Careful optimism and tough realities

At year’s end, the signals for the future of the global economy are mixed. On the one hand, recovery of the financial markets continues – with some fluctuations. On the other hand, all the experts state that unemployment will remain stubbornly high – some improvement is foreseen in the US, China, Brazil, India, Australia – but in general 2010 will be a year of confronting very tough times, for millions of working families.

Time-lags mean that public revenue in many countries will get worse before they get better, with the threat of so-called “exit strategies”, to write down debt, looming for all our public services, notably education. And great uncertainties are still there for Greece, Venezuela, Ukraine, Ireland, Italy, Spain, Portugal – the list goes on.

And the developing countries in all this!

Maybe cautious optimism for the experts. But tough, tough realities for many, many people!

Dubai World - Fast Track/Global Fund for EFA

Dubai hit the headlines last week, shaking financial markets with the news that its flagship investment company, Dubai World, had announced a delay in meeting payments on billions of US dollars of debt. As one financial newspaper put it “Dubai montre que la crise n’est pas finie” (Le Temps, Economie, 27 novembre 2009).

Much of the reporting in financial papers has turned around the question of whether Dubai is an isolated case that could be contained, or was a harbinger of more shocks to come, “like the canary in the cage”, as one paper put it. Just as the OECD and the IMF began to speak cautiously about recovery from the crisis, the announcement by Dubai World renewed doubts that spread quickly around the global community.

For the Dubai announcement came on top of other signs that all is not well. Four Eurozone countries, Portugal, Ireland, Greece and Spain, face increasing difficulty in financing their public debt. Experts say the risk of sovereign default, as in the case of Iceland, is increasing. Meanwhile, public sector budgets are being slashed, with a direct impact on schools and teachers.

Investors are hoping that if any one of the four Euro zone countries faces the dire prospect of sovereign default, the other Eurozone countries would come to the rescue. In the case of Dubai World, similar hopes that neighboring Abu Dhabi would come to the rescue remain unanswered for the time being. Meanwhile, several Central and Eastern European countries, notably Hungary, Latvia and Ukraine, face similar situations. In their case, the IMF has intervened, with the well-known problems of conditionalities, with dramatic consequences for schools and teachers.

So even if OECD and IMF Global Indicators seemed to be pointing in a better direction, there is plenty of room for doubt. As unemployment remains high in the wake of the crisis, as public revenues continue to decline, there is an additional risk of more shocks that could knock this timid recovery right off course.

Fast Track/Global Fund for EFA

Ironically Dubai was also the setting for a major conference I attended 2 weeks ago – the meeting of the World Economic Forum (WEF) Global Agenda Councils. Best known for its annual meeting in Davos every January, WEF has embarked on an ambitious programme to engage some 1500 individuals from diverse backgrounds – business, governments, civil society and academia – in a comprehensive “redesign” of global institutions. WEF Founder Klaus Schwab suggests that the world is desperately in need of such an ambitious undertaking to address three fundamental problems:
a) Global market failures;
b) Sovereign state failures;
c) Inter-governmental failures.
The initiative is pursued through 76 “Global Agenda Councils”, each composed of about 20 people. While none speaks for his or her government, agency, company, university or organization, they bring together in each Council both depth and diversity of experience. I participated in the Global Agenda Council (GAC) on Education Systems together with Kailash Satyarthi, GCE Chairperson.

There is an important difference between this initiative and the Davos annual meeting or the regional meetings convened by WEF around the world. Davos is the occasion for hundreds of panel discussions and networking, with no attempt to record conclusions – the value is said to be in the exchanges. The Global Agenda Councils, on the other hand, have been invited to bring forward recommendations, and proposals as to how those recommendations can be implemented. This makes the process more than a “talk-shop”. It is explicitly action oriented.

The intellectual and conceptual drive behind the process comes from people like Rick Sammans, who was Chief Adviser on International Economic Affairs to former US President Clinton, and Mark Malloch-Brown, former Administrator of UNDP and UK Minister of Development in the Blair and Brown governments.

The GACs hold regular “virtual meetings” using video-conferencing over the internet, with documents and opinions exchanged on a dedicated website platform. They met physically in Dubai 20-22 November.

The GACs are grouped together in nine “clusters”, the GAC on Education Systems being in the cluster entitled “Creating a Values Framework”. In Dubai, opportunities were provided for interaction within and between “clusters”. The process there was a wild ride: the opposite of sedate processes in the UN and agencies like UNESCO or the ILO. It was fast-moving, stimulating, chaotic, at times perplexing. But ultimately, I think, productive.

The important thing is that out of this process is emerging a real opportunity for breakthrough on issues which are critical to EI and its member organizations, notably on the global mechanisms for driving forward towards Quality Education for All.

With other Global Union leaders present in Dubai, I wondered at the setting in which we found ourselves. Anita Normark, General Secretary at the Building Workers’ International, was invited with some construction executives to the top of the Burj Dubai Tower, the world’s tallest building, which was supposed to open next month. Anita enquired into the working conditions of the thousands of non-unionized workers on that spectacular building site – all brought in by labour agencies from Asia and African countries. This is the darker underside of the glamour of Dubai.

That glamour has been tarnished by the announcement of Dubai World. There are lessons to be drawn here more broadly about the human cost of exuberant speculation, and about the global impact of such speculation. Dubai wanted to be the centre of world attention, constructing the tallest building, inviting the WEF, and so on. It has however become the centre of attention in a less desired and less glamorous way.

Going for growth? Or back to business as usual?

On 13 November a strong trade union delegation from TUAC met for a full morning with the OECD Liaison Committee, comprising the Ambassadors from the 30 Member countries, the Secretary General and his senior departmental colleagues. Speaking after TUAC President John Sweeney, I was asked to step in for ITUC and ACTU President Sharan Burrow, and with François Chereque, General Secretary of CFDT France, to introduce the discussion on macro-economic imbalances. One of our tasks was to challenge ”Growing for Growth” ,which is an annual OECD publication based on a neo-liberal economic approach of low taxation, minimal government and flexible wage policies. This is the statement:

Mr Secretary General, Ambassadors, Colleagues,

The OECD’s message for a stronger, cleaner, fairer global economy sounds great. The problem, of course, is how to achieve it. The G20 framework for strong, sustainable and balanced growth might be the beginning of a march leading to that goal. But for the moment it remains essentially a slogan, rather than a plan. The OECD proposal for an observatory, or mechanism, for policy coherence among the organizations included in the framework makes sense. But for it to work, it has to be determined from the outset that the “observatory”, and all six of the organizations in it, will be setting out to get the best and widest possible information and advice. Actively seeking the critical (in both senses of the word: critical input is necessary, and it is critical to have it) input of representative labour, as well as industry. OECD is well-placed to ensure this through TUAC, BIAC and their partner organizations, just as ILO is through ITUC and the IOE, for example.

The key to the “stronger” and “sustainable” is “balanced”. Much has been written and said about the global imbalances underlying the onset of the crisis. There was a conjunction of several imbalances. Together with the global imbalances in trade consumption, savings, and debt, we now know that the financial economy was completely out of balance with the real economy. We had a huge and growing imbalance in wealth and revenues, linked with imbalances in bargaining power. Essentially, the imbalances made it possible for some to reap huge benefits, while the majority of people struggled to hold on to diminishing jobs that provided more and more precarious returns.

And we had, for a quarter of a century, another imbalance – an imbalance between the private and the public sectors, driven ideologically by the notion that government was the problem, not the solution, and the populist politics of tax cuts. Getting balance between the market and the public sector as provider and as rule setter, and between resources for common public purpose and benefits for private gain, is one of the challenges. As Joseph Stiglitz says: “we need a massive rethinking of the role of governments and of the market”.

The imbalances all interact – like the components of a weather system – and we were hit by a global storm. TUAC colleagues will address one of the fundamental imbalances – growing inequity – in the next session.

