporate and individual debts– Rising Government/State public debt
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
200000
400000
600000
800000
1000000
1200000
Hong KongChinaEuro AreaIndia JapanKoreaMiddle EastTaiwanUnited KingdomUnited States
Total currency reserves US $m Source: IMF 2009
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
$-400,000,000,000
$-300,000,000,000
$-200,000,000,000
$-100,000,000,000
$-
$100,000,000,000
$200,000,000,000
$300,000,000,000
$400,000,000,000
AustraliaHong KongChina P. RDenmarkDeveloping AsiaEuropean UnionFinlandFranceGermanyItalyUnited KingdomUnited States
Direction of Trade Surplus, with advanced economies $billion Source: IMF, 2009
The recession and welfare
• Rising unemployment• Declining pension/savings income of older
people• Declines in health and welfare?• Rising internal crime and social conflict• Increase in international conflict, caused by
nationalism and national protectionism
National causes of recession
• National differences, within West and East• Western countries in debt• Extremes of debt (UK) billion– Banks (gross foreign liabilities = £4400/$7040)– Corporate (owes £3,000/ $4,800)– Government (owes £800/ $1280)– Individuals/families (owe £1200/$1900 on home loans)– UK annual economic output is @ £1500/$2400– It is said that the only area of society with no debts is
small businesses
The effect on welfare
1. Unemployment• Rapidly rising in UK• ILO-defined unemployment in May to July was
2.47 million (7.9%) - up by 210,000 unemployed on the quarter and 743,000 from this time last year. (1.72 million in July 2008)
2. Public expenditure cuts– Cuts in public services?
• How to prioritise services?• Protect health and education?
National-Global
• How specific countries relate to the global economy:
UK needs to:– Produce more• Needs an export led recovery
– Reduce debt– Increase savings
Public Expenditure cuts?
• Lessons from previous recessions• Difficulty of cutting Public Expenditure rapidly– Welfare Benefits and pensions– Employment and Training– Health (rising demand and older population)– Administration and bureaucracy
• Cuts by not increasing expenditure– Role of inflation
Welfare changes
• Implications for social welfare?• How do we define social welfare?– Inequality – material provision
• Employment• Parenthood - children• Pensions-income for old age
– Health, longevity– Education– Quality of life – ‘happiness’– Key national differences in welfare performance
OECD Social Change 2003-2007
Society at a Glance 2009: OECD Social Indicators – Table 1.2 OECD © 2009 - ISBN 9789264049383
0.0
5.0
10.0
15.0
20.0
25.0 CAN GER DNK ESP FIN FRA UKIRL JPN KOR NLD NOR SWE USAOECD-14 1980+
Percentage labour force unemployed: OECD selection – 1980-2007
GDP, Asia Pacific ($ per cap)
Australia
Bangladesh
Brunei D
arussa
lam
CambodiaChina
Hong Kong, China
India
IndonesiaJapan
Korea (Rep.)
Korea (Dem. R
ep.)La
os
Macao, C
hina
Malaysia
Mongolia
MyanmarNepal
New Zealand
Pakistan
Philippines
Singapore
Sri Lanka
Taiwan
Thailand
Viet Nam
Asia-23
OECD-300
5,000
10,000
15,000
20,000
25,000
30,000
1990 1995
2000 2005
2006
Source: OECD 2009, Society at a Glance: Asia/Pacific
2001 2002 2003 2004 2005 2006 20070.0
2.0
4.0
6.0
8.0
10.0
12.0
AustraliaChinaHong Kong, ChinaIndonesiaJapanKoreaMalaysiaMongoliaNew ZealandPakistanPhilippinesSingaporeTaiwanViet NamAsia-12OECD-30
Source: OECD 2009, Society at a Glance: Asia/Pacific
Unemployment, Asia
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
12.0
16.0
20.0
24.0
28.0
32.0
36.0
40.0
44.0
Public social spending as a percentage of National Income, OECD
Denmark Finland NetherlandsSpain United Kingdom United States
Source: OECD, 2008
Public social spending as percentage of national income, Asia-Pacific, OCED 2004-5
Laos
Cambodia
Pakistan
Indonesia
Philippines
Nepal
MalaysiaIndia
Viet Nam
China
Asia-16
Bangladesh
Sri Lanka
Korea
Mongolia
Taiwan
Japan
Australia
New Zealand
OECD-300
5
10
15
20
25
1.3 1.4 1.6 1.9 2.2 2.3
3.9 4.0 4.14.6
5.1 5.3 5.7
7.5
9.810.7
16.0
17.1
18.5
20.5
Source: OECD 2009, Society at a Glance: Asia/Pacific
The recession and welfare
• Some opportunities• Challenge material values, excessive consumption
– Waste and pollution– Amount of goods discarded – 30% of food wasted in UK– Short term purchases – long term investment and purchases– Prevention rather than cure – diet, exercise, community life– Move to quality over quantity– Strengthen local markets and production, small businesses- Create more secure and stable market place
• Strengthen social capital– Community and neighbourhood– Family
National differences in public social expenditure
Some of the biggest national differences are in income support/pensions for older people
Privatising pensions – i.e.: UK/USA
Encouraging older people to stay in work, encouraging employer based provision.
Importance of public expenditure to generate jobs in recession.
Increasing ratio of public debt in western countries:
Profile of countries with high levels of public debtAbility to sustain high levels of debt?
JapanItaly
Italy (29.7)Austria (32.1)France (33.2)Poland (25.1)
Germany (31.1)Greece (23.6)
Portugal (28.2)Hungary (28.4)
Japan (22.9)Belgium (31)
Luxembourg (32.2)Finland (30.5)
Spain (25.5)Czech Republic (25.5)
Sweden (33.6)OECD-30 (24.4)
Slovak Republic (21.3)Switzerland (22.2)
United States (18.1)Denmark (31.5)
Turkey (11)United Kingdom (23.3)
Netherlands (24.3)New Zealand (23.5)
Norway (24.6)Canada (19.3)Ireland (22.5)
Australia (21.2)Iceland (19.9)
Korea (8)Mexico (7.9)
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0
Percentage of public-social expenditure spent on pensions, OECD, 2008
Percentage change in male labour force exit, retirement age, 2002-2007, (OECD 2008)
Japan
France
Slovak Republic
Spain
USA
Italy
Finland
Luxembourg
Austria
Iceland
Mexico
Switzerland
Denmark
-2 -1.8-1.6-1.4-1.2 -1 -0.8-0.6-0.4-0.2 0Korea
New ZealandSwedenHungray
GermanyAustraliaBelgium
TurkeyPortugal
NetherlandsNorwayPolandIreland
OECDUK
CanadaCzech Republic
Greece
0 0.5 1 1.5 2 2.5 3 3.5
Earlier and younger exitLater and older exit
Policy• Employment and training
– Young people– Older people
• Small and local business• Promote environmental innovation and green business• Encourage savings, long term pension provision, regulate debt• Increase taxes during up-turn, don’t promote unstable, unequal
development. Avoid assert bubbles• Needs better regulation of the economy• Avoid cutting health, as populations of developed countries getting
older• Innovation in public services, use of voluntary sector, community self
help