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Global economic justice: from aspirations to transformative action

Published by Anonymous (not verified) on Wed, 03/03/2021 - 3:00am in

By Sergio Chaparro Hernández

The unfulfilled promise of a just global order

The Universal Declaration of Human Rights states that everyone is entitled to a social and international order in which her rights can be fully realized. However, the functioning of the global economy today is far from aligned with the kind of order the Declaration prescribes.

Before the COVID-19 pandemic, inequalities between and within countries were already alarming. But confronted with disturbances such as pandemics, the world seems to move towards a greater concentration of power and wealth in the hands of the few, while disadvantaged populations are left behind. Lower-income countries face severe restrictions on their policy space in trade, fiscal, industrial, digital and monetary matters, and the global financial architecture exposes these countries to increasing systemic risks. International cooperation, which is highly necessary to address pressing global challenges, is replaced by competition between States against a background of increasing corporate power. The global order is not enabling the full realization of rights, but rather restricting human flourishing for the many while reinforcing privileges for the most powerful.

Neoliberalism and (the lack of) global democracy

Neoliberalism, understood as the project of creating a world tailored to the needs of capital, faces a serious crisis but has proven its ability to reinvent itself. It is true that some of the entrenched policy myths that its advocates had turned into ‘conventional wisdom’, such as the benefits of fiscal austerity or free trade for all, have been called into question in the context of the pandemic. But they might be revived under more friendly packaging. It is worth remembering how corporate attempts to capture the 2030 Agenda and the Paris Agreement are well advanced. In fact, international financial institutions (IFIs) are prioritizing private finance mechanisms -such as public-private partnerships- over domestic resource mobilization through progressive taxation or through development banks to achieve the Sustainable Development Goals (SDGs) and building ‘green’ infrastructure. Then, it would not be surprising that, in the absence of orderly and massive debt relief and restructuring, a new wave of austerity will be presented sooner than later as the only way to restore trust in domestic economies and let the private sector play the role of ‘Building Back Better’.

In this context, the lack of democratic governance on economic matters goes without saying. Currently, key decisions to address the unparalleled risks and instability that hyper globalization has created are being taken on an ad hoc basis in spaces such as the G-20, when not in opaque instances in which corporate interests prevail. These spaces lack any grounds in international law to operate as the captains of the global economy. International financial institutions continue to function under a plutocratic model that assigns decision-making prerogatives based on the outdated balance of power of the post war economy. In other fields, such as in global tax matters, the OECD controls the agenda and works as the de facto standard-setting global institution, in the absence of a multilateral body in which all countries can participate on an equal footing. On the investment side, there is a semi-private justice system in which investors can sue States before arbitration tribunals for exercising regulatory power to protect people’s rights, arguing that their expected profits will be reduced as a consequence. On the monetary front, while central banks in high-income countries absorbed the economic shock of COVID-19 by expanding their balance sheets in unprecedented ways and without meaningful democratic accountability, lower income countries struggled to overcome harsh liquidity constraints awaiting for global responses that haven’t occurred.

This democratic deficit and the consequent asymmetries of power in the global economy may seem, in principle, disconnected from the daily struggles of ordinary people or social movements. But they have everything to do with the unmet demands for better health care systems, adequate budgets to combat gender violence, or achieving substantive racial equality. Indeed, they are an important factor undermining the capacity of domestic institutions to deliver as well as a driving force behind the way opportunities for human flourishing are unevenly distributed. Among the interests neglected by the way the global economy works are not only those of marginalized communities in the Global South. As it is the case with the dollar hegemony in the international monetary system, hierarchical arrangements do not necessarily benefit the working class neither in the US nor in other rich countries. 

Expanding human capabilities in our shared world

Prior to the pandemic, there was an influential narrative that despite widespread pessimism and malaise the world was going through impressive progress, and things were essentially changing for the good. Champions of these views argued that world poverty had been declining and poor countries were progressively catching up with the richest, without explaining that the so-called ‘convergence’ is driven almost entirely by China and East Asian countries. Furthermore, any criticism of the global order calling for structural transformations used to be rejected under the idea that it could end up throwing the baby out (all the supposed benefits and successes achieved by the global order) with the bathwater (the sources of indignation or rage against this order). 

This line of thinking falls within the old way of economic reasoning that we must overcome. Countries have gone through paths of poverty reduction and improvements on basic indicators of well-being (not for everyone, and not evenly distributed), while putting more pressure on planetary boundaries and exacerbating inequalities and power asymmetries. Now we are seeing how decades of progress in the fight against poverty in several countries are being erased by factors that cannot be considered merely incidental to the way the global economic works. As scientific evidence has shown, pandemics are not exogenous shocks to economic systems: zoonotic diseases such as COVID-19 arise from the accelerated intervention and degradation of ecosystems by unfettered human activity. Likewise, preventing the catastrophic consequences of climate change depends on our determination to make major shifts in the way we produce, distribute, consume and value in order to adequately address the greatest collective action problem we have ever faced.  Even if States were to adopt pro-growth policies that lead to poverty reduction (such as carbon-intensive strategies of development) they could end up reinforcing power arrangements to preserve the status quo and precluding the emergence of the kind of coalitions that are needed to successfully address the risk of extinction and other systemic threats.

Therefore, we need an alternative framework for action – one that enables us to find solutions to our collective challenges in a world with ecological ceilings, while expanding the capabilities of communities and individuals to live according to their own values. Under such a framework, it should not be enough to make progress in basic indicators of well-being regardless of the path chosen, but also to build more equal relationships among States, communities and individuals and create the material conditions for cooperation. To that end, not only institutions and rules matter, but also the distribution of resources, voice, and power. 

Global economic governance and a new set of policies

The quest for global justice has focused on the institutional global arrangements that would enable individual States, and particularly low- and middle- income countries, to choose and implement a set of policies that allow them to catch up with the ‘developed’ nations of the world. Such a linear and monolithic view of progress ignores how far the world can go if resources, power and voice were given to communities to seek their own development paths under fairer global rules. 

Rather, global justice must be geared towards creating the power arrangements and the material conditions to allow the expansion of human capabilities in our common and interdependent world, leaving no one behind.

This means at least three key shifts in priorities as part of a broader effort to move towards a rights-based economy

First, expanding lower-income States’ policy space and supporting them for providing comprehensive social protection and implement an audacious set of policies to manage increasingly disruptive risks that could throw millions to poverty and unemployment in a matter of days. Public institutions must be in a position to fulfil basic rights that people can be deprived of due to the intricate network of interdependent connections the global economy has become, including through quality care services and the right to benefit from a compensated general reduction in working hours.  

Second, move towards a multi layered global governance system aiming to correct power asymmetries, and give voice and decision power to multiple actors in truly democratic global forums (including social movements, civil society organizations, grassroots, small-scale business and emerging actors). Such a multi layered system should prioritize ambitious targets in terms of carbon pricing, climate change adaptation, free access to public goods, debt restructuring, combating tax evasion and avoidance through taxing multinationals as units (not as separate entities) and the definition of a minimum effective corporate tax rate.

Third, creating the institutional, legal and material conditions for every person in the world regardless of their nationality, gender, race or socio-economic status to use the best available knowledge, technology, data, and a basic capital endowment to pursue their own goals, as well as to benefit from scientific progress and its applications (including free and timely access to COVID-19 treatment and vaccines as public goods). 