A year ago, when the storm hit, we talked a lot about paradigm shift. Well, there has been paradigm shift. But not in the way we expected! We have not in fact shifted into a new and more balanced paradigm. On the contrary, we have shifted into a paradigm were the paradox of jobless recovery can actually occur, where financial markets can move into a new cycle of massive profit-taking. Worldwide monetary-easing and stimulus packages have created new opportunities for speculative profit-taking, while the motors of our economies splutter as they try to get going again – some more successfully than others. (Imagine a line of vintage cars starting up for a rally – some better than others!) Roubini explained (last week in the FT) the mechanics of this new paradigm. It is clearly not sustainable. Dominique Strauss-Kahn said in Rome a week ago: “there is no recovery until there has been recovery of jobs!” Slow recovery of the real economy means immense ongoing economic and social costs in each community. It also means diminishing public revenues, even while finance ministries and some international officials talk of “exit strategies” which will put more pressure on public resources.

This new, and I submit, unwanted paradigm, (let us agree on that) actually enables a further massive shift of resources from the many to the few, from future generations to the present – the very opposite of what makes sense for a stronger, clearer and fairer global economy.

What to do?

Our message today goes to the governments represented around this table. Standard finance ministry responses will not get us out of this. There has to be collective rethinking of the role of governments and of the market, and a combined macro effort to achieve better balances, equitable productive balances. In that macro effort, ethics and economic good sense lead in the same direction.

And our message goes to the OECD. Your paper refers to previous work in “Going for Growth”. We’ll be frank. “Going for Growth” will neither give OECD added value in its contribution to the global effort, nor help to change the unwanted paradigm. “Going for Growth” which also drives the OECD country reviews, will not help countries to achieve the balances that are crucial to sustainable recovery. OECD has built a reputation on indicators. But number crunching alone won’t do it, especially if you’re crunching the wrong numbers. GDP per capita as a benchmark does not give us the information we need, as you said Mr Secretary General. It does not give the same information as the median wage, which actually reveals growing inequality in the USA (the GDP benchmark) over time.

But OECD does have a major contribution to make because it is one organization that could lead the way in a whole of government approach. OECD is the only agency taking that approach. Your work on education, on labour and employment policy, on migration, on health, and on many other areas, gives OECD added value in the endeavor for policy coherence. OECD and ILO can work together to respond to the G20’s call for a new surge of education and training. Human development is the key to strength, fairness and sustainability. It’s going to need new and open thinking, and the contribution of actors like us.

Thank you.


Note : ”Growing for Growth” is an annual OECD publication based on a neo-liberal economic approach of low taxation, minimal government and flexible wage policies.

IMF Head : “The crisis is not over”

“There is some good news, but the crisis is not over” said IMF Head Dominique Strauss-Kahn, meeting with trade unionists, business leaders, academics and the Italian Labour Minister in Rome last Friday. “There is no recovery until there is recovery of employment”, he told the Italian media afterwards.

Sharing the platform with Strauss-Kahn, ITUC General Secretary Guy Ryder agreed that the G20 had brought the world “back from the brink” “but after the rhetoric of desperate men in October 2008, it is back to business as usual” said Ryder. “The financial sector is showing just 12 months later a capacity for collective amnesia”, he added.

Strauss-Kahn said the time-lag between recovery of the financial sector and recovery of the real economy would be on average 12 months (10 months in some countries, 14 months or more in others), and that recovery was likely to be sluggish at best.

Strauss-Kahn recognized in response to the criticism of ITUC, EI and Global Campaign partners that IMF conditionalities continue to be an issue in countries receiving IMF bail-outs, particularly low-income countries. Giving a detailed explanation of the IMF’s approach, he acknowledged that more needed to be done to create “social conditionality”. He said that 80 percent of IMF missions now met with national trade unions. (I noted the need for EI member organizations to make sure they are included in these national consultations). He now met personally on a regular basis with a group of 30 NGOs, including Oxfam, and was also reaching out to the academic community.

Strauss-Kahn also warned against premature moves by governments towards “exit strategies”, which mean attempts to draw back public debt used to finance stimulus packages. These “exit strategies” will pose major problems for the public sector down the track, because they will put immense pressure on public sector budgets.

As the world economy emerges from the biggest crisis in 80 years, resources for quality public services will become one of the defining issues of our time. Strauss-Kahn created a surprise by announcing that even the IMF had begun a study of taxation on international financial transactions, a concept that had been dismissed by orthodox economist before the crisis. The Global Unions’ proposed study on Corporate Taxation and Resources for Quality Public Services could not be more timely.

Speaking on the previous day in Rome on behalf of TUAC, I pointed out that social dialogue with unions and industry was considered to be normal when the Marshall Plan was launched for post-war reconstruction in Europe. “It should be just as normal for trade unions to be at the table of the G20 today, and especially at G20 created bodies like the Financial Stability Board (FSB)” I suggested, or as Guy Ryder put it “the Financial Secrecy Board”. So, yes, progress to report from Rome, but there is much hard work still to be done, with systemic advocacy by Global Unions linking closely with national action through their affiliates.

Financial recovery?

How can banks announce record profits and pay out massive bonuses again – so soon after the storm of October 2008 to March 2009? I put this question to Oliver Roethig, Head of the Finance Sector at UNI Global Union.

“It’s simple”, said Oliver “all these fiscal stimulus packages are financed by government debt, and banks organize the bond issues. Meanwhile monetary stimulus with interest rates near zero means money is cheap. Banks make money when the real economy goes up, and they make it when it goes down – they win both ways”, he concluded.

Oliver’s comments help to explain the paradox of financial recovery while the real economy struggles. It also checks out with a series of articles in recent days questioning the strength of the recovery in financial markets.

Writing in the New York Times, Wolfgang Münchau cites two key indicators showing that the US stock-market was over-valued last month by 35 to 40 per cent (IHT, 19/10/09, quoting Andrew Smithers: “Wall Street Revalued: Imperfect Markets and Inept Central Bankers”, Wiley 2009”.

In other words, there is a new speculative bubble, just as there was in the lead-up to 2007-08. This new bubble could burst much more quickly than the last one, plunging financial markets back into chaos before the real economy gets a chance to recover.

The history of earlier depressions (1837, 1873 and the great depression of the 1930’s), tends to confirm this risk. Joe Nocera, writing on the same day, pointed out that some markets moved abruptly upwards in the ‘30s. “We tend to forget”, Nocera writes, “between 1935 and 1937 business began to boom again”. But in September 1937 the market crashed and the depression took hold again (Nocera: “In the ‘30s the experts were blind”, IHT, 19/10/09).

So we all need to be wary of talk of recovery until it is based on substance – which means recovery of the real economy.

Here is the real question. Writing on the same day in the Financial Times, under the heading “The Free Market is not up to the job of creating work”, Mort Zuckerman, editor in chief of US News and World Report states: “Today there is no evidence of job creation, quite the opposite”, before adding “labour markets have not faced such problems in more than 70 years”.

As global unions put it to G20 leaders in Pittsburgh sustainable recovery will come not from financial speculation but from consumer demand, based on full employment, decent work and a just transition to a green economy.

Education and training are critical to such a sustainable recovery of the real economy. Everybody - employers, labour leaders and governments - seems to agree with that proposition. But is that broad consensus being translated into policies and programmes, backed by adequate investments?

“Bank bonuses make a comeback”

This was the front page headline of the Wall Street Journal Europe on Wednesday.

Major US financial firms are “on-track” to pay about $140 billion this year. The Wall Street Journal analyzed 23 publicly listed firms so that figure does not include unlisted Hedge Funds or Private Equity firms!

The Journal says that asset managers and traders can expect to earn even more than they did in 2007, before the crisis. This week, JP Morgan also announced record profits for the third quarter. Stock markets have rebounded.

Yet unemployment keeps rising. So what is happening? A couple of months ago this blog dismissed the idea of a “jobless recovery”. But it is actually happening. After all the damage caused by irresponsible behavior, after all the massive government bailouts, the financial sector has gone back to earning big bucks. But millions of working families continue to face the consequences – lost jobs, lost houses. Thousands of small and medium enterprises are struggling to keep going. Local municipalities face cuts in revenues and cuts services.

There is a pervasive sense of exasperation – in the media, among political leaders. The exhortations of G20 leaders have evidently had little effect. While the opportunity to reap short-term profits is there, people in the finance sector will take what they can.

