Friday, 26 June 2009

Cold Shoulder for the UN Financial Crisis Meeting

by Richard Jolly

The meeting of the G20 last April was a big event – 20 countries attended, including most of the international economic power brokers. In contrast, the United Nations Conference on the World Financial Crisis and its Implications for the Developing World, which opened in New York on Wednesday 24 June, has only low level delegations from the developed countries, by Tuesday 23 the US had not even confirmed its participation.

The general coolness of the developed countries is hardly surprising. It has always been their policy to treat the UN as a sideshow on economic matters. Serious debate and decisions, they believe, should be taken in the Bretton Woods Institutions, where voting is weighted in their favour.

This approach is unfortunate. It leaves the developed countries visibly continuing policies which lack legitimacy and are failing the poorer countries. A common criticism of the G20 was that it excluded the great majority of middle-sized and poorer countries – some 170 out of the 192 UN member states.

This sidelining ignores the UN’s record of past contributions. It is the UN which first came up with the need for debt relief for poorer countries in the 1970s, adjustment with a human face in the 1980s, proposals for the Millennium Development Goals in the 1990s. All these ideas were met with scepticism or opposition when first proposed but later became mainstream. The world would arguably have lower levels of poverty and inequality if they had been accepted and adopted sooner.

This UN conference has already come up with a number of specific proposals for tackling the crisis, focussing on the needs of all countries with clear attention to the smaller and poorer ones not invited to the G20.

Like the G20 proposals, the UN Commission recommends a number of counter-cyclical measures of stimulus, co-ordinated to hasten recovery from the crisis, to hold back protectionist actions and to introduce greater regulation over financial and other markets. These measures are set in a frame of longer-term actions to tackle climate change and other environmental threats. The approach makes the important point that though decisions on these actions must be national, their adequacy must be judged on their global impacts.

The proposals also include a number of recommendations from which poorer developing countries would directly benefit including the creation of a new credit facility, new mechanisms for innovative finance, more policy making space for developing countries and opening advanced country markets to least developed countries’ exports.

The Commission has also proposed ideas for institutional reform of the International Monetary Fund (IMF). These included not only more seats and voting power for developing countries, in line with G20 proposals, but also the introduction of double or multiple majority weighting. This would be a major step toward credibility and legitimacy of decisions of the Bretton Woods Institutions. The Commission also proposed a Global Economic Coordination Council, as a global representative forum meeting annually at Head of State level, bringing together all the important global economic institutions, such as World Bank, the IMF, the World Trade Organisation, the International Labour Organisation and the UN secretariat and supported by an International panel.

There are other proposals – many sensible, many long-term, all bold. The agenda for debate and discussion is far more creative than emerged from the G20 and the proposals deserve serious consideration and it is in the interests of all countries to take them up in the months ahead. There is something for every part of the world to gain by avoiding repetition of the most serious financial crisis since the 1930s.

Tuesday, 2 June 2009

Larry Elliott is wrong about the 'shortage' of great economists

by Neil McCulloch

Was anyone else disappointed to read Larry Elliott's article in the Guardian on 1 June bemoaning the 'shortage' of great economists today? It demonstrates how out of touch with the real world of economics he is.

There are many superb economists working on extremely policy relevant issues affecting the world today. As only one example, last week I interviewed Paul Collier at the University of Oxford – an enormously influential economist who is tackling real policy problems about what generates and what stifles growth.

There are many others, including in the UK. Larry Elliott’s rant simply demonstrates how out of touch he is with the modern profession. He perpetuates the myth that economists only teach perfect competition, or that we believe that the price mechanism always works to align demand with supply. This is nonsense. Most of the maths that he complains about is trying to model the infinitely more complex world of uncertainty, imperfect competition, and asymmetric information. This is a point which the only modern economist he praises, Paul Krugman, makes with elegance in his chapter Models and Metaphors about the value of mathematical models in his excellent Development, Geography and Economic Theory (MIT, 1997).