Geopolitics and collective action for justice

It would be naive to think that these changes can be achieved in a top-down direction and outside of geopolitical dynamics, but it wouldn’t be accurate either to ignore the contradictions of the current global order, and the increasing demands for systemic change. These changes require going beyond the narrow logic of nation-states as the main channels through which human interests in the global order are represented and negotiated. The gap between the possibilities that technological and productive advances have opened up and the inability to put them at the service of fundamental human needs reflects, in turn, the magnitude of what alternative schemes of social cooperation could achieve. For example, the same technological tools used for State surveillance, can also be used for emancipatory purposes if those tools were reappropriated by social movements and democratic forces, as  the spread of climate justice, anti-racist or feminist mobilizations beyond borders have shown. Amid the crude exploitation of fear and despair in times of Covid-19, it is worth pushing for transformative joint action and remember Thomas Fuller’s words: ‘the darkest hour is just before the dawn’.

About the author: Sergio Chaparro Hernández is an Economist and M.A in Law from the National University of Colombia. He serves as Program Officer at the Center for Economic and Social Rights (CESR). Twitter: @SergioChaparo8. Email address: schaparro@cesr.org

This article is a runner up in an essay competition held by the UNCTAD YSI Summer School on Globalization and Development Strategies. Participants of the school worked with senior scholars to fine-tune their drafts, and the top-5 articles were published here. For other articles in the series, please click here.

About UNCTAD UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964. Its headquarters are located in Geneva, Switzerland, with offices in New York and Addis Ababa. UNCTAD is part of the UN Secretariat, reports to the UN General Assembly and the Economic and Social Council, and are also part of the United Nations Development Group.

The post Global economic justice: from aspirations to transformative action appeared first on Economic Questions.

Tax Rates, Again

Published by Anonymous (not verified) on Wed, 03/03/2021 - 1:03am in

President Biden campaigned on sweeping policy plans; aiming to boost the economy, he pledged to revitalize America’s decaying infrastructure, build an equitable clean energy future, and create millions of well-paid jobs Continue reading

The post Tax Rates, Again appeared first on BillMoyers.com.

Highway to hell: How neoliberalism is driving “advanced” economies towards a Latin American-style accumulation pattern

Published by Anonymous (not verified) on Wed, 24/02/2021 - 3:43am in

By Baptiste Albertone

The weight of the past has sometimes been more present than the present itself. And a repetition of the past has sometimes seemed to be the only foreseeable future. 

Enrique Krauze

The history of independence in Latin America is a history of reproduction of the same, but different. The Napoleonic wars that weakened the Crown provided the opportunity for Latin American landlords to finally claim the full possession and administration of the fertile soil and abundant cheap labour at their disposal. As the first nations proclaimed their right to self-determination, the new states engaged in the consolidation of a new institutional framework, independent of the Crown, but reconfigured to fit the taste and interests of landed-elites and the colonial bourgeoisie. As it is common in the revolutionary processes of nations under colonial rule, despite the adhesion and (indispensable) active participation of the popular sectors, only a segment of the elite benefited from the structural reconfiguration of what the Marxist literature calls: a Bourgeois revolution.

The political rupture translated into economic continuity: The regime of accumulation inherited from the colonial period remained unaltered to reproduce a rentier-style capitalism. Indeed, the material reason for independence was not the transformation of the economic structure but the conquest of a larger share of its benefits by one class.  In addition to internal interests, a parallel international driving force supported the maintenance of this rentier regime: the centro-peripheral dynamics of the world economy, which placed Latin American nations in a subordinate and “dependent”  condition of natural resource providers for “core” economies. 

The role of economic ideas has certainly been decisive in the ability of the rentier regime to reproduce itself despite its deleterious effects. First, in the post-independence period, the neoclassical theory of comparative advantage offered a strong argument against developing a manufacturing sector through industrial policy. Later, in the early post-war years, the US administration-backed modernization theoryacted as a strong counter-discourse to classical development theorists’ arguments in favour of a structural transformation. Finally, from the late 1970’s onward, the infamous Washington Consensus came to provide an intellectual rationale to the political and historical project of capital and power concentration with de-industrialisation in the Latin American continent.

The socio-economic consequences of the rentier developmental mode are profound. As the Latin American structuralist school has vastly discussed, the rent-seeking style of development has favoured the persistence of 1) a large pre-capitalist sector, and 2) a highly heterogeneous intersectoral productivity. These structural determinants have major consequences on both pre-tax and post-tax income inequality dynamics. First, the economic dualism of the productive structure, a feature of rentier capitalism, implies that the share of labour in national income is very low In fact, land concentration and the scarcity of productive employment produce structurally unequal labour markets, with a very high number of informal workers acting as a reserve army. Second, the absence of a meaningful social contract between the governing elites and the popular sector gives rise to a regressive and fragile fiscal state, reluctant to influence the structural level of inequalities and to finance public goods. 

Therefore, the Latin American state was designed in such a way to guarantee the reproduction and the capture of the benefits of economic development by a wealthy minority, echoing Smith’s view that “[c]ivil government (…) is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all”.

The so-called era of democratisation in Latin America did not alter these power asymmetries. The structural configuration of extreme wealth and income inequalities as well as an almost unlimited ability to match economic power with political power gave rise to a form of quintessential Neoliberal state where, in José Gabriel Palma’s words the “new ‘democratic’ agenda of capital ensures that the state will fulfill its sole function of reproducing the new capitalist system”. The consequence is a unique level of inequality characterised by an unrestricted capacity of the elites to perpetuate themselves despite political changes.

But if the recipe for Latin American success once appeared to be a well-kept secret – only shared with some South African nations – it may no longer be the case. The neoliberal revolution that successfully altered labour markets and fiscal structures of most OECD countries is producing what Palma describes as a form of “reverse catching up”, with some advanced economies moving towards a Latin American style of accumulation. 

The graphs below illustrate the evolution of pre-tax inequalities in Germany, the United States, and the United Kingdom, three of the countries most affected by Neoliberal — or Ordoliberal in the German case — reforms.

Since the 1980s, these countries have experienced a dramatic rise in the share of the national income going to the individuals in the top 10% of the income distribution, mirrored by an almost identical, but opposite, trend affecting the share held by the bottom 40%. These tendencies are certainly not independent of the political and economic context that characterised the period.

From the mainstream viewpoint, the justification given for the tragic evolution of inequality is that of an growing capital-output ratio driven by entrepreneurial investment leading to an elevation in the share of profits in national income. 

Nonetheless, when looking at real investments’ figures, the picture turns out to be dramatically different from the expected dynamic. In the US, the gross private investment share of GDP has fallen by 3 percentage points since the late 1970s. On the contrary, what we see is a growing capacity from corporate elites to capture the benefits of economic growth with the help of both globalisation and financialization dynamics. Consequently, between the mid-1970’s and 2017, while real US GDP did more than triple, the real hourly wage of most Americans stagnated. 

What is at stake is a reconfiguration of the political space in the image of the Latin American oligarchical institutional style, where hierarchical economic principles subordinate the democratic and representative principles of politics embodied in the figure of the State. According to Branko Milanovic, the neoliberal restructuring while “it maintained the pretence of equality (one-person one-vote), (…) eroded it through the ability of the rich to select, fund, and make elect the politicians friendly to their interests”. In other words, neoliberalism should be understood as an active project that, as Quinn Slobodian notes it, “rather than ‘freeing’ or ‘disembodying’ ‘the’ market, [attempt] an ‘encasement’ of economic structures, isolating them from popular democratic demands”. 

By weakening the power of labour with more flexible workers’ protection, unravelling the Welfare State where it existed, engaging in a privatisation of public goods — the capital of those who don’t have any —, by adopting tax reforms that enhance regressive taxation and tax evasion, and by globally consolidating what Slobodian calls “the human right of capital flight”, neoliberalism demonstrated its striking effectiveness as a “technology of power” to rewrite the rules of the game in favour of capital accumulation. In the same way as Latin-American elites structured the newly born nation for the benefits of their interests, the recent success of Northern capitalist elites to create an environment suitable for the flourishing of their rent-extraction ambitions.