Back to that headline. US$ 140 billion would provide more than enough funding to meet the objectives of the Millennium Development Goals, including Education for All.

Today, we call on EI members to support the Global Call to Action against Poverty.

Somehow, we have to find a way of getting priority for equity and justice to the top of political and economical agendas!

G20 : They were singing our song

The G20 Leaders’ Statement from Pittsburgh reads well. They put “quality jobs at the heart of the recovery”. They will “strengthen support for the most vulnerable”. They will establish “a framework for strong, sustainable and balanced growth”. As they said in their first sentence, they met “in the midst of a critical transition from crisis to recovery, to turn the page on an era of irresponsibility…”. The ITUC was quoted as saying: “the Leaders got it” – on the need to place the emphasis on jobs, as the path to sustainable recovery. They also said some good things about training and skills. But the contribution of general education to society was not mentioned. They endorsed a proposal from President Obama to convene a meeting early in 2010 of G20 Employment and Labour Ministers, to support the ILO jobs pact and consider skills development policies. They reaffirmed their “historic commitment to meet the Millennium Development Goals”.

These commitments and affirmations were not included by chance. They were the result of a coherent case put toward systemically by Global Unions with significant work in many different capitals and at the EU. In Pittsburgh, in the space of two hours, labour leaders met with 10 out of the 20 leaders, including Presidents Obama of the US and Lula of Brazil, as well as the heads of key international agencies. The advocacy work was done, and done well.

Today the ITUC and TUAC stated: “Progress in Pittsburgh, but still far to go", especially on measures to give real assurance that it will never happen again. But youth unemployment was not mentioned.

Nevertheless, Global Unions got several statements they wanted. Now comes the hard part – getting governments around the world – whether in the G20 or not, to follow through on the commitments. This is going to be tough.

If we read the G20 statement carefully, it’s quite specific on issues like financial regulation. Remember, the G20 is still essentially the creature of Finance Ministries and Central Banks. On jobs, skills and training the statement is long on principle, “singing our song”, but short on specifics.

The G20 will replace the G8 as the preeminent summit on global economic issues. 2010 will be the transition year, with Canada hosting the G8 and G20 in June. So this gathering of the heavy hitters in the global economy is here to stay. But what will count most is what happens far below the summit – in the countries and communities of the world.

Link for G20 statement: http://www.pittsburghsummit.gov/mediacenter/129639.htm

Pittsburgh : the recovery summit ?

This week, on 24 and 25 September, Pittsburgh will host the third G20 Summit since the outbreak of the financial crisis just over a year ago. Will this be the recovery summit? Will these 20 Leaders take measures to prevent a repeat of the near financial meltdown of 2008, and most of all, lay the groundwork for sustainable recovery of the global economy?

Remember, even if stock markets have been rising, and some indicators in the US and Europe have removed the worst of gloom and doom, unemployment is still on the rise, and public sector budgets are being hit badly in many countries. In some case, as in Central and Eastern Europe, public revenues have already dropped dramatically. In other areas, public revenue cuts are only now starting to bite because of time lags. Even where national stimulus packages have helped, local government revenues have dropped drastically in many countries, in the US, Chile and Sweden, for example, and that means schools and teachers have been hit.

Earlier this month, there was a lot of talk of “exit strategies”, which is code for winding down stimulus packages and cutting back on public spending in order to reduce debt. There is less talk of that in the final days leading up to the Summit. Australian PM Kevin Rudd, UK PM Gordon Brown, French President Nicolas Sarkozy and US Treasury Secretary Tim Geithner, have all said that talk of ending stimulus packages is premature.

Some issues being highlighted:

From leaked letter from the Chancellor of Germany, the PM of Britain and the President of France:
3Stop financial practices that lead to the crisis, including inflated and inappropriate bonuses.

From leaked letter from the White House (by the US “Sherpa”, the top official advising the President):
3Address imbalances in the global economy
3Establish a framework for sustainable growth
3Prioritize jobs and skills for the 21st century
3Strengthen recovery in the poorest countries

By the IMF Director General:
3Rebalance growth – move away from countries having large surpluses while others have large deficits. The Ambassador of China to the US, however downplays the issue of global imbalances, and calls for action to avoid protectionism.

By the World Bank President:
3Don’t leave the poor behind

The US delegation, host for the Summit, is circulating a proposal to support the ILO Jobs Pact and to convene a meeting of ILO Labour Ministers and top education officials in the US in early 2010. The Obama administration underlines that skills development is fundamental to durable recovery. If this proposal is approved by the other G20 leaders, we have a good basis for moving forward with EI’s agenda – Invest in education: the smart strategy for recovery.


Source: Global Unions Washington Office

Links:

Global Unions Pittsburgh Declaration (pdf) http://download.ei-ie.org/Docs/WebDepot/0909t_g20_Pittsburgh_en.pdf

Proposed US workforce policy proposal (pdf) http://download.ei-ie.org/Docs/WebDepot/G20%20Pittsburgh%20US%20proposal.pdf

Letter by Michael Froman (pdf) http://download.ei-ie.org/Docs/WebDepot/Froman%20Letter%20on%20Pittsburgh%20Summit%20Agenda.pdf

Letter by Angela Merkel, Gordon Brown, Nicolas Sarkozy (pdf) http://download.ei-ie.org/Docs/WebDepot/lettreMerkelBrownSarkozy.pdf

Is the crisis nearly over? Mixed signals

OECD is seeing some improvements in the global economy. Acting Chief Economist Jorgen Emeskov told the media last Thursday that recovery seemed to be arriving quicker than expected, but that economic activity would remain weak. This followed the annual meeting of Central Bankers held 12 days earlier in the US, commented on this blog (see http://fundingeducation.blogspot.com/2009/08/sustainable-global-recovery.html). The Financial Times leapt on the OECD’s cautious announcement with a front page headline: “G20 plans for stimulus exit”. But when G20 Finance Ministers met in London over the weekend to prepare for their Leaders’ Summit in Pittsburgh on 24-25 September they were more careful, saying stimulus measures had to be kept in place into 2010.

As the OECD released its Interim Assessment, TUAC’s Economic Policy Group worked on the Global Unions’ Statement for the Pittsburgh G20. Our statement, “The Pittsburgh Declaration”, underlines points referenced recently here, most of all that unemployment continues to rise, even as the financial sector begins to recover. “The collapse in employment … has become the single biggest threat to the economy”, we will say. The call from Global Unions will be “The G20 Summit must, first and foremost, be a Jobs Summit”.

Tensions are running high. After top OECD staff saw the working draft for our Declaration, specifically a criticism of IMF and OECD responses to public sector deficits and proposals to curb public spending (sounds familiar?), OECD Secretary General Angel Gurria invited TUAC General Secretary, John Evans, and Economic Policy Group Chair, Ron Blackwell, for a talk. When John and Ron returned to our group they said the talk had been positive, as Mr Gurria understood the support of TUAC affiliates for OECD involvement in the G20 process, but also understood that unions would be especially vigilant about OECD positions, as we will for those of other agencies. It was also understood that OECD will continue to support strongly the involvement of the ILO.

The Head of OECD’s Employment Labour and Social Affairs Directorate (ELSA), John Martin, also told the TUAC group that the Secretariat’s analysis was trying to take into account whether a recovery would begin soon, although he recognized that it is still “difficult to say”. John Martin’s Directorate is responsible for preparing a meeting of Labour Ministers from the OECD countries, to meet in Paris 28-30 September, one week after the Pittsburgh Summit. The Chairs of TUAC’s Economic and Education Working Groups, Ron and myself, will join the TUAC delegation to the consultations and an open forum on “How to help workers weather the storm”.

Education and training – keys to sustainable recovery

Meanwhile, a positive message coming through all the mixed signals leading up to the G20 Summit is that education and training is among the keys to sustainable recovery. One of the problems with the financial markets, Ron told our group, is that they operate much of the time within incredibly short time-frames, and fail to address long-term imbalances. Training strategies, on the other hand are inherently medium to long-term. One proposal being circulated within the US delegation, for Pittsburgh, is that the US host a meeting of Labour Ministers and top education officials early next year, with education and skills development as a major component. AFL-CIO backs this proposal, and EI will talk with US affiliates NEA (which joined EI at the TUAC meeting last week) and AFT (affiliated to AFL-CIO) about how best to marshall support for the US proposal.

