In most G20 countries, the social impact of the 2008 global financial collapse continues to be acutely felt. The International Labour Organization (ILO) and the Organisation for Economic Co-operation and Development (OECD) estimate that there are 20 million fewer jobs in the G20 relative to pre-crisis levels, and unless there is a significant pickup in growth, this number may double by the end of 2012.[1] Sharp increases in long-term and youth unemployment threaten to permanently reduce the employability of those affected. Furthermore, many workers have had to accept contingent instead of full employment.
The monetary and fiscal stimulus provided by the G20 in the wake of the 2008 crisis worked to avert an immediate collapse in business and consumer confidence, but it has been inadequate, of itself, to return employment to pre-crisis levels. And it is showing its limits: public debt in many G20 countries is rising at an unsustainable rate, and serious doubts abound about the ability or willingness of a number of these countries to restore soundness to their public finances. The fiscal austerity that is required, however, will also have some dampening effect on demand.
This situation is weighing against the willingness of financial institutions to lend, and of businesses to hire and invest. In many G20 countries, we are now observing an unusually high accumulation of financial assets and debt repayment by the corporate sector, rather than the more normal pattern of net borrowing by corporations to invest and grow. This suggests that a lack of confidence and other barriers to business investment and employment creation, not a shortage of available funds, is preventing profitable corporations from hiring and investing.
An expansion in business and — in countries where household savings are high — consumer spending is, however, required to avoid a low-growth trajectory for the global economy, which would be most damaging for long-term employment and social prospects.
At previous summits, the G20 pledged to address the employment and social impact of the 2008 crisis, but it has not effectively linked this with a private sector growth renewal agenda. In Pittsburgh in 2009, the G20 welcomed a “Global Jobs Pact” adopted by the ILO,[2] but this mainly provided governments with a menu of possible options for addressing unemployment. The G20 also commissioned the ILO to produce a G20 training strategy, but that strategy is focused on longer-term results and is dependent on individual countries taking action in light of their specific circumstances. In the context of weak demand, however, even the best training and skills strategy may not have the desired effect.
The declared social and employment priorities of the 2011 French G20 presidency include greater respect for social and labour rights, access to employment for the young and disadvantaged, and better international coordination on these and other labour-related issues.[3] These items are, in principle, unobjectionable, but are unlikely to address the fundamental problem of a lack of private sector dynamism.
Another objective of the French presidency is to discuss a new global floor for social services and income support. Regardless of its merits, surely the lesson of the experience of advanced economies in the past four decades is that such an objective can only be achieved across the G20 if social programs are put on a sustainable financial basis.
In light of these realities, the G20 should prioritize measures that will support business resuming its normal role as net borrower — and creator of jobs. It should also pledge to strengthen pensions and other social programs by, first and foremost, putting them on a sound financial basis.
Regarding business expansion, the G20 leaders at Cannes should instruct the OECD and the International Monetary Fund to update and expand on their past analyses of business lending and borrowing patterns, and to report on unusual or unproductive patterns in each G20 country, with a view to identifying broad elements of reform that could spur productive business activity. They should pledge to remove financing, legal, regulatory and tax impediments to business formation, business investment and hiring. A particular focus on small business is warranted, as this sector, which is key to employment creation and social mobility, is beset with significant barriers — such as difficulty in accessing finance — in almost every G20 country.
Regarding social programs, the G20 should build on the work of the OECD and numerous research institutions in G20 countries, to review the adequacy and sustainability of the implicit or explicit “social contract” in each member nation, with a view to identifying — with the help of a peer review process — how social programs can be strengthened in some countries, and put on a viable financial footing in countries facing large fiscal deficits driven by social entitlements. G20 leaders would pledge to act on these findings.
Building on the Seoul G20 business summit and the G20 SME Finance Challenge,[4] the G20 should seek a compact with key business leaders and organizations, whereby the latter would pledge that G20 actions to support business expansion and fiscal sustainability would be accompanied by sustainable private sector job creation and investment, which would offset restraint in public sector expenditures.
Such a compact could also help reduce current account imbalances that foster global trade tensions — one more problem the world can do without, since openness to trade is a crucial source of good jobs in all G20 economies.
In short, the G20 in Cannes should pay particular attention to bridging its economic growth and fiscal sustainability agendas with its employment and social agendas. The two are inextricably linked.
[1] Joint statement for G20 labour ministerial by ILO Director-General and OECD Secretary-General. Available at: www.ilo.org/global/about-the-ilo/press-and-media-centre/statements-and-speeches/WCMS_163854/lang--en/index.htm.
[2] For a description of the Global Jobs Pact, seewww.ilo.org/jobspact/about/lang--en/index.htm.
[3] See French Presidency of the G20 at: www.g20-g8.com/g8-g20/g20/english/priorities-for-france/the-priorities-of-the-french-presidency/sheets/employment-and-the-social-dimension-of.930.html.
[4] The SME Finance Challenge was a competition aimed at finding new ways of making public programs more efficient in leveraging finance to small businesses. The G20 pledged to financially support implementation of the winning proposals.