The structural reconfiguration that has been taking place since the mid-1970s is simultaneously endangering social and ecological balances, as well as putting societies at risk of implosion under authoritarian governments eager to establish Neoliberalism in a single country. We might be heading towards a dark horizon sketched by Slobodian as one of “brute competition in a zero-sum world where all that matters is the enrichment of an ethnically defined, territorially bounded national population”, where the protection of the environment – a common good by definition – is relegated to the tenebrous depths of national political agenda.

From this frightening observation arises an unsurpassable necessity to engage in a struggle for the transformation of economics — which today serves under its technocratic authority as the core instrument of the corporate elites’ political project — so that it becomes a democratic instrument for a fair and ecological economic transformation.

About the author: Baptiste Albertone is an MPhil candidate in Development Studies at the University of Cambridge and holds an MA and BA from the Institut d’Etudes Politiques de Paris. His research focuses on industrial policy and sustainable development in the Latin American context. Twitter: @BaptAlbertone 

This article is a runner up in an essay competition held by the UNCTAD YSI Summer School on Globalization and Development Strategies. Participants of the school worked with senior scholars to fine-tune their drafts, and the top-5 articles were published here. For other articles in the series, please click here.

About UNCTAD UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964. Its headquarters are located in Geneva, Switzerland, with offices in New York and Addis Ababa. UNCTAD is part of the UN Secretariat, reports to the UN General Assembly and the Economic and Social Council, and are also part of the United Nations Development Group.

The post Highway to hell: How neoliberalism is driving “advanced” economies towards a Latin American-style accumulation pattern appeared first on Economic Questions.

New Economics for Sustainable Development: Alternative economic models and concepts

Published by Anonymous (not verified) on Wed, 17/02/2021 - 3:00am in

By Dr. Chantal Line Carpentier

The widespread neoliberal model and the financialization of the economy is linked to the skewed system by which production factors are rewarded, whereby increasingly the lion’s share of income generated is going to reward capital compared to labor thereby increasing inequalities. While the maximization of profits at-all-costs economic model and its linear consumption and production patterns of “take, make, use, and dispose” are leading the rise of greenhouse gas emissions, biodiversity and ecosystems loss, and water, soil, and ocean depletion. The pandemic has exposed the interdependence and fragility of the economic, financial, environmental, and health aspects of human life, as well as the interrelation among these four dimensions as we meet increased material demand by encroaching on the last forested frontiers leading to increasing zoonoses. 

The Sustainable Development Goals (SDGs) and the Addis Ababa Action Agenda for Financing for Development (FfD) adopted  unanimously by all UN member States in 2015take into account these interconnections and thus provide roadmaps, principles, and means to channel previously unavailable funds that are being rolled out by governments and international organizations to support collapsing economies. These trillions in public funds that just materialized must help advance the transition to economic models compatible with the SDGs – already not on track to be met prior to the pandemic according to the Global Sustainable Development Report 2019. The transition is feasible within the planetary boundaries but we need new economic and financial models. UNCTAD has called for a Global Green New Deal (GGND) but it turns out that blue, orange, purple, and yellow economies together have a better chance to rebuild resilient, inclusive, and more equitable economies. And this is in line with requests made by UN member states that the United Nations ensure its work is tailored to the different contexts in which it operates.

The Green New Deal extends the US “New Deal” approach of massively investing in infrastructure projects to create jobs and get the US economy out of the Great Depression, to target jobs in the green and new economy sectors such as resilient construction, decarbonized energy, clean transport, and sustainable agriculture and cities. The Global Green New Deal (GGND) proposed by UNCTAD crucially includes an equality and equity dimension. Under the GGND, the international community would have to address the root causes of inequality. Spurred by international solidarity and the realization that our economic, health, and political systems are interdependent, developed nations should not only fund their green, blue, orange, purple, or yellow economic stimulus but also support that of developing countries. This would allow developing countries, where most new infrastructure is being built, to use circular economy principles, avoid investing in stranded assets, whilst generating jobs to help workers’ transitions to the new economy, such as from fossil fuels to renewables energy. 

The circular economy uses science, technology, and innovation to increase efficiency by designing for recyclability and re-use at the end-of-product lifecycle and cutting out waste and pollution from production systems. It aims to produce more with less waste, resources, and energy through a make-use-recycle-reuse circular pattern. Many countries have embraced the concept. For instance, Uganda does so by using biogas technology, e-waste management, organic agriculture, green manufacturing, and eco-industrial parks.  New business and distribution models are needed to achieve deployment at scale.

A related concept is “frugal innovation” whereby the aim is to do “better with less”. A frugal mindset creatively builds upon and repurposes existing technology and innovation and aims to provide low-cost, high-quality solutions to the most pressing issues of the world; it is thus more likely to view inequalities and climate change, and other social and environmental issues as business opportunities. The pandemic has accelerated the digitalization of the economy and the use of automation and artificial intelligence. In this sense, policies and fiscal stimulus that incentivize frugal innovations could accelerate deployment. While better reuse of agricultural and other scrap materials, as well as investment in rural infrastructure, could scale up access to basic services such as water, sanitation, and energy to previously un- or under-served populations while fostering rural MSMEs and job creation. 

The Blue Economy is the green economy concept adapted to the ocean economy that could benefit many Small Island Developing States (SIDS) with massive ocean resources and developing countries with long coastal areas.

Similarly, the creative or orange economy, which relies more on human capital and ICTs, can support youth entrepreneurship and job creation. The orange economy is the trade, labor, and production of the creative industries, such as advertising, design, publishing, software, Film/TV/Radio. It requires a labor force with the ability to think and act creatively. The creative economy supports sustainable entrepreneurship and empowers innovators, especially the generation that grew up in the digital era. Marketing, fashion, or media companies also influence values and consumption, and lifestyle choices as they are often operated by young people who tend to be purpose-driven and support sustainability. A dynamic creative economy can thus play a vital role in promoting other alternative economic models, especially in developing countries.

The yellow or Attention Economy is the monetization of consumer’s attention by platforms such as Google, Facebook, Instagram, Snapchat, Twitter, Tik Tok among others by collecting vast amounts of information on consumers. They monetize this information by developing increasingly sophisticated algorithms and persuasion techniques to keep people clicking scrolling, and sharing. These techniques prey on many of human core subconscious tendencies for pleasure or fear to trap people’s attention and alter human behavior or perception. This market, valued in the trillions of dollars, is increasingly believed to be sowing the increased polarization, extremism, and radicalization being observed currently.

However, if harnessed, the Attention Economy could become a powerful tool to effectuate the necessary behavioral changes needed to transition towards the world we want, thriving in authentic mutual connection by using technology to bring humanity back into alignment with the rest of nature and the SDGs.

It is also an opportunity to build their care economy while creating more decent jobs and addressing gender inequalities. The care or “purple economy” – with investment in education and health providers for children, elderly, people with disabilities – would create 2.5 times more  jobs than investment in physical infrastructure, create 30 times more jobs for women, and ease restriction on women’s time, and have greater and fiscal sustainability

To be even more inclusive and resilient, in line with the 2030 Agenda, these models could be supported by the Social and Solidarity Economy Organizations and Enterprises (SSEOEs). The Social and Solidarity Economy (SSE) is people-centered, addresses exclusion by reaching-out and incorporating marginalized groups in supply chains and facilitating their vertical integration into the larger economy. SSE also fosters shared prosperity through shared ownership of assets and means of production. It also promotes active citizenship, participatory democracy, and a pluralistic economy which bolsters social cohesion, accountability, and sound governance (SDG16).  

