Matthew puts it very well.

For the conservatives the financial crisis has proven a very useful excuse for a broadly ideological project.  I believe when the history books are written the Cameron Osborne partnership will be seen as one of the most effective of modern times, implementing a really substantive neo-liberal reform agenda that Mrs Thatcher would have only dreamt of, from a position of first coalition and now tiny majority, using the power of falsehood to huge effect.

The need to counter this is of course huge, for the UK and for the world- (not least because having such a right wing and enormous internationalist proactive aid agency is uncharted territory) and the importance of not underestimating this government and their backers is also critical.

Cheers
Max

Max Lawson
Head of Global Policy and Campaigns
Oxfam GB

Dear Friends,

I think the broader point to be noted  here is not so much a comparison of growth rates between Labour and Conservative regimes. The point is that the Conservatives successfully adopted a semi Keynesian agenda. Their current budget deficit of 4.5% is the highest amongst the Advanced Economies (equalling Spain). Their debt to GDP ratio has been rising constantly to near 97%. The Pound has devalued against the Dollar in the past year.

Hence GDP growth has picked up into  a median AE range. Unemployment has come down. 

But productivity growth has been weak because the numeratior - output - has not been that strong.

But the Conservatives have only been semi Keynesian, because they have wekened real wages, and social protection. Therefore aggregate demand has been weak, with resulting investment at 17% of GDP, well below pre crisis levels of 19%.

Of course Osborne 2.0 could reverse budget balaces now, into bigger expenditure cuts. That would lower growth and employment even according to their own semi Keynesian model adopted so far. What is needed in fact is more unconventional monetary policy like QE. The space is certainly there, seen in the much higher costs of borrowing in the UK, with Governemt bonds at 2% yields, compared to the Eurozone at 0.6%.

Best 

Moazam Mahmood
Deputy Director Research Department ILO
4 Route des Morillons
CH-1211 Geneve 22

Dear Martin - Good support for the Keynesian interpretation from Skidelsky's reply to Ferguson, just published below
https://www.project-syndicate.org/commentary/britain-austerity-cameron-keynes-by-robert-skidelsky-2015-05

Dear Moazam - Yes, very good point on very low  EU investment. It was actually quite low already before the crisis, and then fell drastically. Creates problem for demand (even tho also caused by lack of demand), but also of future potential output (supply).
German current account surplus is 8% of GDP, and Dutch one 10%! This is I understand against EU rules
About UK, I think the fiscal consolidation was less than had been announced, one reason why UK econ grew more than was projected by many; now, post election, there will be far more Fiscal  consolidation, which may slow down growth

Best regards,
Professor Stephany Griffith-Jones
Financial Markets Director
Initiative for Policy Dialogue
Columbia University
E-mail: SGJ2108@Columbia.edu
Web sites: www.stephanygj.net, www.policydialogue.org
Twitter: @stephanygj https://twitter.com/stephanygj

Thanks for sharing, Susan. You and others might be interested in this recent article (see below) that looks at the findings from a new report on ethics in the financial industry – which surveys professionals from the US and UK financial industry. Here is link to the survey: http://www.secwhistlebloweradvocate.com/LiteratureRetrieve.aspx?ID=224757
Best,
Nathan Many on Wall Street Say It Remains Untamed MAY 18, 2015

Andrew Ross Sorkin

Wall Street has changed. But perhaps not as much as you would think.

The past several years have been filled with headline-grabbing legal settlements by financial services firms — $11 billion here, $5 billion there. Most of them involved conduct that took place before the 2008 crisis. Virtually every major Wall Street firm has pledged to redouble its efforts to instill an ethical culture. And virtually all the large firms said that if there was bad behavior, it is behind them.

Well, it isn’t.

A new report on financial professionals’ views of their industry paints a troubling picture. Rather than indicating that Wall Street has cleaned itself up, it suggests that many of the lessons of the crisis still haven’t been learned. And the mind-boggling settlement numbers, as well as stringent new rules, like the of Dodd-Frank regulatory overhaul in 2010, appear to have had little deterrent effect.

In the study, to be released Tuesday, about a third of the people who said they made more than $500,000 annually contend that they “have witnessed or have firsthand knowledge of wrongdoing in the workplace.”

Just as bad: “Nearly one in five respondents feel financial service professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment.”

One in 10 said they had directly felt pressure “to compromise ethical standards or violate the law.”

And nearly half of the high-income earners say law enforcement and regulatory authorities in their country are ineffective “in detecting, investigating and prosecuting securities violations.”

Two years ago, this column reported on an earlier version of this report. The attitudes were concerning then.

This year, the University of Notre Dame — on behalf of the law firm Labaton Sucharow — expanded its questionnaire to more than 1,200 traders, portfolio managers, investment bankers and hedge fund professionals both in the United States and Britain. Its results appear even more noteworthy today for the sheer number of individuals who continue to say the ethics of the industry remain unchanged since the crisis (a third said that, by the way).

Every report has an asterisk of some sort and this one does, too: Although it was conducted by Notre Dame and surveyed a large number of people in the industry, it was paid for by Labaton Sucharow, a firm that often represents whistle-blowers in cases against the financial services firms.

But if anything, the opinions expressed demonstrate that despite the very public campaign by the government to root out bad behavior in finance, it remains a problem that still deserves attention, notwithstanding the industry’s protestations that it has changed.

“The pattern of bad behavior did not end with the financial crisis, but continued despite the considerable public sector intervention that was necessary to stabilize the financial system,” William C. Dudley, the president of the Federal Reserve Bank of New York, said in a speech late last year on Wall Street culture. “I reject the narrative that the current state of affairs is simply the result of the actions of isolated rogue traders or a few bad actors within these firms.”

