Author: Yan

In one of its latest reports, The  Independent Evaluation Office (IEO), examined IMF’s changing role in providing advice and assistance to member states in strengthening social protection systems. While being mildly critical, the IEO commended the Fund for the role that it played since the 1990s in placing social protection as a ‘macro-critical’ issue when engaging with member states, both operationally through its various lending arrangements and through its advisory and surveillance roles.  The IEO then suggested various recommendations  to strengthen the IMF’s capacity in offering advice and support to member states in enacting and implementing social protection policies. There is, however, one area where the IEO frankly acknowledges the IMF faces a major challenge, namely, institutional collaboration with UN agencies, most notably UNICEF and ILO.

The challenge of developing  productive collaboration between the IMF and UN agencies stems from different approaches to social protection. The IMF generally favours a ‘targeted’ approach to social protection in which means-testing is used to allocate scarce public funds to help the poor and the needy. Given its mandate, the IMF is understandably concerned about the fiscal sustainability of social protection policies. The UN agencies, on the other hand, subscribe to a ‘rights-based’ approach which ‘…emphasizes universal benefits and targeting by category (e.g. demographic groups) rather than income’. Combining the two different approaches into a unified position has proven to be rather difficult.

The IEO also notes that ‘IMF-World Bank cooperation on social protection generally worked well’ but worries that this might not necessarily be the case in the future. This is because in 2015 the World Bank decided to ‘…adopt the goal of universal social protection’.  How that proclamation will manifest itself in practice remains to be seen, but at least there is a formal change in approach. As the World Bank group President puts it, ‘…universal coverage and access to social protection are central to the World Bank Group’s twin goals, to end extreme poverty by 2030 and boost shared prosperity’.

There is in addition the Sustainable Development Goals (SDGs) endorsed by 193 member states of the UN system which supports universal social protection. For example, under goal 1 (ending extreme poverty in all its forms) the SDGs proclaim: ‘Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable’. The IMF has, as a good citizen of the international community, subscribed to the SDGs. Yet, at the same time, it adheres to a fiscal-centric and targeted approach to social protection.  Resolving this tension, especially in light of the World Bank moving in the direction of the UN agencies in the area of social protection, will remain a major challenge for the Fund. Unless it does so, it will be unable to appease its critics that it really is serious about social protection beyond helping the poor and the needy through means-tested programmes.

How bad is Brexit going to be for the British economy? In a highly perceptive and iconoclastic piece, Graham Gudgin – an economist and econometric model-builder with impeccable credentials –  questions the ‘majority view …that the loss of GDP could be severe’. Gudgin shows that the so-called ‘gravity models’ that were used by the UK Treasury, for example, incorporated EU-wide, rather than UK-specific, trade gains and losses to work out the impact on GDP. Yet, when UK-specific parameters are used by Gudgin and his co-authors to replicate the results of the Treasury model, the negative consequences on GDP becomes rather moderate amounting to no more than a ‘..worst-case loss of under 2% in 2025’.

Gudgin and his co-authors found it difficult get a proper hearing. The UK Treasury ‘refused multiple requests to discuss their work’. The ‘major economics media’ also refused to grant publicity to these contrarian findings. Gudgin makes the plausible speculation that the UK Treasury is not really independent but intimidated and influenced by its political masters. The Chancellor of the Exchequer at the time (George Osborne) was a strong advocate of remaining within the EU and the Treasury was mindful of that fact. Furthermore, a professional consensus has developed among the economics fraternity that Brexit is bad for Britain. The UK Treasury seems unable – at least until now – to question that consensus.

The notion of minimum wage has been around a long time, but it does not necessarily coincide with the notion of a ‘living wage’. As I have argued elsewhere, even in rich countries the mandated minimum wage does not provide workers and their families enough to meet their basic material needs. Not surprisingly, this has bred the phenomenon of ‘working poverty’, that is, the incidence of poverty that prevails among those who are still employed. For example, in the United States, the incidence of working poverty is 6.6 cent, while in Canada it is 5.5 per cent. In general, between to 5 to 7 per cent of the employed population are afflicted by working poverty in rich countries, requiring the state to intervene through various forms of means-tested financial assistance to such vulnerable groups. Working poverty is, of course, significantly higher in the developing world. Even in such a reasonably prosperous and middle income country like Malaysia, the incidence of working poverty is nearly 37 per cent.  

It thus appears that the time-honoured tradition of using minimum wages as a way of warding off working poverty has not been particularly effective. One could argue that this is a case of improving compliance and enforcement rather than a radical adjustment of the prevailing minimum wage to bring it up to to the standard of a ‘living wage’. Yet, systematic compilation of the available evidence by such bodies as the Living Wage Foundation in the UK has shown that the gap between a national minimum wage and estimates of a national living wage has actually grown between 2011 and 2015.

Such evidence lies behind the impetus of a ‘living wage movement’ in rich countries. Civic activism of this kind has also grown in the developing world. A good example is the ‘Asia Floor Wage Alliance’ (AFWA) which describes itself as

….an international alliance of trade unions and labour rights activist who are working together to demand garment workers are paid a living wage. It began in 2005 when trade unions and labour rights activists from across Asia came together to agree a strategy for improving the lives of garment workers.

As part of its objective of ‘improving the lives of garment workers’, AFWA provides (PPP-based) estimates of living wages in the garment industry across different parts of Asia. Based on such evidence, the prevailing minimum wage in some Asian countries is pitifully low varying between 19 per cent  (Bangladesh and Sri Lanka) and 54 per cent of the estimated living wage (Malaysia).  Clearly, if these estimates are to be believed, the minimum wage, even if adequately enforced, will not be able to deal with the scourge of working poverty in Asia.

The unemployment rate in the UK is now one of the lowest (4.6 %) since the early 1970s. Even during the global boom of the mid -2000s, one did not witness such low rates of unemployment.

One could argue that the UK is experiencing full employment. Yet, when one looks at living standards from the perspective of real wages, a rather different – and disturbing – picture emerges. Real wages today are lower than they were in 2007. So, the average Briton is now poorer than she/he was ten years ago. Hence, a low unemployment rate does not signify full employment in a meaningful sense. Any job is not necessarily better than no job. What one needs are plentiful supply of good jobs that are productive and pays enough to escape poverty and meet ones material needs. Hence, as far back as 1964, the ILO adopted the convention (C.122) that ‘…each Member (state) shall declare and pursue, as a major goal, an active policy designed to promote full, productive and freely chosen employment.’

The devastating fire that engulfed the high-rise housing estate of Grenfell Tower in London and claimed 79 claims emerged from a toxic combination of bad policies and poor govenance. One of the culprits appear to be the proclivity to pursue a deregulatory agenda in the mistaken belief that reducing the regulatory burden on business would unleash private sector growth and economic prosperity. Instead, what it does is inflate profits by reducing compliance costs. These profits do not necessarily translate into better jobs and greater prosperity for all.

The UK government embraced the so-called ‘one in, three out’ approach with respect to regulation. In other words, every piece of new regulation can only be accommodated if three existing ones are eliminated. Thus, as a New York Times editorial points out:

“…a British law first passed in 2011 … requires the elimination of regulations as each new one is enacted. At first, one rule had to be ended for every new rule passed. That was later expanded to “one in, two out,” ….In 2015, British law became “one in, three out.”

The editorial argues that this diluted basic safety standards (such as lack of sprinklers in a high rise housing estate that was built in 1974) that enabled the Grenfell tragedy. Other countries, and especially those in the developing world, should pay heed to the perils of deregulation.