SSEOEs include worker, producer, and housing cooperatives that share the features of joint ownership and democratic governance. Being an integral part of their communities, these organizations also have a stake in ensuring the social and ecological integrity of their host communities in the short and long term, which is not necessarily the case for publicly listed or privately-owned companies. Moreover, cooperatives have shown to be a prolific job creator as an estimated 9.5 percent of the world’s working population are employed by cooperatives.

We cannot afford to waste another crisis. The pandemic is and will be costly. Funding the transition to green, blue, orange, and purple economies is feasible! We have a duty to use the trillions that have materialized to jump-start and accelerate the transition to new economic models that can tackle the complex interdependencies among the SDGs. If international solidarity is not sufficient justification to support developing countries, the interconnectedness of our health and the ecosystem demonstrated by the pandemic should be. 

About the author: Chantal Line Carpentier is the Chief of the UNCTAD New York Office of the Secretary-General. The views expressed in this publication/study are those of the authors and do not necessarily reflect those of the United Nations including the UN Conference on Trade and Development.  This article builds on a draft developed with Raymond Landveld and Olivier Combe, Economic Affairs Officers in the UNCTAD New York office. 

This article is a runner up in an essay competition held by the UNCTAD YSI Summer School on Globalization and Development Strategies. Participants of the school worked with senior scholars to fine-tune their drafts, and the top-5 articles were published here. For other articles in the series, please click here.

About UNCTAD UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964. Its headquarters are located in Geneva, Switzerland, with offices in New York and Addis Ababa. UNCTAD is part of the UN Secretariat, reports to the UN General Assembly and the Economic and Social Council, and are also part of the United Nations Development Group.

The post New Economics for Sustainable Development: Alternative economic models and concepts appeared first on Economic Questions.

Responsibility Shifting in Investment and Sustainability

Published by Anonymous (not verified) on Wed, 10/02/2021 - 3:00am in

By Soo-hyun Lee

When it comes to understanding the relationship between investment and sustainability, national and international governance institutions take a facilitative rather than regulatory approach. 

This is largely premised on two assumptions: (1) overreach would result in regulatory chilling that could limit investment and (2) regulating investment inflows would limit their potential economic impact. Though taking place in different forms between portfolio investments and foreign direct investment, a facilitative approach, in principle, shifts the responsibility of defining and understanding the interplay between investment and sustainability to market interactions: between the investor and the recipient. 

Assessing the facilitative approach to investment and sustainability within the microeconomics of sustainable development policy renders some noteworthy observations. Namely, creating a regulatory and governance environment that facilitates the consumer and producer, or in this case the recipient and the investor, shifts responsibility away from the government or prevailing institution from taking a more prescriptive approach: defining, implementing and enforcing a more substantial linkage between investment and sustainability.

A prescriptive role, while more vulnerable to the potential consequences of regulatory chill, may be necessary to administering the nexus between investment and sustainability because sustainability as a motivating factor does not naturally arise from the economic rationality that fuels market interactions. The relationship between investors and the recipients of investment, just as that between producers and consumers, does not function on the logic of advancing sustainability, but rather economic profit maximization. For this reason, should their interaction deviate from this core market-based logic by, for example, running deficits in consumer and/or producer surplus, or being involved in investments where risk supersedes returns, their interaction is jeopardized and likely to be discontinued. For that reason, shifting the responsibility to the consumer to fuse a more molecular bond between investment and sustainability seems destined to meet an inconclusive outcome as it saps away the essential motivation to shoulder that burden both materially in terms of resource allocation and substantively as a determination to form a meaningful investment and sustainability nexus.

Turning to views in sustainable consumption, Mont, et al (2013) identifies a similar paradox in their work for the Nordic Council of Ministers based on interviews with policymakers as a myth of sustainable consumption. They write that shifting the responsibility of sustainable consumption to the consumer limits state involvement to raising awareness rather than taking more proactive interventions against unsustainable consumption. The inherent problem behind shifting responsibility, they write, is that consumer behaviour is based on contextual factors that are “beyond the control of individual actors”, namely prevailing social norms that shape a consumer’s understanding of consumption in connection to sustainability. Presently, this norm is that sustainable consumption is an extraordinary decision that requires justification (Mont, et al, 35-37) as it deviates from market-based reasoning. The consumer requires additional justification for these decisions to justify that divergence: why to choose a product that provides comparatively less consumer surplus by paying a higher price or paying a price to receive less utility arising from consumption?

Lorek and Spangenberg (2013) explains responsibility shifting in sustainable consumption as the lock-in situation, where transitions to sustainability is contingent on more growth and technological innovation. This is reflected through the I = P*A*T equation, which offsets the added cumulative climate impact (I) as the function of the factor of population growth (P) and greater per capita affluence (A) by technological progress (T). With advances in (T), higher unsustainability derived from increasing (P) and (A) values are offset by technologies that enhance the sustainability of consumption. Herein lies one of the causes behind responsibility shifting, which is a “technological optimism” that firms will advance the state of technology if given the means to do so (Lorek and Spangenberg, 35). The central economic tenet behind this technological optimism is economic liberalism, which attributes the agency and primacy of economic optimality to market-based actors, in turn manifesting external intervention by the state or another prevailing authority as obstacles to that optimality. As such, the role of the state or prevailing authority is limited to providing information, shifting responsibility to market-based interactions (Lorek and Spangenberg, 40).

Responding to the situation of lock-in, which strives in the ecosystem of economic neoliberalism, Dalhammer (2019) advances that policy instruments are necessary to form a sustainable choice architecture that features sustainability as the default option. Lock-in prevents microeconomic transitions to strong sustainability, such as adopting ideas of consumptive sufficiency, thus rendering top-down involvement of the government or prevailing authority necessary (Dalhammer, 140). Simultaneously, policy instruments should be mobilized within a “reflexive governance mode”, which Mont (2019) identifies as a standpoint of continuous learning and acknowledgment of intertwining contextual factors that influence consumptive behaviour (Mont, 3). The policy instruments arising from this mode should aim to facilitate the transition from system optimization, which perpetuates the business-as-usual scenario, to system transformation, which seeks to integrate alternative solutions to the policy and governance process that move beyond the primacy of consumer sovereignty (Mont, 9).

Extrapolating these observations from sustainable consumption to the investment and sustainability nexus takes no stretch of the imagination. The engine that drives forward such extrapolation is simple yet powerful: more consumption and investment are better. The economic neoliberalism to which the origins of unsustainable consumption are traced also lays claim to the origin of crucial disconnects between investment and sustainability. This applies to both forms of investment, portfolio and foreign direct, as do many of the ruminations in sustainable consumption thought. This close albeit conceptual cross-disciplinary application warrants closer examination.

Sustainable portfolio investment has been building traction over the last three years with latter half of 2019 alone witnessing billions of USD identified under the environmental, social and governance (ESG) investment label. There remain considerable limitations to the concept, the most pronounced amongst them being a lack of shared understanding and standards of ESG metrics and stewardship. The World Bank Group (WBG) and the UN Principles on Responsible Investment have been on the forefront of institutional efforts to address these concerns. Despite the wide involvement of national pension schemes, central banks and government regulation, policy instruments remain within the system optimization mindset that shifts responsibility to the actual sustainability element of ESG to the producer-consumer.

The result of a soft sustainability approach to regulating ESG has exposed it to systematic greenwashing. The mentality in ESG continues to be growth-oriented, investors financing asset managers based on perceptual cues and little understanding of metrics and their shortcomings. With the entry of large names in finance like BlackRock and MSCI or international organizations like the WBG and United Nations through the PRI, portfolio investors are eased into the lethargy of technological optimism. Morgan Stanley’s Institute for Sustainable Investing identified promising trends in the sustainable investment epithet, employing a definition of sustainable investing that was not only substantively vacuous but very much aligned to the central economic ideological tenets of growth-oriented market fundamentalism.