Is there something inherent to Wall Street that leads to bad behavior?

Mr. Dudley challenged the view that “risk-takers are drawn to finance like they are drawn to Formula One racing.”

But there is truth to that. Wall Street is a business of risk-taking and those who seemingly do it most successfully find that edge of the line and get as close to it as possible without crossing it.

Mr. Dudley, however, also made the case that “the degree to which an industry attracts risk-takers is not preordained, but reflects the prevailing incentives in the industry. After all, risk-takers have options. Second, and, more importantly, incentives matter even for risk-takers.”

If incentives are the problem, the perspectives suggest a dire situation. Nearly one-third of those asked “believe compensation structures or bonus plans in place at their company could incentivize employees to compromise ethics or violate the law.”

It is unfair to suggest the entire industry is a den of thieves. In many ways, Wall Street is quite different than it was before the crisis, and for the better.

Structurally, Wall Street firms carry much less risk than they did years ago. Capital requirements are significantly higher. Indeed, even the moniker “Wall Street” has shifted as the power of the big banks has diminished and the influence of asset managers has increased.

But when it comes to the ethos of the industry just as it is reaching pre-crisis levels of employment and compensation, whatever change has taken place remains an open question.

While Wall Street often takes the brunt of the criticism about culture, an extra heaping might be due those who work in the financial industry in Britain.

On virtually every question, those in Britain seem to indicate that ethics problems could be even more widespread there. “Respondents from the U.K. are either more willing to commit a crime they could get away with — or are more frank about it,” the report’s authors write.

One of the big problems, it seems, is that so few people in finance are willing to speak up and report bad actors, even after the Securities and Exchange Commission developed a whistle-blower program.

Many of those asked said they worried “their employer would likely retaliate if they reported wrongdoing in the workplace.”

And quite a few said that they had signed, or been asked to sign, a confidentiality agreement that would prohibit them from reporting illegal or unethical behavior to the authorities.

Equally disturbing was that many respondents said they would use nonpublic information to make a guaranteed $10 million, if there were no chance of getting arrested for insider trading. A quarter said they would do so. That’s up from two years ago, and it is that attitude of “getting away with it” that worries many who hope to root out problems in the industry.

“The vast majority of people are good and ethical, but they have become desensitized on Wall Street,” said Jordan A. Thomas, a partner at Labaton Sucharow.

http://www.nytimes.com/2015/05/19/business/dealbook/many-on-wall-street-say-it-remains-untamed.html?src=busln&utm_source=05-21-15&utm_campaign=Newsletter+5%2F15%2F14&utm_medium=email&_r=0

 

Nathan Coplin, Deputy Director

New Rules for Global Finance

2000 M Street NW, Suite 720

Washington, DC 20036

Tel.(810) 348 3165

Fax. (202) 280-1141

Email: ncoplin@new-rules.org

Website: www.new-rules.org

Click here to join our mailing list!

Dear colleagues

When asked what the banks have learned from the 2008 financial meltdown, my answer is: ‘That they can get away with murder.’ You may find my article of interest:

http://www.tni.org/article/getting-away-murder
(originally published in New Internationalist)

Best regards

Susan George 
Website : http://www.tni.org/users/susan-george
Subscribe to TNI’s free news and comment letter at 
http://www.tni.org/civicrm/mailing/subscribe

Politically speaking, which is really what Niall Ferguson was talking about, 2 things have mattered:

1) the conservatives gave up on austerity (which was causing economic collapse) in 2012 and dropped all their debt and deficit targets, thereby allowing growth to reappear in 2014-15, but continued to pretend they were implementing austerity; and

2) the economy grew faster under labour in 2009-10 when they were implementing stimulus, as it has in the US - but labour (partly due to the weight of media against them) completely failed to get these messages across.

If left of centre (and in our case also centrist liberal democrat) parties buy into an austerity anti-keynesian message, they cannot hope to beat conservative parties. And the worrying thing now is that the conservatives are in power on their own and intend to implement much more dramatic austerity, not for any economic reason but from an ideological determination to shrink and privatise the state, which will hit the poorest and exacerbate inequality (as their solutions have already done dramatically since 2010). In britain at least, there is a huge amount of work to do for those who believe in recovery with a human face.

Matthew Martin
Director
Development Finance International
matthew.martin@dri.org.uk

Agreed Richard. Much of the Eurozone runs a current account surplus which measures the excess of savings over investment of about 2.5% of GDP. Investment is low, because of lack of aggregate demand, and despite the cost of borrowing being at the zero lower bound.

Moazam

Moazam Mahmood
Deputy Director
Research Department ILO
Bureau 8-36
4 Route des Morillons
CH-1211 Geneve 22

These are useful points. But the sustainability of the Osborne recovery is also to be questioned, with the rate of net UK investment one of the lowest in Europe and with imports still running higher than exports by 5% or so. Focusing on the public expenditure deficit and public debt has directed attention away from the foreign exchange deficit and domestic investment.

Richard

Prof Richard Jolly
Institute of Development Studies
University of Sussex

The Harvard historian Niall Ferguson has landed another punch in his long standing fixture with Nobel Laureate Paul Krugman. Ferguson has said that the British election vindicated the deficit reduction strategy of Chancellor Osborne, and belief in the confidence fairy taunted by Keynesians.  Three points come to mind on this debate.