Sustainable global recovery ?

As Europe, North America and East Asia return to work after the summer break the question posed everywhere is: has a global recovery started? Stock markets continue to improve and some of the major surviving banks have reported profits. Cautious optimism came out of the annual meeting of Central Bankers held in the US (in Jackson Hole, Wyoming) over the weekend. US Federal Reserve Chairman Ben Bernanke said “the prospects for a return to growth … appear good”. But European Central Bank President Claude Triclet admitted feeling “a little bit uneasy” over suggestions that “we are close to back to normal” (Financial Times, 22/23 August 2009).

A few days earlier on 19 August, IMF Chief Economist Olivier Blanchard posted an article stating, yes, the recovery had started, but posing the next question: “Will it be sustainable?” (Blanchard: “Sustaining a Global Recovery” link: http://www.imf.org/external/pubs/ft/fandd/2009/09/blanchardindex.htm). Blanchard also said “some parts of the economic system have broken”. Then he put his finger on the big issue: “unemployment … is not expected to crest until some time next year”. In other words, the number of people thrown out of their jobs by the crisis, estimated by ILO as at least 50 million to date, will continue to increase until “some time next year”. Millions of families will continue to find themselves in dire straits while financial traders get back to “business as usual”.

Two other issues have to be set against the cautious optimism of the central bankers and the IMF.

The first directly concerns EI members worldwide. It is the pressure on public sector budgets resulting from massive drops in revenue, especially at local level in many countries, the increased debt resulting from fiscal stimulus packages, and the growing cost of health care and pension plans. Blanchard discusses these issues in his article. Public school systems throughout the OECD are already confronted by this revenue drop and funding for schools is not likely to improve in 2010.

The second issue is that while the crisis has been global, the impact varies greatly among regions and individual countries. Blanchard discusses in some details the situation in Asia. He states that the GDP of emerging Asia (China, India, Malaysia, Indonesia, Thailand) is roughly 50 per cent of US GDP, but is projected to increase to 70 per cent within 5 years. The emerging economies of Latin America are not mentioned, but Brazil, Argentina and Chile are also increasing their share of world GDP. On the other hand, capital inflows to these countries have decreased dramatically. The drop in such inflows for the least developed countries, mainly in Africa and Asia, is likely to be even more dramatic, despite the decisions of the London G20. In Eastern and Central Europe, public services, schools and teachers have been hit badly and the outlook is grim for at least this year and next. This is why EI is convening a meeting of education union leaders in Warsaw next week, so as to share first hand information and to work out the best strategy to pursue in these countries. (Regarding the general economic outlook in the area, see also the International Herald Tribune “Cash gone, East Europe is left adrift in sea of debt”, 24 August 2009).

Blanchard’s question about sustainability remains central. We have to keep up the effort to get across the message that investment in education and skills is a key factor in sustainability. As a mass of often conflicting information comes out in global and national media, we must keep that focus: education is a smart investment in sustainable recovery.

Sources: Global Unions Washington office, Financial Times, International Herald Tribune

IMF announcements

• 12% unemployment in Eurozone
• More stimulus recommended for Brazil and Indonesia
• Some easing of conditions in Central and Eastern Europe ?
• More lending for low income countries

Several IMF announcements over the last few days have significant implications for EI members and for education funding around the world.

Unemployment will surge in Europe
For 21010 the IMF predicts 12% unemployment for the 16 countries of the Eurozone region. As we said earlier, even as the stock markets in Europe and the US recover (yesterday the CAC40 in France reached the highest level since 9 months), the consequences of the crisis will be felt by working families for months – perhaps years – to come.

More stimulus recommended for emerging economies/middle income countries
IMF released country reports for Brazil and Indonesia endorsing more fiscal stimulus. The Global Unions Washington office says «The Fund may be attempting to respond to widespread criticism, including from trade unions, of the application of a double standard in its policy advice to countries affected by the global recession, whereby rich countries are encouraged to engage in expansionary fiscal policy while developing countries are advised to practice fiscal discipline»
(links: Brazil: http://www.imf.org/external/np/sec/pn/2009/pn0992.htm
Indonesia: http://www.imf.org/external/np/sec/pn/2009/pn0993.htm)

Some easing of IMF conditions in Central and Eastern Europe?
The IMF announced it would accept a bigger deficit in Ukraine, as part of loan conditionality. The IMF has been widely criticized for the severity of its conditions in Central and Eastern Europe, and for applying conditions when helping countries that are in direct contradiction with the calls of IMF Director Dominique Strauss-Kahn in favour of fiscal stimulus. Will the IMF ease its conditionality in countries like Latvia and Hungary as well?
Weblink to the IMF report on Ukraine: http://www.imf.org/external/np/sec/pr/2009/pr09271.htm

More lending for low-income countries – G20 follow-up
The IMF announced «unprecedented measures that will sharply increase the resources available to low-income countries in this time of global crisis». This follows decisions at the G20 London Summit in April. However, as usual, the devil is in the details. The Global Unions Washington office notes that:

- a substantial part of the projected increase will depend on additional bilateral grants from donor countries which have not yet been committed;
- only a small part of the increased resources (called special drawing rights – SDRs) voted recently by the IMF Board will actually go to the 78 low-income countries (US$ 18 billion out of US$ 250 billion).
- IMF language about more flexibility on conditionality is vague, with plenty of loop holes.
- Commitments to increase social spending have not been applied so far in practice.
Weblink to the IMF communiqué: http://www.imf.org/external/np/sec/pr/2009/pr09268.htm

EI and PSI have resolved to mount a campaign aimed at IMF Governors and key funding countries. Details will be posted on the EI campaign site in August/September.

Summer Pause
Much of Europe is on summer holiday break, and the writer of this blog will be taking off 3 weeks too. Back on 24 August!

Thinking about the unthinkable

A few weeks ago I wrote about the notion of a “jobless recovery”, ie a recovery for the financial markets, but not for the real economy, nor for employment (see blog posting of 10 June). I concluded that a “jobless recovery just doesn’t make sense”.

Well, as we head into the Northern summer break, that is just what seems to be happening. Stock markets are up – in many cases to the best level in over 6 months. Banking institutions like Goldman Sachs have announced – believe it or not – record profits, and have paid back their bail-out money to the government. Bonus payments to high fliers are back up too – despite castigation from political leaders including President Obama of the US, and Chancellor Merkel of Germany. This week French Finance Minister Christine Lagarde said banks that have started paying guaranteed bonuses again are an “absolute disgrace” and should be reined in by governments at the next G20 Summit in September (www.FT.com, 22 July 2009).

Meanwhile, announcements of job cuts and lay-offs come out daily in country after country, affecting local communities across the planet.

Writing in the New York Times a week ago, Paul Krugman stated: ’the American economy remains in dire straits, with one worker in six unemployed or underemployed’, even as Goldman Sachs announces a record quarterly profit and a return to outsize bonuses (Paul Krugman: “The Joy of Sachs”, NY Times, 16 July 2009, www.NYTimes.com). Krugman writes that rescuing the financial system without reforming it will only make another crisis more likely.

Six months ago, Trade Union leaders at the Council of Global Union, the ITUC and TUAC felt that the crisis was the occasion to push for a resetting of balances – a better balance between employee bargaining power and financiers, a better balance between resources for the public and private sectors, a start on the tough issues of global imbalances in trade and financial flows.

What we are seeing instead is a return to the very behaviour that led to the crisis in the first place. The industrial and financial landscape has been shaken up, but is settling back into a new configuration with the same underlying structure.

“Jobless recovery” seemed unthinkable. But it may be upon us – at least until the next crisis.

ILO Jobs Pact; ITUC updates on the crisis

The ILO Jobs Pact adopted in Geneva on 16 June 2009 provides guidance for unions to negotiate with governments and employers to maintain and create employment. The Jobs Pact can be found at http://www.ilo.org/wcmsp5/groups/public/---ed_norm/---relconf/documents/meetingdocument/wcms_108456.pdf. The Pact emphasizes the importance of training and skills developments and support for quality public services.