Moving outward to foreign direct investment and its governance does little to mitigate these concerns. Despite international investment law being based on a regime of treaties and treaty arbitration, which directly involves governments, investment, less considerations of sustainability in investment, find no prescriptive definition. Investors, which notably include shareholders of companies, are given rights and protections in the state recipient to that investment, such as access to investor-State dispute settlement (ISDS), but the means to determine the substantive qualities of investment remain ad hoc and left the judicial discretion arising from investment arbitration (See, for instance, Mihaly International Corporation v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/00/2; Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4; Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia, ICSID Case No. ARB/05/10).

While there is no single government to adopt and then apply a reflexive governance model to the multilateral regime of international investment law, the United Nations can and should play a larger role in taking more prescriptive, system transformative action to ensure that sustainability is not simply a spillover of investment, rather sustainability leads decisions of whether investment should be admitted.

About the author: Soo-hyun LEE is a Agenda 2030 PhD Researcher in international economic law and sustainable development at Lund University, a Private Sector Integrity Research Analyst at the UN Development Programme, and the head consultant at the Information Symmetry Law and Policy Group. His interests and expertise are in the law and policies of international investment, trade, finance, and their interaction with sustainable development. His doctoral dissertation examines the normative and procedural aspects of sustainable development in investment treaty arbitration and their larger development implications.

This article is the winner in an essay competition held by the UNCTAD YSI Summer School on Globalization and Development Strategies. Participants of the school worked with senior scholars to fine-tune their drafts, and the top-5 articles were published here. For other articles in the series, please click here.

About UNCTAD UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964. Its headquarters are located in Geneva, Switzerland, with offices in New York and Addis Ababa. UNCTAD is part of the UN Secretariat, reports to the UN General Assembly and the Economic and Social Council, and are also part of the United Nations Development Group.

The post Responsibility Shifting in Investment and Sustainability appeared first on Economic Questions.

Lessons from the Pandemic (guest post)

Published by Anonymous (not verified) on Tue, 19/01/2021 - 11:19pm in

“A pandemic reverses the asymmetry of risk.”

In the following guest post*, Richard Yetter Chappell, a philosopher at the University of Miami, surveys some of the major philosophically interesting lessons from the pandemic and the U.S. response to it. (A version of this post first appeared at his blog, Philosophy, et cetera.)


[Anthony Moman, “A Thousand Cuts”]

Lessons from the Pandemic
by Richard Yetter Chappell

It’s generally recognized that our (American) response to the Covid-19 pandemic was disastrous. But I think far fewer appreciate the full scale of the disaster, or the most significant causal levers by which the worst effects could have been avoided. (Yes, Trump was bad.  But his public health disinformation and politicization of masking—while obviously bad—may prove relatively trivial compared to the mammoth failings of our public health institutions and medical establishment.) Much of the pandemic’s harm could have been mitigated had our institutions been properly guided by the most basic norms of cost-benefit analysis. Consider:

(1) The dangers of blocking innovation by default

In ordinary circumstances, the status quo is relatively safe and so untested medical innovations present asymmetric risks. That is, until they are proven safe and effective, it may be reasonable to assume that the potential risks of an untested product outweigh its potential benefits, and so block public access to such products until they pass stringent testing requirements. (There are arguments to be made that FDA regulations are excessively onerous even in ordinary circumstances, but I remain neutral on that question here. I take it that there is at least a reasonable case to be made in the FDA’s defense ordinarily. No such case for the FDA’s stringency seems possible in a pandemic.)

A pandemic reverses the asymmetry of risk. Now it is the status quo that is immensely dangerous, and a typical sort of medical intervention (an experimental drug or vaccine, say) is comparatively less so. The potential benefits of innovation likely outweigh the potential risks for many individuals, and vastly so on a societal scale, where the value of information is immense. So the FDA’s usual regulations should have been streamlined or suspended for potential pandemic solutions (in the same way that any ethics barriers beyond the minimum baseline of informed consent should have been suspended for pandemic research). This should be the first thing the government does in the face of a new pandemic. By blocking access to experimental vaccines at the start of the pandemic, the FDA should be regarded as causally responsible for every Covid death that is occurring now (and many that occurred previously).

Just think: if any willing member of the public could have purchased themselves a shot of the experimental Moderna vaccine back in the first half of 2020, its effectiveness would have been proven much sooner, and production and distribution ramped up accordingly, bringing about an end to the pandemic many months sooner than we will actually achieve. The sheer scale of the avoidable harms suffered here is almost impossible to over-state.  (If the FDA managed to prevent a Thalidomide-scale disaster every year for several decades, it still would not be sufficient to outweigh the harm of extending this pandemic by many months. But of course the real choice facing us is not so “all or nothing”. There’s no reason we can’t reap the benefits of FDA protection—if it is a benefit—in ordinary circumstances, while sensibly suspending policies that are very obviously inapt in the face of a pandemic.)

Of course, we couldn’t know in advance which (if any) experimental vaccines would work.  Even so, the expected value of my recommended policy (encouraging experimental vaccination followed by low-dose viral inoculation to confirm immunity) strikes me as clearly positive, even just given what we knew back in March. (If you disagree, please comment there — and show your working.)  If nothing else, consider how many lives would have been saved simply by requiring immunity certification for anyone working in elder-care.  Providing targeted immunity to high-risk transmission vectors in a pandemic should be an obvious policy priority. I’m appalled that it proved to be beyond our medical policy establishment.

I’ve focused here on the error of blocking opportunities for early immunity (whether through experimental vaccines or viral inoculation — and of course the failure to run vaccine challenge trials also belongs on this list), but the underlying lesson applies to many other errors in pandemic policy, including banning early Covid tests (in Feb 2020), banning quick tests throughout the summer, etc.  In future pandemics, the FDA should only be allowed to ban a pandemic-alleviating product after first producing a cost-benefit analysis to justify their intervention. In a pandemic, innovation must be permitted by default.

(2) Misguided perfectionism

Closely related to the above mistake is the implicit assumption that it’s somehow better to do (or allow) nothing than to do (or allow) something imperfect. Letting the perfect be the enemy of the good in a pandemic is disastrous. Blocking quick Covid tests for having lower accuracy than slow ones is an obvious example of this form of stupidity. Deciding in advance that a vaccine must prove at least 50% effective in trials to receive FDA approval is another. (Obviously a 40% effective vaccine would be better than nothing!  Fortunately it didn’t come to that in the end, but this policy introduced extra risk of disastrous outcomes for no gain whatsoever.)

Compare Dr. Ladapo’s argument in the WSJ that “Doctors should follow the evidence for promising therapies. Instead they demand certainty.” (Steve Kirsch expands on the complaint.) Again, this is a very basic form of irrationality that we’re seeing from the medical establishment.

Misguided perfectionism has also damaged the vaccine rollout due to prioritizing complex allocation schemes over ensuring that as many people are vaccinated as quickly as possible. (Some are letting doses spoil rather than “risk” vaccinating anyone “out of turn”!)

More examples are discussed here.

(3) Agency bias

Sometimes the pressure to do nothing seems to stem from inflating fears of potential downside, while disregarding missed potential gains. Relatedly, we tend to blame people for harms that stem from action (whether performed or allowed), and ignore or downplay harms that stem from inaction (& so are seen as built into the status quo). While this bias leads to avoiding policies perceived as “risky”, I don’t call it “risk aversion” because while some risks are inflated, others are irrationally neglected. It seems closely related to the omission-commission error. Whatever its roots, it strikes me as a very deep-rooted psychological bias, and one that is plausibly behind much bad thinking about the pandemic.