One, is it so difficult to concede that at a macro level, aggregate demand is necessary to generate growth and employment. But at a micro level, households and firms can have Riccardian expectations, holding that untaxed expenditure will evantually have to be taxed. And therefore not responding to untaxed stimulii. What comes out in the macro wash is what we still have to figure out and model.

Two, more flexible contracts introduced with the crisis, may be nudging unemployment down, but with very weak wages, increase in the wage bill has also been muted. Hence aggregate demand still remains weak, even in the UK.  This also explains the puzzle of declining productivity in the UK, raised by FT's Martin Wolf. The new jobs added have simply not been that productive, or remunerative. Can the UK strategy work for Europe. I would rather pin my hopes on the ECB's Mario Draghi's QE, to provide demand for more productive and more remunerative jobs. What is the lesson for Chancellor Osborne? More stimulus on the demand side for a more sustained recovery. Rather than just making lower wage jobs available which will generate a more anemic increase in demand.

The argument of course comes down to a wage employment tradeoff. Given a crisis, can employment be maintained with wage rigidity. Or should wages be eased through flexibilisation, and jobs saved. On the face of it, economic logic would argue that better a job on a lower wage, than no job at all. But this is a purely labour market solution to a macro problem stretching across mutiple markets, for capital, output, and exports. It is incorrect and inequitous that the labour market should bear the brunt of an adjustment in general equilibrium. The policy response has to be a macro response, based on aggreagte demand, as well a labour market response to improve supply of labour, and a capital market response to improve supply of credit for the real economy.

The ILO has just released its flagship World Employment Social Outlook for 2015: The Changing Nature of Jobs. It marshalls evidence on the weakening of the standard employment model, ie. erosion of the prevalent notion of the registered-permenant-full time-wage employee. The weaker wage and social protection conditions may have both longer term more secular causes and shorter term more cyclical causes, and have probably contributed to an estimated $3 trillion weakness in aggregate demand. Policy then has to address the weaknesses in these emerging contractual conditions.

The links to the report:

Link to the webpage

http://www.ilo.org/global/research/global-reports/weso/2015-changing-nature-of-jobs/lang--en/index.htm

Direct link to the report in pdf

http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_368626.pdf

Moazam Mahmood
Deputy Director
Research Department ILO
Bureau 8-36
4 Route des Morillons
CH-1211 Geneve 22

Dear friends,

Last week we launched two reports on Mothers' day. While the world celebrated, we reminded people that everyday 800 women die from childbirth - and 18,000 children also pass away daily. Most of these deaths are preventable with adequate health and social protection.

At a time that the world is discussing a post-2015 development agenda, it is essential that the development community identifies financing sources for social protection. It is a question of priorities: the total cost of universal benefits to all pregnant women and all children in 57 lower income countries is just 0.6 per cent of what G20 countries used to bail out the financial sector in 2009.

The reports present (i) a global overview of the organization of child and maternity benefits in 183 countries, (ii) analyse trends and recent policies, e.g. extension of child and family benefit coverage in a large number of low- and middle-income countries; (iii) show the negative impacts of fiscal consolidation and adjustment measures in a number of higher-income economies; and (iv)  cost a basic universal child and orphan benefits, as well as a universal maternity benefit, in 57 low and lower middle income countries.

 Below the press realease with the links to the two studies, we hope useful.

 Press release: http://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_366206/lang--en/index.htm

GENEVA (ILO News) – The lack of access to social protection is still a reality for a large number of mothers and children worldwide, according to two studies released by the International Labour Organization (ILO).

The Social protection for maternity: Key policy trends and statistics  report shows that only 36 per cent of employed women are legally entitled to cash benefits during their maternity leave. In practice, however, maternity leave legislation is not implemented effectively, so only 28 per cent of working women are covered. 

The study, Social protection for children: Key policy trends and statistics, also paints a worrying picture. It shows that while there has been an explosion of small cash transfer schemes in recent years, there is also a considerable gap with regard to the availability of adequate child and family benefits. According to the study, 108 countries have specific child and family benefit programmes, but they often cover small groups.

Fiscal adjustment reducing social protection for mothers and children A worrying trend is that in some countries the levels of maternity and child benefits have dropped as a result of fiscal consolidation policies.

For example, several European countries have reduced the level of maternity and child benefits or have limited the level of coverage. 

Fiscal consolidation and adjustment measures threaten progress on social protection for children and their families. Child poverty increased in 18 of the 28 countries of the European Union between 2008 and 2013. 

Universal coverage: How much does it cost? On the other hand, several low- and middle-income countries have either extended the duration of paid maternity leave or introduced cash benefits for mothers and children. However, large coverage gaps remain. 

The reports look at a sample of 57 low- and lower middle-income countries and show that introducing a basic universal maternity cash benefit would require, on average, 0.41 per cent of national gross domestic product (GDP). 

Meanwhile, having universal child benefits would, on average, require 1.9 per cent of national GDP. The projected costs for a basic universal child benefit vary greatly between countries, ranging from 5.2 per cent of GDP for Niger to 0.2 per cent of GDP for Guyana, considering that children constitute a large proportion of the population in these countries.

The same variation applies to basic universal maternity protection, where it ranges from less than 0.1 per cent of GDP in Bhutan, Guyana, India, Indonesia, Mongolia, Morocco, Sri Lanka and Viet Nam to 1.1 per cent of GDP in Niger.

At a time when the world is discussing a post-2015 development agenda, it is essential that the international community identifies financing sources for social protection. It is a question of choosing the right priorities: the total cost of universal benefits to all pregnant women and all children in 57 lower income countries is just 0.6 per cent of what G20 countries used to bail out the financial sector in 2009.

