Events in the international community

United Nations General Assembly

57th Session, New York, 2002

Statement by Caroline Lewis, ILO Liaison Office, New York

Agenda Item 86: Macroeconomic policy questions

During the last two decades there have been increasing signs of unease with the extremes of economic liberalization and its consequences. The financial crises in East Asia in the 1990s and more recently in Latin America have shown that excessive, ill-prepared market liberalization is not only not a panacea, but can lead to market failure rather than improved efficiency. The depth and severity of the socio-economic damage caused in these countries has contributed to growing disillusionment with the simplicities of free market ideology.

The greatest cause for concern is the continued growth in the number of people living in poverty. This has generated a fresh urgency to redefine economic policy, including by recognizing the centrality of the link with social policy.

The ILO supports the view that the principle foundational requirement for the integration of macroeconomic and social policies is the recognition and adoption of integrated goals. These goals should involve commitment to the achievement of both economic and social ends: income-generating work for all who want it as well as low inflation; equity including poverty eradication, as well as efficiency; and environmental sustainability as well as economic development. One way of summarizing such goals is in the term “equitable human development”.

A necessary condition for achieving equitable human development is through the highest level of sustainable employment-intensive economic growth that is feasible in each country's economic circumstances. The primary objective of a country’s macroeconomic policy should be in achieving these economic growth rates with the ability to respond flexibly to changing circumstances. Any overemphasis on stabilization will tend to penalize growth in order to achieve stability. Macroeconomic policy should therefore preclude inflexible targets for money supply, inflation or budgetary balance. Rather than setting a specific date for budgetary balance, it should make the rate of movement towards deficit reduction contingent on the return of the economy to sustainable rates of growth of output.

At the international level, growing financial interdependence has reduced the policy autonomy of countries that have liberalized their financial systems as their vulnerability to financial turbulence has increased. Governments have become more cautious as they attempt to satisfy the bankers, dealers and credit rating agencies. Monetary policy has to be kept tighter to cope with capital account volatility. This often leads to increased interest rates which retard both public and private investment and constrain economic development and employment growth. Fiscal policies are also commonly kept more restrictive, constraining the improvements in human services that are desperately needed in some high, and in all middle- and low-income countries. Reforming the international financial architecture is therefore essential for the achievement of social goals.

The ILO believes that the growth of employment has to become the highest priority for national and international economic and social policy. Growth of employment will contribute to increasing personal and national economic security and improving equity more than any other economic or social achievement. As Professor Stiglitz said yesterday in his presentation here: “the most important policy for addressing poverty is addressing employment through the creation of decent work”.

The rate of growth of employment is in part a political choice, a question of the priority and strength of commitment that is given to expanding opportunities for earning a decent income. The issues are complex, yet societies have a considerable degree of choice about the extent of the emphasis they give to encouraging the growth of employment. It is important to be clear about this fact of choice, rather than drift into acceptance of the belief that there are immutable laws of nature which dictate that particular rates of unemployment are inevitable.

A further impediment to overcome is the schism that still exists between economic and social policy decision making. At the national level, the ministries of finance and trade have become the powerful players, while a disparate selection of social policy ministries responsible for human services, labour, employment, health, education and housing either operate in a separate universe or are largely conditioned by decisions taken by the economic ministries. At the international level, a similar separation could be found, although now the social dimension receives some attention in global institutions dealing with finance. At the recent IMF/World Bank Development Committee meetings this weekend, James Wolfensohn emphasized the need to encourage growth that is equitable and just for poor people and based on sound social and economic policies.

A new consensus is beginning to emerge that there is benefit in recognizing the integration of macroeconomic and social policies. Macroeconomic policies that do not improve the welfare of broad segments of society are increasingly viewed not only as morally unacceptable, but also as economically unsustainable. The ILO’s own mandate is clear on this: the Declaration of Philadelphia states that “all national and international policies and measures, in particular those of an economic and financial character, should be judged and accepted only to the extent that they help promote and do not hinder social justice”.

Adoption of these priorities makes monetary policy more complex than when minimizing inflation is the only goal, but the credibility and feasibility of this approach will surely be enhanced if macroeconomic policy is conducted in an integrated manner through international openness.