One recent example of this mistake: holding second doses of vaccine in reserve instead of giving out first doses first (and trusting that stockpiles would be replenished in time to provide booster shots before initial immunity waned). It’s easy to imagine how “first doses first” could go wrong. But it’s harder to see how that slight risk could mathematically outweigh the likely benefits of quickly vaccinating twice as many people, in “expected value” terms. As I previously noted (in relation to inoculation), it’s not enough to just flag a potential down-side of a policy proposal. Every option in a pandemic has downsides. We need to assess which option is the least bad, or the most promising, in expectation.

Many of the world’s problems (e.g. California’s wildfires) may ultimately be traced back to a kind of asymmetrically-biased blame-aversion incentivizing a bad status quo over even mildly “risky” solutions that would obviously be worth trying according to a neutral cost-benefit analysis.  Foolish inaction is frustrating enough in normal circumstances. It is outright disastrous in a pandemic.

(See also my companion post on the epistemic analogue of this asymmetric bias.)

(4) Status-quo bias

This is really just a summary of the previous points. But I cannot possibly emphasize enough what a mistake it is to privilege the status-quo in a pandemic. It’s just nuts. Quietly maintaining the status quo in a pandemic kills thousands upon thousands of people, and indirectly harms millions more. Yet everyone behaves as though it’s somehow intolerably “reckless” to even consider unconventional policies that have any potential downside (no matter how disproportionately greater their potential upside). Meanwhile, the only people I see outraged about the FDA’s obstructionism are libertarians who are always outraged by the FDA. How is it not obvious to all that obstructing medical progress is the single greatest threat in a pandemic? (If only this could inspire a fraction of the outrage that was directed at ordinary people for going to the beach…)

(5) Other failures of cost-benefit analysis

This all seems to come down to a failure to even attempt a proper cost-benefit analysis. This failure also took other forms. One of the most striking involved the blind prioritization of physical health over social, economic, and mental welfare. One saw this in the commonly-voiced idea that it was somehow “indecent” to question whether lockdowns might do more harm than good all things considered, for example. (Not to mention the Covid “security theatre” of closing parks!) N.B. I’m not here claiming that lockdowns were all bad. I’m claiming that cost-benefit analysis was needed to answer the question, and it’s bad of people to deny this.

Aside: I’m aware of studies showing that people are biased against experimentation, and more risk-averse for others than for themselves (both via Marginal Revolution). I’m sure there must be similar studies on what we might call “health bias”—prioritizing quantity over quality of life, and direct physical health threats over indirect effects on welfare—any pointers would be most welcome.

(6) Epistemic obtuseness

The medical establishment’s demand for certainty (mentioned under #2 above) is one kind of epistemic obtuseness. There are others worth mentioning. A big one is the assumption that we can have “no evidence” for P until a trial specifically testing for P has been conducted. (As Robert Wiblin jokes, “We have no data on whether the Pfizer vaccine turns people into elves 12 months after they take it.”) The WHO trumpeted that there was “no evidence” that Covid antibodies conferred any immunity, when in fact we had perfectly good (albeit uncertain) evidence of this based on (i) what we know of similar viruses, and (ii) the absence of large numbers of confirmed reinfections that we would expect to see after X months of a raging global pandemic if recovery did not confer any immunity whatsoever. (The latter evidence obviously got stronger the larger the value of X became.)

(7) Mundane practical failures

This post has focused on what I think are philosophically interesting lessons from the pandemic—mistakes that stem from systematic biases in our thinking, for example. There are more mundane errors too: failures to plan for the logistics of vaccine distribution, and other “maddeningly obvious” stuff. As a philosopher, I don’t have any special expertise to add there, but readers are very welcome to contribute in the comments with whatever they take the biggest mistakes (and associated lessons) of the pandemic to be.

The post Lessons from the Pandemic (guest post) appeared first on Daily Nous.

Podcast: Has social science influenced the policy response to COVID-19?

Published by Anonymous (not verified) on Wed, 06/01/2021 - 11:00pm in

Tags 

Featured, policy

The latest episode of LSE IQ poses the question: What’s the point of social science in a pandemic? When governments across the world were forced to take unprecedented measures in response to COVID-19 in 2020, much attention was focused on the teams of scientific and medical experts assembled to advise and develop national policy responses. … Continued

‘American Bonds’ by Sarah Quinn — The Best Book in Economic Sociology and Political Economy for 2020

Published by Anonymous (not verified) on Sat, 26/12/2020 - 12:34pm in

The ES/PE global academic community is pleased to announce the granting of the Best Book in Economic Sociology and Political Economy Award for 2020 to Sarah Quinn‘s superb, enlightening, thoroughly researched and engagingly written American Bonds: How Credit Markets Shaped a … Continue reading →

And Here I Had Some Faint Hope for Biden

Published by Anonymous (not verified) on Fri, 20/11/2020 - 10:03am in

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policy

After the election, Senate minority leader Schumer noted that Biden, using an administrative order, could wipe $50K worth of student debt off every student loan debtor. Coming from someone so senior, this seemed like a serious proposal. It was hard to believe Biden would do something like that (after all, the bankruptcy bill that made discharging student loans in bankruptcy was his baby), BUT he does need a win and Schumer isn’t exactly a radical left-winger.

So I held out some small hope Biden might actually do it; something wide-based which would make a huge difference in people’s lives. Something BIG and GOOD.

But Biden is a means-testing, caviling centrist to his core, apparently unable to even conceive of broad based popular actions:

President-elect Joe Biden affirmed his support for erasing some student debt “immediately.” The provision calls for the federal government to pay off up to $10,000 in private, nonfederal student loans for “economically distressed” borrowers.

Sigh.

This is okayish, and it will help some people, but no one is going to be singing Biden’s praises to the heavens. He was offered an easy win, with party centrist support, and he refused to do it.

It’s good politics, it’s good economics (it frees up a ton of demand), and it’s morally the right thing to do.

(I am fundraising to determine how much I’ll write this year. If you value my writing and want more of it, please consider donating.)

But, and this is important, Biden almost certainly doesn’t believe that. He believes in the sanctity of debts, that the government should knee-break (errr, “enforce”) for private lenders, and that only the most desperate or the richest Americans should get help from the government.

This is how he has acted throughout his career. This is what he thinks is right, and proper, so it is what he is doing. The idea, pushed by many liberals, that he could be pressured to implement or champion left-wing policies once he was elected was always ludicrous. Even more ludicrous were the comparisons with FDR. FDR was already a left-winger when he became President; as governor of New York, he had run the most aggressive relief program in the US.

When FDR said “Make me do it” what he meant was that he already wanted to do it, but needed public pressure and support. It was his way of saying “Make a lot of noise and demands, I want you to.”

Biden doesn’t want to do left wing populism. He never has during his career and he’s not going to change.

Again, that doesn’t mean he won’t be better on some things (Iran, national parks, Covid), just that he’s not going to govern the way progressives want. In Biden’s case, you truly WILL have to make him do things, like gays forced Obama to support them by both donation-striking and getting in his and his wife’s personal space, and making their lives uncomfortable.

Since most progressives aren’t willing to do that (gays remember AIDS and know their rights and power are a matter of life and death), very little will be gotten from Biden that is good. He is going to have a ton of pressure on him from the right, as well, and in his career he has shown much more willingness to give the right what it wants than the left. This, again, is because he actually believes the right is legitimate and that the left isn’t.

It’s going to be a long few years, though, given his frailty, we may wind up talking about President Harris.

Take care of yourselves, and don’t expect big help from the new administration.