The ILO Social Protection Floors Recommendation, 2012 (No. 202) reflects a consensus among governments and employers’ and workers’ organizations from 185 countries on the need to extend social security. Both studies include detailed national data on maternity protection and child and family benefits for 188 countries surveyed. 

Isabel Ortiz
Director Social Protection
International Labour Organization (ILO)
4 Route des Morillons
CH-1211 Geneva 22 Switzerland
Tel. +41.22.799.6226; ortizi@ilo.org
Visit www.social-protection.org  

Dear Rob

Thanks for this very helpful note and the web link. I totally agree with you that moving outside extant confidence intervals is an art not a science.

I am therefore all the more troubled  at the plethora of doxological  assertions about national growth rates  and not just India /- the  new "China slowdown"  or "Brazil is broken" assertions are other examples. -  which are unquestioningly picked up by media like the FT and the Economist (  not to mention universities which have little expertise on emerging economies but need to cater to their customer's demands for a " take" ). 

They then become part of mainstream discourse about these countries, who have then to face the costs while the unaccountable IMF/ World bank bureaucrat- technocrats suffer no financial or reputational costs for being inaccurate and technically clumsy. As I argue in the article I shared, this  is just annoying until you glance at the politics -- the bureaucrats have, in fact, done the job they are paid to do, and inaccuracy and non-transparency  is an essential for them to deliver what their managements really want!  

This business is not harmless for developing countries . It generates noise  in the policy space, particularly in economies classified as "dragons" "tigers" etc. making the task of domestic policy makers  all the more difficult.  It is therefore very important for countries to call this bluff. 

There was a time when this was a role the UN used to perform but that can no longer be expected I  am currently in NY and I find the NY based organisations intellectually and politically subordinated to OECD/BWI thought. It's like the 1990s again here.  

We are fortunate that outside New York, people like you and Isabel Ortiz,  continue to challenge orthodoxy, much as Richard Jolly and Cornea did from within UNICEF twenty five years ago.  

Rathin Roy
Director National Institute of Public Finance and Policy New Delhi
rathin.roy@nipfp.org.in

Dear all,

Thanks Rathin for engaging in this discussion. I agree there can be serious political biases in economic forecasts, but that should not lead us to think that there is one single, objective way of forecasting. Having been in that business for some time while in charge of the UN’s World Economic Situation and Prospects (thanks Anis for making the reference!), I know first hand that no economic forecasting model is perfect (or even unbiased because of the necessary underlying assumptions). While at the UN we tried (and still try) to make proper sense of what directions the global economy is likely to take, the path to the future is fraud with uncertainties, many of which are difficult or impossible to capture in forecasting models. The proof of the pudding is in what forecasters have to say (ex ante) about off trend changes, like the 2008-2009 Great Recession. At the UN we could warn of this being a story foretold by connecting the right dots, but it was not something which came out of the world economic forecasting model we used for that. Rather, it built on the a priori analysis of interlinked global events and risks, which subsequently was put to a test through a scenario analysis (at difference of calling it a “prediction”). In short good forecasting is a matter of good analysis (an art if you like), but not an exact science. Anyone who took the risks built up before the crisis seriously could see it coming (even if not being able to pin down its precise timing). Those that saw the risks, but did not take them seriously, failed to connect the dots or suffered from cognitive dissonance (as the report of the IMF Evaluation Office concluded as a key explanation of why the IMF WEO failed to see the crisis coming).

Aside from this wisdom, the least forecasters should do, is to give continuous accountability of their track record. The UN’s can be found, for instance, in the WESP 2008 (http://www.un.org/en/development/desa/policy/wesp/wesp_archive/2008wesp.pdf).

Rob Vos
Coordinator Strategic Programme on Rural Poverty Reduction (SO3)
and
Director of Social Protection Division (ESP)
Food and Agriculture Organization of the United Nations (FAO)
Viale delle Terme di Caracalla, 00153 Rome, Italy
Tel. +39 06 57054550  Mobile: +39 3667892119
Skype: robpvos
Website: www.fao.org/economic/social-protection/en

Richard  -- The  national institutions (government, Central Bank)  got it right to within 0.3 per cent 12/14 years. The standard error of the NIPFP and NCAER forecasts (vs actuals)  is close to half that of the BWis/ADB Both instiutions place their modeling frameworks in the public domain

Anis -- Thanks for this update, very useful. Yes, the politics of global growth projections are also horribly flawed. Here, the IMF WB and OECD follow the markets.. when their forecasts lie outside market confidence intervals they kowtow to current "wisdom" throwing professional or analytical  judgments out of the window . The result is what you describe, but the pusillanimity ion the face or financial market "wisdom" -- whether exuberance or pessimism -- imposes costs on developing countries.

We need to work on this as a group, in my view. This politics is central to adjustment with a human face.

Rathin

Rathin Roy
Director 
National Institute of Public Finance and Policy (NIPFP)
and
Member, Seventh Central Pay Commission
18/2 Satsang Vihar Marg
Special Institutional Area
New Delhi - 110 067
Ph: 91-11-26857274; Fax: 26512703
 www.nipfp.org.in

Dear Rathin,

At the Centre for Advanced Financial Research and Learning, the  RBI, with a research associate in 2013, we tried to develop a tool for forecasting the economic cycles of India based on the well-known term structure slope analysis using wavelets in a duration model frame work. It used to work fine. There was nothing political in what we did. It was purely technical. Not that our forecasting tool was perfect, but it worked fine based on back testing, which does not mean that it would work going forward. My point is that it may be possible to develop tools to project growth purely statistically, at least, direction-wise, with no politics or explanation involved. Whether you buy the forecast or not is, of course, your subjective decision. But a simpler version of the tool worked for many advanced capitalist countries prior to their pegging the short end of the term structure to zero. Our wavelet decomposition was a way around. I would be happy to put you in touch with my former research associate, if you have any interest.