The Pact was also recognized at the recent G8 +20 Summit in Italy, and the ILO is invited to attend the third G20 Leaders Summit in Pittsburgh, 23-24 September.
The ITUC is keeping all national affiliates informed on the Jobs Pact as well as key international efforts to address the consequences of the financial and economic crisis. Details of the latest ITUC circular describing key events and developments at agencies like the IMF and the Financial Stability Board (FSB) can be found at http://www.ituc-csi.org/IMG/pdf/No_37_-_Global_Crisis.pdf. (It is available in English, French and Spanish). For the ITUC evaluation of the recent UN Summit on the Financial and Economic Crisis and its Impact on Development go to http://download.ei-ie.org/Docs/WebDepot/Trade%20Union%20Evaluation%20on%20the%20Outcome%20of%20the%20UN%20Conference%20on%20the%20Economic%20Crisis.doc.

EFA “further off track than we thought”

The new Global Monitoring Report on Education for All will show that “we are much further off track than we thought in achieving Education for All”, the report’s Director told meetings at UNESCO in Paris last week.

Kevin Watkins, Director of the report was speaking to a meeting of the UNESCO/World Economic Forum Partnerships for Education. Kevin said that there was systemic bias in reporting by governments of their progress towards attainment of the EFA targets. Many governments overstate the presence of children in schools, he said.

UNESCO’s analysis corresponds to evidence from EI member organisations. Children may be registered in school, but the statistics do not show those who rarely attend, if at all. Added to this are two other major issues which lie behind the statistics showing progress toward EFA targets. In many countries class sizes are way too large – shockingly so in some cases. And the young people recruited as teachers may not be at all qualified. This is why EI stresses the need for quality education for all.

Kevin Watkins said the financing gap was also much greater than previously thought. Calculations of the cost of achieving EFA from a decade ago were still being used but were not realistic. It had been assumed that the cost of getting all children out of school into education would be of the order 11 billion US$, and that aid would provide around 7 billion, leaving a financing gap about 4 billion US$. But reworking the figures, the real financing gap was more like 15 to 16 billion US dollars, he said, noting that these were preliminary figures as work on the report was still underway.

The financial crisis will exacerbate the problem of education funding. As financial flows to developing countries slow to a trickle, government revenues drop and official development assistance falls. Kevin Watkins said the G20 should put stronger emphasis on the stabilisation of education finance.

This was sobering information from a credible source. Unfortunately, it tends to confirm the warnings given out by EI. Setting of the Millennium Development Goal of primary education for all by the year 2015 was seen as a more serious commitment by the entire international community, compared with earlier efforts, such as the Jomtien Declaration of 1990. But as we near the year 2010 – two thirds of the way to 2015 – there is still a long way to go to achieve Quality Education for All.

The G8 (+20) and education

The G8 Leaders were joined by 20 other Heads of government and 10 Heads of international organizations when they met in L’Aquila, Italy last week (8-10 July). In recent years the G8 has invited other leaders for specific sessions, but this was a record number of non-G8 governments – a reflection of the multiple crises confronting the planet, and recognition that the major economies have to engage others.

The G8 dealt with wide range of issues: the financial crisis, climate change, food security, rising unemployment, trade, nuclear proliferation, among others – and adopted a declaration running to 40 pages – including a page on education.

Under the heading “Advancing towards education for all”, the G8 picked up EI’s key message: “Investing in education and skills development is crucial for a sustainable recovery from the current economic crisis and for long term development. We reaffirm the right to education for all”. They re-inserted a line from earlier communiqués (which had been omitted last year): “we reaffirm that no country seriously committed to EFA will be thwarted in the achievement of this goal by lack of resources.” Significantly, they welcomed “the creation of an international Task Force on “Teachers for EFA”, aiming to address the “teacher gap””.

But as the Global Campaign for Education (GCE) pointed out “despite warm words on education, [the G8] offers little in the way of immediate commitments and resources to education systems squeezed by the financial crisis” [Link: “G8 yet to make the grade” http://www.campaignforeducation.org/en/home/].

On unemployment, TUAC made a similar point: “the commitments on employment and social protection are positive, as is the more extensive role given to the International Labour Organisation (ILO) and the recognition of the relevance of the tripartite “Global Jobs Pact”. But there are no explicit commitments to making the necessary resources available for achieving employment and social protection goals” [Link: “L’Aquila G8 says ILO jobs pact has worldwide relevance – unions say this now requires resources” http://www.tuac.org/en/public/e-docs/00/00/05/17/document_news.phtml]. As TUAC said, the 40 page declaration covered a vast range of issues but failed to prioritise the actions needed to move out of the triple crisis of jobs, climate and development. “Attention must now turn to the G20 Pittsburgh Summit in September, which unions are demanding must be a Summit focused on jobs, reducing inequality and eradicating poverty”, say Global Unions.

Footnote: G8 2009 Chair Silvio Berlusconi of Italy omitted any references to education in his final communiqué – probably a reflection of his attitude to education at the national level.

A 2nd stimulus for the US ?

Increasingly there is talk in the United Sates of a second stimulus package. Already other major economies, including China and Japan, have done so. The US package of almost $800 billion announced by President Obama and approved by the Congress as ARRA in February has prevented the worst, including in the nation’s public schools, where 500,000 teaching and school support posts were at risk. But as Paul Krugman pointed out in the New York Times this week, the Federal package is offset by State and local budget cuts across the country. Unlike the Federal government, States have to balance their budgets. As revenue drops precipitously, so does spending which means less stimulus nation-wide.

At the Annual Representative Assembly of the NEA in San Diego last week, delegates highlighted the differences between States. As NEA met, the host State, California, was locked in a budget impasse with a $24 billion deficit and no agreement between the State Congress and Governor Schwarzenegger on how to proceed. School districts may be getting no more than “IOUs” from their State government.

Driving out from San Diego across the State, there are signs everywhere of boom and bust – mile upon mile of new housing developments, shopping malls, commercial buildings – all constructed since 2000 with easy, unregulated credit. But the credit bust that followed the boom is no longer just the problem of States like California and Florida. It affects the entire US economy and beyond.

Economists give the theoretical way out. It was the conventional wisdom among economists for over 50 years that the world could not suffer another Great Depression like that of the 1930s because “we know what to do now”. That is only partially true.

Good policies have not only to be adopted but also to be implemented. In the case of the US, there will be vigorous opposition to a 2nd stimulus package, opposition driven partly by ideology, and partly by genuine concern over the rising national debt. Meanwhile as we have seen, compensating for the dramatic drop in State and local government revenues with federal money while generating real fiscal stimulus, is extraordinarily difficult.

Taking the problem of policy implementation to the global level, which is really necessary in a globalized economy, adds a whole new degree of complexity. That was evident at the G8 in Italy last week (it was described as the G8 + 5 + 1 + 5 – more on this tomorrow). The national and global imbalances underlying the financial and economic crisis have not gone away. Yet the world does not have a global governance system capable of dealing with them.

For my presentation to the NEA’s Global Education Summit in San Diego on 27 June, go to
http://download.ei-ie.org/Docs/WebDepot/NEA%20Responding%20to%20the%20Global%20Economic%20Crisis%20-%2027%20June%2009.pptx
and
http://download.ei-ie.org/Docs/WebDepot/NEA%20GES%20Script%20for%20PP%20financial%20crisis%20%20-%2027%20June%2009.doc

UN Summit on financial crisis fails to rise to the challenge

The United Nations is the only universal institution bringing together all the nations of the earth. It has a priori more legitimacy than the G20. The disappointment in the UN’s efforts to address the financial crisis, and especially its impact on developing countries, are therefore all the more disappointing.

The UN conference on the world financial and economic crisis and its impact on development provided for continued discussion, but in no way measured up to the extreme gravity of the situation, civil society participants said as the conference ended on June 26.