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Reducing gender inequality and boosting the economy: fiscal policy after COVID-19

Published by Anonymous (not verified) on Wed, 30/09/2020 - 6:00am in

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Blog, Australia, policy

Introduction

The economic impacts of the COVID-19 health crisis have increased gender inequalities in the Australian labour market. With women over-represented in lower-paid, insecure and casual jobs, and shouldering the majority of unpaid domestic and care labour prior to the pandemic, the crisis has rapidly widened the gap between men and women’s economic security.1 The prolonged economic downturn is expected to deepen this pattern further. Economic stimulus policies that prioritise gender equality will be essential to building a recovery that is inclusive and maximises jobs, productivity and human capital formation.

Labour force survey data covering the immediate impact of the crisis show that women’s employment has been hardest hit, contracting by 7.4 per cent between February and May 2020 compared with 5.6 per cent for men, equating to 457,000 jobs lost by women.2 The female participation rate has also fallen sharply – down 3.5 per cent compared to 2.7 per cent for men. The withdrawal of so many women from the labour market reflects not only the severity of the economic contraction, but also the intensification of women’s domestic workload during the COVID crisis and complex household calculations about women’s labour supply. Current policy settings on the cost of early child- hood education and care (ECEC) are likely to further constrain women’s re-engagement in the labour market during the economic downturn.

Sustained unemployment and withdrawal of women from the Australian labour market will cost the Australian economy billions of dollars in lost productivity and growth, compromising women’s long-term economic security.3 The good news is that governments can use fiscal stimulus as a powerful policy tool to boost women’s employment while also strengthening economic growth.4 The remainder of this paper will highlight two areas of fiscal policy that can deliver a strong, gender-inclusive recovery.

Stimulus investment in social infrastructure

Traditionally, economic stimulus has been focused on large-scale physical infrastructure projects that disproportionately employ men and leave women largely excluded from the immediate benefits of stimulus measures. However, a growing body of literature is pointing to the economic benefits of ‘gender-responsive fiscal measures’.5 New research on the employment gains of investment in social infrastructure, such as education, health and care services, show there are more employment-intensive and gender equitable forms of macro-economic stimulus available to governments during periods of economic crisis.6

A study of seven OECD countries shows that public investment equal to one per cent of GDP in labour intensive care industries generates more total employment, including indirect and induced employment, than investment in construction – especially for women, and almost as much employment for men.7 The economic simulation for the Australian economy shows that:

  • The boost to direct employment from a one per cent GDP investment in care industries is almost five times greater than the direct employment generated in construction;
  • The impact of one per cent GDP investment in care industries on the overall rate of employment (direct, indirect and induced)8 would be twice that of investment in the construction sector;
  • Women stand to gain two-thirds of the new jobs created under the care sector scenario but only one-third of jobs generated if the investment was in construction;
  • Investment in care reduces the gender pay gap whereas investment in the construction sector widens the existing gender employment gap in favour of men.

Other recent analysis reveals the employment and gender equality benefits of stimulus in labour intensive feminised sectors. Comparing a $1 million public investment in education, health and construction, Richardson and Denniss estimate the employment boost from stimulus in male-dominated construction to be minimal (only 1.2 jobs) compared to the female-dominated education (14.9) and health (10.2) sectors.9 Of the jobs created in education and health, the majority are estimated to go to women (10.6 and 7.9 respectively) with only 0.2 of the jobs in construction.10

Employment creation for men is also greater in education and health than in construction. This is not to suggest that stimulus should not be made in construction, only that government should take a more balanced approach to fiscal policy that reflects the contemporary structure of the economy, generates maximum employment outcomes per investment dollar and includes women.11

COVID recovery stimulus in the care, health and education sectors has additional economic benefits: it increases community wellbeing and human capital formation, boosting long term productivity; it frees those with caring responsibilities (mostly women) to engage in paid work by making care services more widely available; and the well-being impact of increased resourcing and jobs in health, education and care ameliorates broad patterns of socio-economic inequality and disadvantage that the pandemic crisis has exposed and increased.12

Subsidised early childhood education and care (ECEC)

Affordable and accessible high quality early childhood education and care (ECEC) is a critical piece of economic infrastructure in normal times, and even more so in the COVID recovery. The Prime Minister, Scott Morrison, acknowledged the sector’s ‘vital’ economic contribution as essential to ‘running Australia’ when he announced free ECEC as part of the child care relief package in April.13 But by early June, the government announced free ECEC would end, and introduced a transition package that reinstated the Child Care Subsidy (from 13 July 2020) under which many parents pay a gap fee.14 ECEC advocates, providers and researchers are concerned that the return to the previous system is not the most appropriate funding model for an economy with high rates of unemployment.15 Advocates are particularly concerned that if the out-of-pocket cost of ECEC for families facing unemployment or significant economic insecurity remains high, it will be women who forgo employment and retreat to the home to undertake child and other care duties that the pandemic has intensified.16 The slump in female workforce participation in April and May shows the crisis is already having a negative impact on women’s labour supply. The return of out-of-pocket fees for ECEC is likely to increase this trend, particularly given the high effective marginal tax rates that are a structural feature of the interaction between Australia’s ECEC system of subsidies and other family payments.17Results from initial surveys by the sector confirm this possibility and suggest the current structure of ECEC policy will not support a dynamic and gender inclusive economic recovery.18

Public subsidies for ECEC that provide universal access for all Australian children would deliver a triple-win for the Australian economy. First, they would support women’s labour force participation in the recovery period, generating billions of dollars in national wealth and boosting GDP.19 Second, the upswing in demand for ECEC would generate additional jobs in the ECEC sector, the majority of which would be done by women.20 Third, universal access to ECEC will promote the education, well-being and life-chances of all children, especially those from vulnerable households.

The interests of children have been largely missing from the debate about ECEC that the pandemic has sparked. UNICEF reports the number of vulnerable children has increased on account of pandemic-induced unemployment and the impact of the lockdown on health and schooling.21 ECEC can help prevent the long-term impact of this disruption on children’s learning and development outcomes. Stimulus investment in ECEC will pay strong economic dividends and curb intergenerational inequality.22

The conditions of the COVID crisis call for a more systematic review of public funding for ECEC. The pandemic provides government with an opportunity to review and reconstruct public funding for ECEC to deliver long term participation and productivity benefits that will support the recovery and deliver prosperity into the future.23

These gender-responsive fiscal measures do not stand alone. They must be supported by two other essential inputs: women’s inclusion in leadership for recovery planning24 and gendered employment analyses of all recovery policy options, including the impact of fiscal policy on unpaid work. Unpaid work must be included as part of the policy landscape given its massive contribution to economic growth and productivity.25 Failure to do so will distort policy making.

The economic cost of a gender-blind approach to the government’s COVID recovery strategy will be very high in terms of Australia’s economic growth and prosperity. It will compromise the efficiency of our labour markets, constrain productivity, and limit wellbeing while increasing economic insecurity and reducing labour force participation for women. Current fiscal policy settings will discourage women’s labour force participation, but it is not too late to change tack. The economic downturn is expected to be long and deep, leaving government plenty of opportunities to implement gender-responsive fiscal measures: Australia’s prosperity and wellbeing depends upon them doing so.