Best regards,

Sabri Oncu
Former Head of Research, CAFRAL, RBI

Dear colleagues,

 

A very interesting discussion, in particular the latter point regarding the perverse outcome whereby the IMF - despite its dismal record of forecasting global and country-level growth - has not had a dent to its credibility, quite the opposite.

I have today published a blog making this very point in the Financial Times'  BeyondBrics blog, examining how the IMF has sought to make itself indispensable and is increasingly central to global economic governance without sufficient scrutiny of this ramped-up role.

 

Forgive the title, it was not of my choosing:  Original on FT website (free but requires registration) or find on our BWP website (free access)

 

Given the little space afforded me, I sought to focus on the fact of the Fund's resurgence and mission creep, and the unresolved contradiction of its unreformed governance. Rather than emphasising criticism, I hope to foster a debate about just what the IMF is for, and whether it can ever hope, given its legitimacy and governance shortfall, to play the role it is mandated for evenhandedly and constructively. I have been making the argument for a little time that the IMF's resurgence in influence has not been accompanied by a concomitant level of scrutiny and that the focus on China's rise, via the New Development Bank and AIIB, has served to obscure the scale and extent of the IMF's impact - needless to say, and thanks to Isabel's research on fiscal policy/space over several years - the Fund's claims to have changed its stance on fiscal and many other policy matters do not stand up to the scrutiny that does exist.


Sargon Nissan
IMF Programme Manager
The Bretton Woods Project
33-39 Bowling Green Lane, London UK EC1R 0BJ
Tel: +44 (0)20 3122 0644
skype: sargon.nissan
email: snissan@brettonwoodsproject.org

Dear Rathin

 
Many thanks for sharing this excellent piece. I really enjoyed. I am sure, you would recall dismal performance of the IMF and the OECD in predicting the outbreak of the 2008-2009 financial crisis.

In November 2008, IMF's World Economic Outlook (WEO)  projected a global growth rate of 2.2% for 2009. The IMF had the most optimistic projections relative to other multilateral agencies and private sector estimates. It took one and a half years for the IMF to realise that this crisis would soon engulf the world. A month before the first tremors of the US "sub-prime" mortgage crisis were felt, the IMF noted: "The strong global expansion is continuing, and projections for global growth in both 2007 and 2008 have been revised (upwards)."

Three months before the crisis began in August 2007, the OECD released its 2007 World Economic Outlook, in which it commented: "In its Economic Outlook last autumn, the OECD took the view that the US slowdown was not heralding a period of worldwide economic weakness, unlike, for instance, in 2001. Rather, a 'smooth' rebalancing was to be expected, with Europe taking over the baton from the United States in driving OECD growth. Recent developments have broadly confirmed this prognosis. Indeed, the current economic situation is in many ways better than what we have experienced in years. Against that background, we have stuck to the rebalancing scenario. Our central forecast remains indeed quite benign: a soft landing in the United States, a strong and sustained recovery in Europe, a solid trajectory in Japan and buoyant activity in China and India. In line with recent trends, sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment. (OECD World Economic Outlook Vol 81 p. 7)"

There seems to be no credible reason for such optimism. Signs of an impending crisis were visible at least since 2006. The Department of Economic and Social Affairs of the United Nations warned:

"The possibility of a disorderly adjustment of the widening macroeconomic imbalances of the major economies is a major risk which could harm the stability and growth of the world economy… A reversal in house prices...will heighten the risk of default and could trigger bank crises… A sharp fall in house prices in one of the major economies could, then, precipitate an abrupt and destabilising adjustment of the global imbalances (WESP, 2006, pp v-viii)."

Again in 2007 WESP warned: "The possibility of a more severe downturn in housing markets represents a significant downside risk to the economic outlook...Current-account imbalances across regions and countries have widened further in 2006…The indebtedness of the United States has deepened to a level which more seriously calls into question the sustainability of current constellation of global imbalances (WESP 2007, p. vi)."

The supposed guardians of the world economy simply ignored these warnings and projected a rosy picture, and at worst a "soft landing."

WESP not only had the correct analysis of the underlying risks for the world economy, it also seems to have the more realistic projections for the 2009 growth. When, in November 2008, the IMF was projecting a global growth rate of 2.2% for 2009, WESP projected a base-line growth rate of 0.9%.

Given the dismal track record of the IMF and the OECD, one would have thought that their credibility would be in tatters. Sadly, this is not the case. Instead, we seem to seek counsel about the crisis from the very organisations that could not foresee it, while much superior work of the UN with much fewer resources is ignored.

Anisuzzaman Chowdhury, PhD
Director
Statistics Division
United Nations ESCAP
Rajdamnern Nok Avenue
Bangkok 10200, Thailand
Tel: (662) 288-1486; mobile (66) (0)847001131
Fax:(662) 288-1082
Email: chowdhury4@un.org

Dear Rathin,

Very interesting and direct. But I would be interested in how the accuracy of the BWI projections compare with those of the government and Bank of India. 

Attached the careful analysis by Vreeland showing the negative growth bias of IMF policies.

Richard Jolly

Prof Richard Jolly
Institute of Development Studies
University of Sussex

Dear colleagues

I  post below I article I wrote in the Business Standard, an Indian daily newspaper. The response has been overwhelming with some even saying I was over-deferential to the BWIs!

