Professor Nayyar: Worsening of Income Distribution "incredible"

Presenting the keynote speech ahead of the World of Work Summit at the International Labour Conference, Deepak Nayyar, professor of economics at Jawaharlal Nehru University, argued that Governments have been too narrowly concerned with price stability. The economic orthodoxy of the last several decades has produced a global economy characterised by sluggish, jobless growth and dramatically increasing inequality.

Audio | 09 June 2014
According to economist Deepak Nayyar, the way to revive economic growth and drive recovery in the world economy is to shift the focus from fighting inflation to reviving employment:

Nayyar: “Governments need to rethink macro-economic policies. The object of macro economic policies is not simply stability of prices, which is what everybody has been obsessed with, but also stability of output and of employment. And therefore you need to redefine policy objectives so that your objective is not simply to combat inflation but also to pursue full employment and support economic growth.”

ILO: “What specifically, though, would some of those mechanisms be?”

Nayyar: “It would have to be reconsidering policy instruments. So fiscal policy is not simply about balancing the income and the expenditure of the government. It’s a very powerful instrument that can stimulate aggregate demand and drive growth. Monetary policy is not simply about interest rates that are used to combat inflation. Monetary policy is also a very versatile instrument in promoting investment, in promoting growth. So that rethinking has to happen, but this is what I would call enabling.  It's not causal. If you do get this rethinking of macro economic policies, instead of… in place of in terms of both objectives and instruments you will see that it will create a milieu in which it will stimulate both investment demand and consumption demand. And it can be nobody’s case - and this is where orthodoxy is wrong - that the causation only runs in one direction: from growth to jobs. The causation runs in both directions and it’s like the chicken and the egg. What came first?"

Professor Nayyar said a real danger in the prevailing economic order is the growing disparity between the rich, super rich and the rest of the population. A wealth redistribution he described as, quote "politically unsustainable and ethically unacceptable" unquote. The trend began with the long economic boom that stretched between 1983 and the first decade of the new century:

"This was a period in which the real wages of more than 80, if not 90, per cent of the workforce registered no increase in the United States, very little increase in the European Union, so that the benefits of economic growth, such as it was, accrued to a very small proportion of the population. And we have seen a kind of incredible worsening of income distribution. Not simply in terms of the declining share of the poorest 50 per cent but of the exponential increase in the share of the richest one per cent or the richest 0.1 per cent - what I call the super rich and the ultra rich.  Why has Thomas Pikkety become such a household name so quickly? It is because people recognise that reality. So the United States is back to where it was in the days of the Robber Barons. The share of the richest one per cent of the population and national income is back to about 25 per cent. And I think that just as there was a disillusionment with the state, by the mid 70s, which led to the decline of Keynesianism and the rise in monetarism, you are going to now see people questioning outcomes that markets have produced."

Deepak Nayyar, Professor of Economics at Jawaharlal Nehru University revisiting some of the key points of his address to the World of Work Summit at the International Labour Conference.

Reporting for ILO Radio, this is Pete Forster