Endnotes

  1. Cooper, R. and S. Mosseri ‘Pandemic has impacted women most significantly’ June 5, 2020 https://www.smh.com.au/business/workplace/pandemic-has-impacted-women-most-significantly-20200604-p54ziu.html
  2. ABS labour force survey, Cat no. 6202.0 – Labour Force, Australia, May 2020. https://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0
  3. Gaps in gender equality pre-COVID have been estimated to cost the Australian economy approximately $225 Billion or 12% GDP, see McKinsey Global Institute, The Power of Parity: Advancing Women’s Equality in Asia Pacific, April 2018. https://www.mckinsey.com/featured-insights/gender-equality/the-power-of-parity-advancing-womens-equality-in-asia-pacific.  More targeted estimates have found that if an additional 6 per cent of women entered the workforce, up to $25 billion would be added to GDP (Grattan Institute, 2012, Game-changers: Economic reform priorities for Australia); and the OECD estimates that closing the gender participation gap by 75 per cent could increase growth in Australian GDP per capita ( OECD, 2012, Closing the Gender Gap: Act Now).
  4. Fabrizio, S, A Fruttero, D Gurara, L Kolovich, V Malta, M M Tavares and N Tchelishvili, 2020, ‘Women in the Labor Force: The Role of Fiscal Policies’, IMF Staff Discussion Note No. 20/03. https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2020/02/11/Women-in-the-Labor-Force-The-Role-of-Fiscal-Policies-46237
  5. Ibid.
  6. See for example, Antonopoulos, R. and K Kijong, 2011. Public job-creation programs: The economic benefits of investing in social care? Case studies in South Africa and the United States, Working Paper, Levy Economics Institute, No. 671; Ilkkaracan, I., Kijong, K., and Kaya, T. 2015. The Impact of Public Investment in Social Care Services on Employment, Gender Equality and Poverty: The Turkish Case. İstanbul Technical University, Women’s Studies Center in Science, Engineering and Technology and Levy Bard Institute. http://www.levyinstitute.org/pubs/rpr_8_15.pdf
  7. de Henau, J and S. Himmelweit, 2020, ‘The gendered employment gains of investing in social vs. physical infrastructure: evidence from simulations across seven OECD countries’, IKD Working Paper No. 84 April 2020, http://www.open.ac.uk/ikd/sites/www.open.ac.uk.ikd/files/files/working-papers/DeHenauApril2020v3.pdf The study includes Australia, Denmark, Germany, Italy, Japan, the UK, and the USA.
  8. Direct employment includes employment created in the industry in which investment takes place; indirect employment refers to those jobs created by new demand in that sector; and induced employment includes the employment effects of increased household income generated by the initial investment.
  9. Richardson, D. and R. Denniss, 2020, ‘Gender experiences during the COVID-19 lockdown, The Australia Institute, June 2020. https://www.tai.org.au/sites/default/files/Gender%20experience%20during%20the%20COVID-19%20lockdown.pdf
  10. These results only refer to the direct employment effects of additional spending on each industry and does not include the indirect or ‘second round’ employment effects that can be expected over time.
  11. The Productivity Commission recently acknowledged that failure to include sectors such as healthcare and social assistance, education and training, and public administration and safety from assessments of national economic performance “is increasingly problematic given their increasing significance.”(2019, p5) https://www.pc.gov.au/research/ongoing/productivity-insights/2019/productivity-bulletin-2019.pdf
  12. Noble, K., P. Hurley and S. Macklin, June 7, 2020, ‘Number of Australia’s vulnerable children is set to double as COVID-19 takes its toll’ https://theconversation.com/number-of-australias-vulnerable-children-is-set-to-double-as-covid-19-takes-its-toll-140057; Andrew Leigh ‘The poor bear the burden of the coronavirus downturn, but inequality is not inevitable in Australia’ https://www.theguardian.com/commentisfree/2020/apr/13/the-poor-bear-the-burden-of-the-coronavirus-downturn-but-inequality-is-not-inevitable-in-australia
  13. On 2 April 2020, the Australian Government announced the Early Childhood Education and Care Relief Package. Prime Minister, Minister for Education, media release, April 2nd 2020 https://www.pm.gov.au/media/early-childhood-education-and-care-relief-package; 9 News, April 2nd https://www.youtube.com/watch?v=9mbi4rum9aI
  14. https://ministers.dese.gov.au/tehan/return-child-care-subsidy
  15. Early Childhood Australia, May 2020, Submission to the Senate Select Committee on COVID-19 and The Australian Work + Family Policy Roundtable, June 2020, Submission to the Senate Select Committee on COVID-19 https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/COVID-19/COVID19; Georgia Dent, 19 June 2020 ‘Dan Tehan: Please note more research showing families cannot afford pre-COVID19 childcare fees’, https://womensagenda.com.au/latest/dan-tehan-please-note-more-research-showing-families-cannot-afford-pre-covid19-childcare-fees/; June 5 2020 ‘1 in 4 families will face higher out of pocket fees for childcare in July’ https://womensagenda.com.au/latest/1-in-4-families-will-face-higher-out-of-pocket-fees-for-childcare-in-july/
  16. Priestly, A., 9 June 2020, ‘As childcare fees are reintroduced in July women’s participation will pay the cost.’ https://womensagenda.com.au/latest/as-childcare-fees-are-reintroduced-in-july-womens-participation-will-pay-the-cost/; The Parenthood, Media release 1 June 2020, https://d3n8a8pro7vhmx.cloudfront.net/theparenthood/pages/20/attachments/original/1590987325/200601_-_Full_survey_data_case_against_snap_back_MR.pdf?1590987325;
  17. Stewart, M. August 2018, ‘Personal income tax cuts and the new Child Care Subsidy: Do they address high effective marginal tax rates on women’s work?’, TTPI – Policy Brief 1/2018, https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstu...
  18. The Parenthood, Media release 1 June 2020, ibid; F. Hunter ‘Thousands of families could withdraw from childcare if fees reimposed’, The Sydney Morning Herald, May 29th https://www.smh.com.au/politics/federal/thousands-of-families-could-withdraw-from-childcare-if-fees-reimposed-20200529-p54xq9.html
  19. McKinsey Global Institute, 2018, ibid.
  20. More than 90% of ECEC workers are female. https://docs.education.gov.au/system/files/doc/other/2016_ecec_nwc_national_report_sep_2017_0.pdf
  21. Noble, K et al, 2020, ibid (footnote 8); UNICEF, April 3 2020, ‘Protecting the most vulnerable children from the impact of coronavirus: An agenda for action’, https://www.unicef.org/coronavirus/agenda-for-action
  22. Analysis commissioned by the Front Project, and conducted by PwC, showed that every dollar invested in pre-school education returns $2 in national economic benefit to the country, https://www.thefrontproject.org.au/initiatives/economic-analysis. US analysis finds access to high quality ECEC delivers an economic return as high as 13% per year, per child, over a lifetime, see https://www.nber.org/papers/w11331.pdf and https://heckmanequation.org/resource/13-roi-toolbox/
  23. Wood, D., K. Griffiths and O. Emslie, April 27, 2020, ‘ Permanently raising the Child Care Subsidy is an economic opportunity too good to miss’ https://theconversation.com/permanently-raising-the-child-care-subsidy-is-an-economic-opportunity-too-good-to-miss-136856
  24. United Nations, 9 April 2020, Policy Brief: The Impact of COVID-19 on Women, https://www.unwomen.org/en/digital-library/publications/2020/04/policy-brief-the-impact-of-covid-19-on-women; Garikipati, S. and U. Kambhampati, June 3,2020, ‘Leading the Fight Against the Pandemic: Does Gender ‘Really’ Matter?’. Available at SSRN: https://ssrn.com/abstract=3617953 or http://dx.doi.org/10.2139/ssrn.3617953
  25. Elson D. 2004, ‘Social Policy and Macroeconomic Performance: Integrating ‘the Economic’ and ‘the Social’’. In: Mkandawire T. (eds) Social Policy in a Development Context. Social Policy in a Development Context. Palgrave Macmillan, London, https://doi.org/10.1057/9780230523975_3

Originally published by the Committee for Economic Development of Australia (CEDA)

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