The Politics of Growth Projections

Since my return to India two years ago, I have fielded many questions from rating agencies and fund managers about forecasts of India's economic growth by the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB). Private forecasts from organisations like Goldman Sachs are also a regular feature of our policy landscape. The number of external agencies giving us their "take" on the future growth rate today far outnumbers domestic forecasters (the Union government, the Reserve Bank of India plus the occasional think tank).

Private agencies make money by claiming that their "take" on India is better than that of their competitors. They must, therefore, produce their own forecast of the main indicator of India's economic health and claim that it is better than publicly available forecasts (otherwise, why would anyone pay them anything for their forecasts?). But why are the international organisations in this business?

Do they forecast growth better? I reviewed the IMF, the ADB and the World Bank "projections" of India's growth rate since 2004. No forecast by the IMF was accurate to within 0.3 percentage points of the actual gross domestic product (GDP) growth rate in all those years (that's big, given that the growth rate ranged from about five to nine per cent over 10 years). In many years, forecasts were off by over one per cent. The IMF consistently underestimated India's growth rates in high growth years and vice versa (a fact that the IMF managing director did not seem to be aware of when I pointed this out to her). The World Bank was accurate (within 0.3 per cent) twice in 12 years, but otherwise got it wrong by roughly the same magnitude as the IMF, as did the ADB. Official forecasts tended to be much closer to the actual growth rate.

Even if inaccurate, are these forecasts more scientific and more transparent than those of our domestic agencies? None of these institutions provides an even passably transparent published explanation of the basis for their forecasts, the macroeconomic and sectoral frameworks specifying the relationships between different variables that impact growth, or the underlying assumptions. My own colleagues at the National Institute of Public Finance and Policy (and other think tanks) routinely provide this at a far higher level of detail and transparency.

Why, then, do these institutions - staffed with a global pool of economists receiving six-figure tax-free salaries and access to financial resources, research inputs, cutting-edge econometric technologies that Indian researchers could only dream about - get something as basic as a growth forecast so consistently wrong? Why are they not transparent about how they go about their business?

In my view, this has to do both with incentives and with purpose. In the case of the IMF, its Article IV mandate requires assessments of the macroeconomic health of member countries at regular intervals; this necessarily means that they would need to provide some assessment of the growth rate of the economy. Historically, when the IMF was in the business of lending to most developing-country governments, the growth forecast of the IMF would form the basis of the policy conditionalities that framed its lending. It's asymmetric power over developing countries allowed it to override national assessments and impose conditionalities, based on its "scientific" judgement.

Over time, in emerging economies like India, such lending has ceased, but the incentive to forecast remains (otherwise, a simple reasoned paragraph of dissent with the government/central bank forecast would suffice). Why?

First, it justifies the continued employment of an otherwise redundant economic bureaucracy, which now empowers IMF management by providing a basis for calibrated endorsement (or disapproval) of specific government decisions. Growth forecasts serve an important purpose in this context; they affirm the desirability or otherwise of policy actions taken by the country and the "growth story" is justified by showing the positive relationship between the IMF-approved policy actions and "good" future results, measured by the projected growth rate (and vice versa). Forecasts rarely match what actually happens - but their advocacy purpose is served.

For this reason, it is also not logical to fully clarify the assumptions underlying such forecasts or the methodology used to arrive at them. This would give the lie to their claimed "scientific" basis and make their political purpose apparent.

In the case of the World Bank and the ADB, they do not even have the excuse of their mandate to be in the growth-forecasting business. They do it to gain political voice in the national economic policy discourse and to give their staff continued access at a senior level to the finance and planning arms of national government, rather than the sector and the subnational levels where their operations are centred. This access is important to their managements and in their projection of the clout of their organisations. Thus, the World Bank's recent India development update is full of assertions about macroeconomics, trade and finance, but silent about health, education and agriculture. Growth projections are also essential for making pronouncements about the relative merits of the policy frameworks of different developing countries, which can then be ranked as doing "better" or "worse" in the judgement of these institutions in their global or regional economic outlooks.

With these motivations, accuracy is not relevant and transparency would be counter-productive. Both would be required, if the motivation was to produce good knowledge products, which is the reason provided by these institutions for undertaking growth forecasting.

So when I meet the rating agencies and fund managers and they ask about these forecasts, I make it clear to them that while these forecasts do not have a track record of transparency and accuracy, I am well aware that they serve an important purpose in justifying normative pre-conceptions about, and preferences for, the future direction of Indian economic policy. I find that the conversation then takes a rather more interesting turn.

Rathin Roy
Director National Institute of Public Finance and Policy New Delhi
rathin.roy@nipfp.org.in

Dear colleagues,

Please forgive this intrusion.  We hope you will find of interest our new paper reporting an overview of findings on the global distribution of consumption and income, poverty, inequality, inclusivity of growth and the evolution of a global 'middle class' over more than fifty years (1960-2012).  The paper, entitled "Who Got What, Then and Now? A Fifty Year Overview from the Global Consumption and Income Project", is available on:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2602268

You will find related materials, including other related papers and slide presentations, on www.gcip.info .  We will post forthcoming papers deriving from our project on that location as well.
  
with best regards,

Sanjay G. Reddy

Prof. Sanjay G. Reddy
Dept. of Economics
The New School for Social Research
6 East 16th Street
New York, NY

Dear colleagues,

Perhaps the most promising opportunity to expand fiscal space is briefly summarized in Isabel et al.'s paper: "In addition to altering corporate tax rates, governments can also increase fiscal space by taking concerted actions to minimize tax evasion and/or aggressive avoidance of taxes on the part of large companies. Transnational corporations, in particular, commonly shift profits and  losses  around the world so  that  they  are  recorded  in different  jurisdictions  in  order  to minimize overall tax  liabilities. Such practices are difficult to track, but estimates suggest that total lost revenues could amount to US$ 50 billion per year among developing countries (Cobham 2005). Proposals have been put forward to increase the transparency of transnational corporations and hold them accountable for their tax obligations, such as reporting  profits, losses and  taxes  paid in  each location where  the company does  business (see section 6 on illicit financial flows for details)."