Gemma Abada, ITUC representative to the UN in New York said: “the titanic is sinking and governments are thinking about the arrangement of the deck chairs”. There is a major gap between the penetrating analysis and recommendations of Nobel Prize winner economist (and former World bank Chief Economist) Prof. Joe Stiglitz, and the outcomes approved by governments. Preparations for the conference had been in disarray with competing drafts for an “outcome document”. The conference was deferred at the last moment from the first to the last week of June. Finally, it was attended by 140 out of the UN’s 192 member states, and only one head of government (from Ecuador). The document made some references to the need to achieve the MDGs and to defend education and health (points that were strangely missing in the General Assembly President first draft). But as Gemma Adaba of the ITUC said, the declaration was “so unclear on decisive action”.

The UN Secretary General has exhorted member states to take decisive action. But they have been found to be wanting. The Pittsburgh G20 summit on 24-25 September will be “crunch time” for global coordination of an effective response to the crisis. The UN General Assembly will open its general debate in New York on 22 September and G20 leaders are expected to attend a high level session of the Assembly on 26 September. So there is the prospect of moving from decisive action at the US-hosted G20 Summit in Pittsburgh to broader legitimacy for global action at the UN. Such decisive action is a year overdue, for the full extent of the global crisis became apparent in September 2008. Whether the leaders of G20 and other nations will at last rise to the occasion remains to be seen.

Links:
The Outcome document is available in English, French and Spanish at the following website:
http://www.un.org/ga/search/view_doc.asp?symbol=A/CONF.214/3&referer=http://www.un.org/ga/econcrisissummit/&Lang=E
Recent headlines: Financing for Development Civil society engagement http://www.ffdngo.org/

Latvian teachers suffering from the economic crisis

Boris Kagarlitsky, the director of the Institute of Globalization Studies in Moscow, writes in today's Moscow Times about the situation of Latvian public servants in general and teachers specifically:

"Pensions were cut by 10 percent and by 70 percent for those who continue working while drawing a pension. Allowances for children and family benefits were also reduced by 10 percent. Because interference in the private sector is prohibited, the government chose to cut the salaries of state employees. Now teachers, doctors and even policemen will take home 20 percent less in wages at the end of each month. In contrast to big business, the poorest members of society do not have government lobbyists."

To read the full article, go to:

http://www.moscowtimes.ru/article/1016/42/379061.htm

OECD/IMF talk of « exit strategies » has big risks for workers and families

The annual OECD Ministerial Council meeting in Paris this week expressed concern about the growing public debt associated with stimulus packages in many OECD countries.

Already, the OECD and the IMF are talking about “exit strategies”, which translate into future cutbacks in public expenditure. This is to be linked with the OECD/IMF announcement this week suggesting a slow end to the crisis. In a BBC interview, the IMF’s Chief Economist, said that the US might begin recovery later this year or early in 2010, but that Europe would be behind the US, and unemployment would continue to rise everywhere. But he also talked about public deficits.

At the Plenary of TUAC in Paris this week, trade union colleagues warned that governments, the OECD and the IMF were all developing a line that would mean higher ongoing rates of unemployment and lower social protection for families, well into the foreseeable future. Ironically, the same arguments that set the scene for the crisis are now re-emerging for a post-crisis scenario.

There is also the paradox that the OECD, and even the IMF, talk about protecting education and health spending. But their policies aimed at cutting public spending do precisely the opposite. They end up cutting resources for education and health. We should highlight this paradox in our campaign.

World Bank confirms sharp drop in financial flows to developing countries

Six months ago many in the South thought the financial crisis was mainly a problem of the North. In February, however, the head of the IMF, Dominique Strauss-Kahn warned that the impact on the developing countries could be devastating. In March, financier and philanthropist George Soros wrote in the Financial Times that the G20 had to take action to prevent both a financial and a human catastrophe for the countries of the South. This was in the lead-up to the London G20 Summit which announced a trillion US dollars of funding for the IMF to support countries in difficulty – developing countries of the South, and Central and Eastern European countries.

Now the World Bank confirms the warnings. In its Annual Global Development Finance report released yesterday, the bank says private capital flows to developing countries will fall almost to just one quarter of 2007 levels – to $363 billion for all countries from $1,200 billion in 2007. This drop in private flows is huge.

But it comes on top of a likely sharp drop in Official Development Assistance from government aid agencies – that is the pattern of previous downturns in the North. Moreover, NGOs and foundations have contributed significant resources for development in recent years, but they have been hit by the crisis too, especially US endowments.

The IMF funds are not the solution. Firstly, the actual contributions have not yet reached the one trillion ($1,000 billion) level promised in London. Secondly, they are being allocated subject to “old” IMF conditions, notably cuts in public sector spending. A colleague from Angola told the ITUC Executive Board yesterday that her government had announced a 30 percent cut in public sector spending for next year – and other developing countries will do likewise.

The World Bank said yesterday that developed nations are misguided in focusing efforts on restoring demand in their own economies. Prospects in developing countries will impact on growth prospects in the developed countries too, the Bank warns.

We agree. The trade union movement said that all along – see the Global Union Declaration to the G20 Summits in Washington and London.

When will they listen? And when will they act?

Sources: Global Unions Washington office, Financial times

Conflicting views on recovery – G8 Finance Ministers versus reality

G8 Finance Ministers put out a mildly optimistic statement on Saturday, after their meeting in Italy. They see a recovery of stock markets and improved business and consumer confidence. They recognize, however, that “we are in the middle of the worst crisis since the Great Depression”, and that the situation remains uncertain with significant risks.

This mild optimism does not reflect reality. The day before, John Evans, TUAC General Secretary, told the Council of Global Unions that unemployment will double over the next two years. The optimistic projections coming out from Finance Ministries, the IMF and the OECD all assume that the banking system will start working again. This is not happening. The view that recovery will come soon is based on no rational analysis, but rather on wishful thinking. Unemployment figures just received by ILO and OECD confirm this reality. ILO has revised its estimates again, now up to 59 million extra unemployed. OECD reported an increase in unemployment of 7.8% in the OECD countries in April alone.

Guy Ryder, ITUC General Secretary, reported to the CGU General Secretaries on Friday that the situation had become more not less bleak. “I am increasingly concerned that we may be sleepwalking into something horrific, not just for 2 or 3 years, but for the next 2 or 3 decades” Guy said.

G8 Development Ministers also met in Rome on Friday.

Link: Summary of global unions’ view http://www.actionforglobalhealth.eu/news/g8_representatives_of_civil_society_met_minister_frattini

Two new reports ring alarm bells for public finances

The IMF has just released a paper “Fiscal Implications of the Global Economic and Financial Crisis” that rings alarm bells for public finances. Prepared by a staff team from the IMF’s Fiscal Affairs Department, the paper says governments have to balance two opposite risks:
· The risk of prolonged depression and stagnation, as against
· The risk of a loss of confidence in government solvency.

For G20 advanced economies, the report projects that fiscal balance will worsen by 8 percent over 2008-09 compared with 2007. The increase in government debt will be even more sizable. The report also points to risks for pension funds in many countries, particularly those exposed to “toxic” investment such as CDOs and “credit-default swaps”.

The thrust of this report is that governments which have put in place big stimulus packages will soon have to scale back on public spending. Unfortunately, this report confirms the assessment that for public sectors, including education in many countries, the worst is yet to come.

Nota Bene: The report does not say a word about education, neither about the impact of fiscal restraint on education services, nor on the contribution of education to the re-launching of economics.

It does contains useful technical information. Link to the report http://www.imf.org/external/pubs/ft/spn/2009/spn0913.pdf

The second report released by Eurodad, the European network on debt and development, provides a reasoned critique of the IMF. It is entitled “Bail-out or blow-out? IMF policy advice and conditions for low-income countries at a time of crisis”. The report shows how the macro-economic preoccupations of the IMFs play out in actual advice to countries, and indeed conditions imposed on them for IMF support. In these countries, public finances are already being squeezed, often dramatically. Leading examples are counties in Central and Eastern Europe including Latvia, Ukraine, Hungary and Lithuania (http://www.eurodad.org/whatsnew/reports.aspx?id=3679).

The IMF came out of the London G20 in April with an enhanced mandate and more resources, in order to help low-income countries get through the crisis. Despite the welcome statements of the IMF’s Director on the need for coordinated global stimulus and the role of public services, these two reports show that the “old” IMF is still very much in place. Public services and education are likely to suffer as a consequence.

