Panel:

Ranil Salgado, IMF
Emma Seery, Oxfam GB,
Jeremy Mark, IMF
Hans Weisfeld IMF,
Kevin Watkins of Oxford and Brookings

Ranil Salgado

The issues affecting jobs, growth and inequality, three major issues:

Technological change, the growth of the global labour force including demographic shifts, plus the dynamics of trade and financial globalization, forces underpinned by the great recession despite widening divergence of income growth in different regions and income brackets. Within country, despite the complex overall picture, there is a consistent pattern of increasing inequality. Also a major theme is the rise of many emerging markets, which have led to regional income gains and declines in poverty.

A summary of that global decline is shown on a global level, mainly China and India, but concomitant with increasing in-country inequality, overwhelmingly.

The main driver we found for this in-country inequality growth. The contributions from technology and financial globalisation have led to increasing inequality, unlike trade globalisation and other factors.

A final factor, demographics, is seen to show declining dependency ratios (of non-working to working age populations), but as the old age portion of this aspect increases.

Growth Commission found that defining or accounting for growth cannot be attributed to a general formula but to common characteristics. Additionally there can be a ‘diagnostic’ approach in order to identify what are the key binding constraints to growth. Structural transformation going forward will also be an issue for advanced countries, as shifts occur from trade in goods to trade in services.

Are there specific challenges for countries according to income bracket, how do they differ? For advanced countries a key issue is to promote a movement from goods in services in such a way that it increases productivity growth, allied to the challenge of aging populations or shrinking labour forces.

Job Creation

Based on micro flexibility and macro flexibility, thus the role of government is to provide fundamentals such as macro stability and fiscal policy supportive of job creation, including by setting suitable labour market policies that do not impeded resource reallocation, plus lifting barriers to private sector job creation.

There can be a basis for explicit jobs strategy, even if not clear output gain, e.g. to support aggregate demand, or specifically to create jobs for segments such as youth or indeed to attach the local economy to global supply chains.

So what is inclusive growth? Growth accompanied by productive employment, efforts to establish equality of opportunity, and to redress some of the inequalities in outcomes. Several channels for inequality to harm long-run growth.

Hans Weisfeld- What does this mean for IMF member countries

In the short term this can mean ensuring the medium term support and aggregate demand, and minimising short-term adverse impacts of structural reforms. In the long term there is space for countries to address long term inequality issues.

For large dynamic emerging market countries, who are nevertheless catching up to advanced economies’ income levels, thus policies that protect those adversely affected by the structural changes still being undertaken are likely to be a part of this.

In some developing countries, rent-seeking (as in developed) can be a significant barrier to inclusive growth. Also resource endowments can complicate the challenge for inclusive growth.

Recommendations:

• Maintain macroeconomic stability as a foundation for growth
  • Does this mean no inflation? Not necessarily, especially for developing countries, at least as long as it remains in single digits.
• We should better adapt advice to different growth challenges,
  • Greater country specificity
  • Focus on a few binding constraints
  • Minimise adverse short-term effects of structural reforms
• Strengthen advice on labour market policies
  • Distinguishing between cyclical and structural determinants of unemployment
  • Reflect fully the state of knowledge on labour market policies
• Strengthen dialogue on inclusiveness
• Collaborate with other institutions taking into account different mandates and areas of expertise
• Fiscal policies for growth can include
  • Expenditure to preserve spending on public investment during fiscal adjustment
  • Taxes to reduce labour and capital taxes, and raise consumption, wealth and property taxes, including considering how to target support including cash transfers to vulnerable groups
  • Expenditures in developing countries to rationalise spending on energy subsidies
• Fiscal policies for inclusion
  • Rely more on progressive revenues measures such as wealth and property taxes
  • Target spending better to lower-income groups

Jobs strategies specifically for developing countries include consideration of the need to avoid extremes of under or over excessive social protection. Financial inclusion is also an important buffer to protect citizens.

A final important component of inclusion is the role and access to the labour market of women, and in our paper we address this in a special feature. We outline there which elements are holding back female labour participation, including establishing equal rights in property and a host of other interventions.

Kevin Watkins

A huge shift in the Fund has occurred, as the ‘great challenge of our generation’ as the IMF MD put it recently at Davos.

On the question of inequality and inclusion, in the paper was a fairly conventional view of the drivers of drivers of inequality. What perhaps has not been addressed in the paper is a similar dynamic in emerging markets are the increasing returns to education are increasingly rising exponentially, and those outside of the education track. The factor that was excluded therefore was political choice. Looking at the winners and losers, and the policies that create them, are not driven by technology but are driven by power, to shift power away from organised labour, but to subsidising services to the better off, which occurs in the developing world and in developed countries. As such, fiscal adjustment hits the poor, and in particular the young poor. One of the great servies that the Fund could do in this area is to expose the political economy component into the equation.

I think also – and I would like to see the Fund be strong on this – when you get these extreme inequalities they became self-reproducing, for entirely political reasons. Pakistan is a case in point, without the ability to deliver health or education to the rural poor. Its poor revenue is a big part of that, and can be explained by the fact that the rich wrote the tax code to facilitate evasion. The Fund figures on African states also bears this out, and as such it would be helpful for the Fund to bring in an evidence base to explore this issue.

There is a very witty box in the report about what do we mean by equality  – the basic approach is that all of us are in favour of it but nobody wants to define it, and god forbid we would talk about redistribution. The Bank discusses the imperative for reducing inequality, but tis actual target is to monitor the income of the bottom 40%, which has nothing to do with inequality and is an example of the fuzzy thinking around this issue that occurs here at the World Bank.

This redistribution issue is so important, as my graph shows – based on work done that Brookings. This reveals that world poverty trends since 1995, and plugging in trends to 2030. The World Bank’s ‘ambitious’ target is actually where we would arrive on a ‘do-nothing’ basis, which reveals the scale of the World Bank’s ambition. IF we took 0.2% of the increment to growth and transferred it from the top 1% to the bottom 40%, and the differential it would make in 2025, and 2030, it makes the difference of increasing or declining inequality. This reflects the poverty elasticity of growth. To the extent that there is no inherent trade-off between equity and growth, therefore if we wish to optimise poverty reduction, we need to go away from where we are going, by adopting a redistributive agenda and targets.

To understand the potential dynamics, we can look at sub Saharan African states, by looking at the changes in each decile share of national consumption, where in SSA states there is a huge increase in consumption in the top decile, with a fall all across the other deciles. A situation which is reversed by Brazil, which has massively addressed inequality while maintain strong growth.

If the Bank wants to stop fudging the issues it needs to unashamedly put the need for active redistributive policies to be on the agenda, and the Fund should be part of that, including also by doing work on how to build revenue collection and revenue generation that can support efforts to reduce inequality.

Emma Seery, Oxfam GB

IT’s an important time to be having these discussions, given the World Bank strategy, and the debate over the post-2015 framework and the G20’s adoption of an inclusive agenda.

A key prerequisite remains a strong definition of inclusive growth. Last week on Tuesday President Kim said that it is time to break the taboo of inequality