Through a collaboration among Global Financial Integrity, Academics Stand Against Poverty and the Friedrich Ebert Foundation, we are trying to build continent-wide networks of experts and advocates in the developing world to fight the scourge of tax evasion and associated illicit outflows of capital. The first of these large conference, focused on Africa, will take place at the University of Johannesburg next week: May 18-20. See www.gfintegrity.org/event/fostering-greater-national-and-regional-economic-opportunity-in-africa-through-human-rights-and-financial-transparency/. Tax evasion is very much on the international political agenda. Let's make sure that any new initiatives include the poorer countries as well.

Thomas Pogge

Thomas Pogge
Leitner Professor of Philosophy and International Affairs
    Yale University, PO Box 208306, New Haven, CT 06520-8306
pantheon.yale.edu/~tp4     www.ted.com/speakers/thomas_pogge.html

Dear friends,

It is often argued that social protection is not affordable or that government expenditure cuts are inevitable during adjustment periods. But there are alternatives, even in the poorest countries.

Our new working paper  "Fiscal Space for Social Protection: Options to Expand Social Investments in 187 Countries" offers an array of options that can be explored to expand fiscal space and generate resources for social investments. These include: (i) re-allocating public expenditures; (ii) increasing tax revenues; (iii) expanding social security coverage and contributory revenues; (iv) lobbying for aid and transfers; (v) eliminating illicit financial flows; (vi) using fiscal and foreign exchange reserves; (vii) borrowing or restructuring existing debt and; (viii) adopting a more accommodative macroeconomic framework. To serve as a general advocacy resource, Annex 1 provides a summary of the latest fiscal space indicators for 187 countries.

All of the financing options described in this paper are supported by policy statements of the United Nations and international financial institutions. Governments around the world have been applying them for decades, showing a wide variety of revenue choices. As this paper demonstrates, examples abound, did you know that:

·         Costa Rica and Thailand reallocated military expenditures for universal health.

·         Egypt created an Economic Justice Unit in the Ministry of Finance to review expenditure priorities.

·         A large number of countries are increasing taxes for social investments – not only on consumption (generally regressive) but also on income, corporate profit, property, natural resource extraction.

·         Brazil used a financial transaction tax to expand social protection coverage.

·         Bolivia, Mongolia and Zambia are financing universal pensions, child benefits and other schemes from taxes on mining and gas.

·         Argentina, Brazil, Tunisia, Uruguay, and many others expanded social security coverage and contributory revenues.

·         A number of low-income countries are receiving North-South and South-South transfers while other countries are fighting illicit financial flows such by cracking down on tax evasion.

·         Chile, Norway and Venezuela, among others, are using fiscal reserves to support social development.

·         South Africa issued municipal bonds to finance basic services and urban infrastructure.

·         More than 60 countries have successfully re-negotiated debts, and more than 20 defaulted/repudiated debt, such as Ecuador, Iceland and Iraq, using savings from debt servicing for social programs.

·         A significant number of developing countries have used deficit spending and more accommodative macroeconomic frameworks during the global recession to attend to pressing demands at a time of low growth, and to support socio-economic recovery.

Each country is unique, and all options should be carefully examined - including the potential risks and trade-offs associated with each opportunity - and considered in national social dialogue. Given the importance of public investments for human rights and inclusive development, it is imperative that governments explore all possible alternatives to expand fiscal space to promote national socio-economic development with jobs and social protection.                                                                                                                                                                           We hope the paper is useful (donwload:  http://www.social-protection.org/gimi/gess/RessourcePDF.action?ressource.ressourceId=51537 )

Very best,

Isabel Ortiz
Director Social Protection
International Labour Organization (ILO)
4 Route des Morillons
CH-1211 Geneva 22 Switzerland
Tel. +41.22.799.6226; ortizi@ilo.org
Visit www.social-protection.org  

Dear all,

Sharing with you a short commentary on the "From billions to trillions" document released jointly by all the heads of the multilateral development banks and the IMF.  The article notes that this emerging “consensus” on financing the post-2015 development agenda not only holds up the private sector as the engine of growth and innovation, it promotes private finance as the fuel of development.