Source: Peter Bakvis, Global Unions Washington Office

A “jobless recovery”?

Labour leaders met with staff of the World Economic Forum in Geneva last Friday. One of the issues raised was the notion of a “jobless recovery”. In other words, the risk that stock markets would rise while unemployment got worse. A “jobless recovery” would mean returning to a casino economy based on speculation, with wins for a few and losses for many. It would perpetuate inequities. It could not be sustainable.

Real recovery will have to be led by consumers, and that requires raising incomes, with more equity of distribution. One of the big challenges said Neal Kearney of ITGLWF is “how to keep workers in the middle of a recession: downturns should be used for upskilling”. Philip Jennings of UNI stressed the risks of youth unemployment and threats to social cohesion. Anita Normark of BWI said we had to deal with climate change while charting a road to recovery. Tim Noonan of ITUC gave an example of the impact of an unexpected event such as the outbreak of swine-flu on employment. Lee Howell from the WEF staff made a remark that caught my attention “the current recession is transformational. But we don’t know what’s on the other side”. Rick Samans, WEF Managing Director, agreed that the global community was accumulating risks. “One of the lessons from this crisis is that we should be on the watch for other big risks” he said.

In an attempt to get a better understanding of global risks, the WEF has launched an ambitious network of Global Agenda Councils, some 70 of them, linking together about 1500 leaders from all regions, from business as well as civil society, to discuss challenges ranging from economic balances, to ecosystems, to pandemics, to terrorism. Global Unions are invited to play an active role. EI will be invited to councils on Skills Gap and Technology and Education.

The meeting concluded with a discussion that I initiated on “Investment in people” and what that really means. For talk of a “jobless recovery”, is like saying a “recovery without people”. And that just doesn’t make sense!

Next: Shaping up for the G20 in Pittsburgh

How Wall Street fleeced millions from Wisconsin schools

The story of how five Wisconsin school districts lost millions due to Wall Street financial engineering that trustees believed to be AA safe is just one example of the impact of the financial crisis on education.

Five school districts in Wisconsin joined together with the aim of enhancing their pension trust fund investments. Trustees were persuaded that new financial instruments called CDOs were nearly as safe as Treasury Bonds, but with better rates of return. They put in $37.5 million of their own funds, and borrowed another à $165 from an Irish Bank. They did not realize that they were bit players in a complex international deal involving banks in the US, Ireland, Germany and Canada.

This example is given by Les Leopold, Director of the Labour Institute and Public Health Institute in New York, in his new book “The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What we can do about it”. He quotes the New York Times: “Wisconsin schools were not the only ones to jump into such complicated financial products. More than $1.2 trillion of CDOs have been sold to buyers of all kinds since 2005 – including many cities and government agencies….”.

Read the story of the “Wisconsin Five” on http://www.alternet.org/story/140208/the_looting_of_america%3A_how_wall_street_fleeced_millions_from_wisconsin_schools/.

Les Leopold’s book is available on Amazon at http://bit.ly/rltb4.

Source: ITUC and International Federation of Journalists (IFJ)

Global imbalances

Returning to the last Wednesday’s item about massive imbalances leading up to the financial crisis (http://fundingeducation.blogspot.com/2009/05/startling-revelation-what-imf-and.html), it is interesting to read reports of US Treasury Secretary Timothy Geithner’s visit to China this week.

Reuters pointed out yesterday that China is the biggest foreign owner of US Treasury bonds. US data shows that it held $768 billion in Treasuries as of March, but some analysts believe China’s total US dollar-denominated investments could be twice as high. Now Geithner is on a mission to reassure China that its massive investments in US dollars are safe. Students at Beijing University, where Geithner studied Chinese in the 1980s, were not convinced as they greeted his assurances with loud laughter.

China is demanding a bigger role at the IMF, and in international policy making in finance, and Geithner gave public backing to that. Both the US and the Chinese officials know that today’s huge global imbalances are unsustainable. That means that even if the current crisis can be overcome within the next two years, major structural changes in the system are inevitable. This is called paradigm change.

And remember that the impact on employment and public services including education will linger well after recovery begins – see: Is economic recovery on the way? http://www.ei-ie.org/handsup/en/article_detail.php?id=140).


Source: Reuters, Global Unions Washington Office

Next G20 announced

The United States will host the next G20 economic summit, the White House announced Thursday. The summit will be held from September 24-26 in Pittsburgh, Pennsylvania.

Just before the G20 will be the opening of the UN General Assembly in New York on 23 September. It will be preceded on 22 September by a special high-level meeting on climate change, which many of the G20 leaders are expected to attend, together with other national leaders.

Source: ITUC New York office.

A startling revelation : what the IMF and Central Bankers knew – and didn’t tell us

Svein Andresen is the Secretary General of the Financial Stability Board – the FSB. This body was launched by the G20 Leaders at their London Summit 8 weeks ago – on 2 April. It was one of their principal announcements. The role of the FSB – as its name indicates – is to ensure global financial stability and especially to set up measures which would prevent another major crisis in the future. It will bring together the major international players – the IMF and the World Bank, the OECD, the Bank for International Settlements (BIS), a number of BIS Committees, and the Finance Ministers from 25 countries (the G20 plus a few).

Mr Andresen previously headed the secretive Financial Stability Forum in Basel, Switzerland. Now, after the G20, he will get more staff and an expanded mandate – to save the world from new financial disasters – no less. This week he came to the Trade Union Advisory Committee (TUAC) at the OECD. Very carefully, and in considerable detail, he explained the FSB’s new role, its structures, and how he expects to fulfill the G20 mandate.

One of the FSB’s tasks will be to set up an “Early Warning System”, he told us. Then as my trade union colleagues around the table peppered him with questions, came the startling revelation. The former FSF and the IMF already had an “Early Warning System”, he said. A couple of years ago, the IMF had prepared “a fine report” describing precisely the risks to the global financial system. They had analyzed the massive imbalances in the system, imbalances which made it unsustainable. In other words, it was not “if” a major crisis would erupt, but “when”.

Trade union economists had been making the same warnings. I recall when the Chair of TUAC’s Economic Policy Committee, Ron Blackwell of the AFL-CIO in the US, said just that to the OECD at least two years ago. But trade union representatives were labeled as being unduly pessimistic. Nobody wanted to spoil the party!

Mr Andresen now revealed that the IMF had made precisely the same analysis! Surely such a warning should not have been ignored. So what happened? we asked. “Well” he replied “the report was circulated internally to Central Banks and to key financial ministries, but nobody acted on it”. The FSF was just a forum, with no powers, except to convene meetings, he explained. He followed with an elliptical commentary on how central bankers and finance ministries had to be careful with information, so as not to disturb the markets. “But the report will probably be published some day – perhaps soon” he sought to assure us.

I pointed out that the FSB was now more visible than its predecessor, because of the prominence given to it by the G20. The global union movement had to be given a seat at the table, we said. If the Marshall Plan, which gave birth to today’s OECD, could set up consultative mechanisms with trade unions, as well as business and industry, the FSB could do it too. Closed door meetings were no longer acceptable, we said, nor were confidential reports that were ignored and kept secret, for fear of “disturbing the markets”. Oliver Roethig, Head of the finance sector at UNI Global Union said it was time for the Central Banks to listen to the employees at the base of financial institutions – not just the hierarchies. John Evans, TUAC General Secretary, pointed out that TUAC last met Mr Andresen 10 years ago “We were given the distinct impression by you and your Chairman at that time that you were not seeking further input from us” he said.

Today, previously closed doors are now slightly ajar. We have been allowed to peer in and see some of the inner workings of institutions that previously did not feel the need to talk with representatives of workers. Those slightly open doors must be pushed wide open.

When historian Barbara Tuchman wrote “The March of Folly” some years ago, she showed how major upheavals in human history had been preceded by warnings that were then ignored. So it has been with the financial crisis – another unhappy example of the collective folly and failure of institutions. That is why these institutions must be opened up, and why representative trade unions should have a seat at the table.