It warns that if this emerging consensus — together with the new “free trade” agreements in the offing such as the Trade in Services Agreement and Trans-Pacific Partnership — come to dominate development policy in the post-2015 era, then we can expect a new wave of privatization and financialization with even more dire consequences than the old Washington consensus.

https://www.devex.com/news/post-2015-negotiations-are-governments-passing-the-buck-to-businesses-86027


Paul Quintos
IBON International
3rd Flr., IBON Center
114 Timog Avenue,
Quezon City 1103
Philippines
Skype ID: paul.quintos
Websites: iboninternational.org
peoplesgoals.org

Dear colleagues,

While universal health coverage (UHC) and equity are high on the international agendas, until now policy makers had no evidence about coverage gaps and inequities experienced by rural as compared to urban populations. Against this background, ILO has developed for the first time the needed data and published in:

Global evidence on inequities in rural health protection - New data on rural deficits in health coverage for 174 countries
http://www.social-protection.org/gimi/gess/ShowRessource.action?ressource.ressourceId=51297

The results are shocking. We find extreme inequities at global, regional and national levels: 56 per cent of the global rural population lacks health coverage as compared to 22 per cent of the urban population. The situation is aggravated by extreme health workforce shortages in rural areas impacting on the delivery of quality services: in rural areas a global shortfall of about seven million missing health workers to deliver services is observed, compared to a lack of three million skilled staff in urban areas. Further, underfunding - deficits in per capita health expenditure - are twice as large in rural areas than in urban areas. The deficits observed result in unnecessary suffering and deaths, as reflected in rural maternal mortality rates that are 2.5 times higher than urban rates.

Globally, the highest levels in rural maternal mortality are found in Africa. Also in Africa we find the rural population that is globally most deprived of health coverage: As much as 83 percent of the rural population in Africa are lacking health coverage.

The sad conclusion of the new ILO study is that the place of living determines whether someone lives or dies! It is time for governments to act now and provide meaningful universal health protection that is not just a slogan to favor a few and leaving the rural population behind with charities rather than rights! Successful UHC requires a comprehensive social protection approach – it is challenging but feasible in the context of national social protection floor policies.

Kind regards,

Xenia Scheil-Adlung
Health Policy Coordinator
Social Protection Department
International Labour Organization

Dear colleagues,

At the 1996 World Food Summit (WFS), heads of government and the international community committed to reducing the number of hungry people in the world by half by 2015. Five years later, the Millennium Development Goals (MDGs) lowered this level of ambition by only seeking to halve the proportion of the hungry.

The latest State of World Food Insecurity (SOFI) report for 2015 by the Rome-based Food and Agriculture Organization (FAO), World Food Programme and International Fund for Agricultural Development estimates almost 795 million people—one in nine people worldwide—remain chronically hungry.

The number of undernourished people—those regularly unable to consume enough food for an active and healthy life—in the world has thus only declined by slightly over a fifth from the 1010.6 million estimated for 1991 to 929.6 million in 2001, 820.7 million in 2011 and 794.6 million in 2014.

With the number of chronically hungry people in developing countries declining from 990.7 million in 1991 to 779.9 million in 2014, their share in developing countries has declined by 44.4 per cent, from 23.4 to 12.9 per cent over the 23 years, but still short of the 11.7 per cent target.

Thus, the MDG 1c target of halving the chronically undernourished’s share of the world’s population by the end of 2015 is unlikely to be met at the current rate of progress. However, meeting the target is still possible, with sufficient, immediate, additional effort to accelerate progress, especially in countries which have showed little progress thus far.

Progress uneven - Overall progress has been highly uneven. All but 15 million of the world’s hungry live in developing countries. Some countries and regions have seen only slow progress in reducing hunger, while the absolute number of hungry has even increased in several cases.

By the end of 2014, 72 of the 129 developing countries monitored had reached the MDG 1c target — to either reduce the share of hungry people by half, or keep the share of the chronically undernourished under five per cent. Several more are likely to do so by the end of 2015.

Instead of halving the number of hungry in developing regions by 476 million, this number was only reduced by 221 million, just under half the earlier, more ambitious WFS goal. Nevertheless, some 29 countries succeeded in at least halving the number of hungry. This is significant as this shows that achieving and sustaining rapid progress in reducing hunger is feasible.

Marked differences in undernourishment persist across the regions. There have been significant reductions in both the share and number of undernourished in most countries in South-East Asia, East Asia, Central Asia, Latin America and the Caribbean—where the MDG target of halving the hunger rate has been reached.

While sub-Saharan Africa has the highest share of the chronically hungry, almost one in four, South Asia has the highest number, with over half a billion undernourished. West Asia alone has seen an actual rise in the share of the hungry compared to 1991, while progress in sub-Saharan Africa, South Asia and Oceania has not been sufficient to meet the MDG hunger target by 2015.

Efforts need to be stepped up - Despite the shortfall in achieving the MDG1c target and the failure to get near the WFS goal of halving the number of hungry, world leaders are likely to commit to eliminating hunger and poverty by 2030 when they announce the post-2015 Sustainable Development Goals (SDGs) at the United Nations in September.

To be sure, there is enough food produced to feed everyone in the world. However, hundreds of millions of people do not have the means to access enough food to meet their dietary energy needs, let alone what is needed for diverse diets to avoid ‘hidden hunger’ by meeting their micronutrient requirements.

With high levels of deprivation, unemployment and underemployment likely to prevail in the world in the foreseeable future, poverty and hunger are unlikely to be overcome by 2030 without universally establishing a social protection floor for all. Such efforts will also need to provide the means for sustainable livelihoods and resilience.

The Second International Conference of Nutrition in Rome last November articulated commitments and proposals for accelerated progress to overcome undernutrition. Improvements in nutrition will require sustained and integrated efforts involving complementary policies, including improving health conditions, food systems, social protection, hygiene, water supply and education.

Best regards,
Jomo Kwame Sundaram
Coordinator for Economic and Social Development
Food and Agriculture Organization of the United Nations
FAO (ES-ADG, Room B532), Vialle delle Terme di Caracalla,
00153 Roma, Italy.
Office: Jomo.Sundaram@fao.org +39-0657053566
Websites: http://www.fao.org/, http://www.jomoks.org/, http://www.ideaswebsite.org/