FLASH – UN Conference on the Crisis deferred

The UN Conference on the Financial and Economic Crisis and its Impact on Development was due to be held in New York next week (1-3 June). Because of widespread dissatisfaction over the draft outcome documents (see my posting of 11 May) the Conference has been deferred to 24-26 June. More details will be posted on a further blog.

Source: ITUC, New York Office

What is a deficit ?

Back in my home city of Adelaide, Australia, last week for family reasons. While there, I followed the political debate on the Federal government’s budget. The government of Labour Prime Minister Kevin Rudd was under attack from the opposition for proposing a deficit, after years of surplus under the previous conservative government of John Howard. Australia did well during the years of the commodity boom, with its vast reserves of iron ore and other minerals, not to mention a thriving export trade in wine, wheat – and, yes, educational services. One of the world’s major trading nations, Australia was one of the few to have a positive trade balance with China – the booms in both countries were linked.

As the crisis hit, trade slumped, so revenues took a dive. Like the US and Chinese leaders, Rudd introduced a major stimulus package, including big amounts for infrastructure, notably for modernization of schools. So the Federal budget announced in parliament this month swung from surplus to deficit. This is classic Keynesian economics – build up fiscal surplus during the good times, then use that surplus to stimulate the economy out of recession in the bad times (these days, economists talk of building in “counter-cyclicality”, which is desirable, as against “pro-cyclicality”, which is not).

Discussing the surplus/deficit issue in layman’s terms, I share an observation of one of my brothers, John Harris. “Sure, we had a big fiscal surplus” he said “but at the same time we had a huge deficit in infrastructure”. A former school principal, John now has responsibility at one of our Universities for student teaching practice in schools. He gets to visit lots of schools – public and private - throughout the state. “It’s a disgrace to see how many of our public schools were allowed to run down, while the government was building up those surpluses” he said.

So what is a deficit really? Is it just the economists’ fiscal deficit? Or is it also the real deficit in terms of neglected infrastructure, including dilapidated schools? It is the same issue in the United States, where the Obama Administration is using the stimulus package to start repairing infrastructure after years of neglect, to modernize schools, and to strengthen public facilities like bridges, while moving towards a green economy. Information coming out of China suggests they have the same idea there, with an urgent need to put resources into earthquake proof schools, a need shown tragically by the huge death-toll of children and teachers in the Sichuan earthquake, while stimulating the domestic economy.

Part of our campaign strategy everywhere should be to emphasize the deficit in our public facilities, including our schools, colleges and universities. Let’s not leave the debate over “what is a deficit” to the economists and the politicians. We should try to re-set the agenda for that debate by talking about the deficit in the facilities where teachers work and students learn.

Startling revelations!

Today, I’m attending the TUAC Working Group on Economic Policy at the OECD in Paris. Watch here tomorrow for some startling revelations about what the IMF and the Central Banks knew before the crisis –and failed to tell us!

Also tomorrow: Upheaval at the UN

ITUC advises there is much confusion about the draft outcome document of the UN General Assembly (see my item of 11 May http://fundingeducation.blogspot.com/2009/05/un-high-level-paper-ignores-education.html). The special session on the financial crisis, due to start in New York next Monday, is now likely to be deferred!

HANDS UP FOR EDUCATION!

Today EI launches the new campaign site: HANDS UP FOR EDUCATION.

The site will be a vital tool in EI’s campaign to make education part of the solution in the investment plans of governments around the world, as countries search for a way out of the global financial and economic crisis. EI advocacy at international institutions and summits has to match and to be matched by the advocacy of each national member organization. The key to success is to link our global action with our national and local action. Innovative features such as the google map showing news from individual countries will help to make that link. Often, education union leaders have said that learning about developments in other countries is one of the most valuable outcomes of attending an international meeting. The website will make it possible to get that information on an ongoing basis. Added to that will be the latest news from the international scene. That is why the site will be such an important tool.

This blog FUNDING EDUCATION: CRISIS WATCH complements the campaign site. The aim is to provide rapid updates on news and decisions affecting funding for education, as well as commentary and opinion as events unfold.

The details of funding for education – and the effects of the crisis - vary greatly among countries. In some countries there have been drastic cuts already in education budgets, staffing numbers and wages. In other countries, we wrote a week ago, the worst is yet to come, as the crisis begins to affect on government revenues. Through the website and the blog we will try to share as much of this country-specific information as possible.

In all countries, there is a powerful case to be made for the role of investment in education in developing more sustainable, fairer economies in the future. All levels of education have a role to play – from the preschool sector, through the compulsory years of primary and second education, to vocational training, and higher education and research. We make the case that investment in each of these sectors – and in the people of education, the qualified professionals and the support staff – will pay off for each society far more than sinking more billions into more financial engineering.

Yet, it is all too appealing for governments and others who make up the power structures of our societies to fall back into a ‘business as usual’ approach, and to avoid or divert the more fundamental questions posed by the crisis. Already, as the stock markets recover some of their massive losses and some corporations announce results that are not as bad as feared, there are voices minimizing the extent to which the system has been shaken to its core. This is the very time for education unions to mobilize, to demonstrate convincingly to public opinion that serious investment in education is necessary. Today’s announcement by EI is a step in that direction.

WISHFUL THINKING ?

In recent weeks there have been glimmers of hope that economic recovery may be just a little further down the road. Major share markets have recovered some of their massive losses. Some first quarter banking company results were not as bad as feared. Housing starts in the US are not declining as fast as before. The government elections in India boosted the emerging economy, as did the clear election result there.

Government leaders around the world are understandably highlighting every piece of good news, or at least, not as bad as feared news, and the media often tends to go along. After all, everyone is hoping that the worst may be over.

Unfortunately, however, there is still plenty of bad news. During the first quarter of 2009 Europe had its worst fall in GDP since the Second World War. The IMF still sees no recovery before late 2010, if then. The impact of the financial crisis on the real economy continues. World trade stagnates - countless ships lie idle off Singapore and other major ports. Worst of all, job losses continue to grow.

So are the politicians, and the media, engaging in wishful thinking?

The reality is that no one really knows when recovery will begin. The very fact that optimists are now predicting (hoping for, wishing for?) recovery in 2010 is itself an indicator. Less than a year ago, these were the people talking of an upturn in 2009.

Writing in the Washington Post, David Ignatius suggests something more fundamental is blocking recovery. “What if the mistake of the ‘90s was that we strapped a casino to our economy and let the roulette wheel take control?” he asks. Ignatius makes the point that so-called “toxic assets” are still clogging the financial system and are unlikely to be cleared by government initiatives (including the Federal US government’s public-private investment program - known as P-PIP).

Beyond that is a general point that unless and until the fundamentals of our economies are placed on solid foundations, rather than on the quick-sands of speculation, recovery will be illusionary. Investment in education and training is one key factor in building those solid foundations.

Without such investment, politicians and officials tempted by creative financial engineering along the lines of P-PIP and equivalents in other countries are likely to find that their hopes for economic recovery are just so much wishful thinking.

Roumanie - grève suspendue

BUCAREST, 4 mai 2009 (AFP) - Les enseignants roumains, qui prévoyaient d'observer une grève mardi pour protester contre le gel de leurs salaires, ont décidé de suspendre ce mouvement, à la suite de négociations avec le ministère de l'Education, ont annoncé lundi leurs responsables syndicaux.

"En décidant de suspendre cette grève nous voulons faire un geste envers le gouvernement, mais cela ne veut pas dire que nous abandonnons ce mouvement", a déclaré Marius Nistor, président de la fédération Spiru Haret.

Selon lui, une décision définitive sera prise mercredi, après de nouvelles négociations avec le ministère.

Les enseignants avaient menacé d'observer trois jours de grève courant mai, pour protester contre une réduction de 160 millions d'euros du budget de l'Education, doublée d'une baisse de 70% en 2009 par rapport à 2008 des fonds alloués à la recherche.

A l'issue des discussions avec les syndicalistes, la ministre de l'Education Ecaterina Andronescu a annoncé que le niveau des salaires serait maintenu courant 2009, tandis que des fonds supplémentaires seraient trouvés pour la recherche.

Auparavant, le président Traian Basescu avait appelé les enseignants à la "responsabilité", faisaint état des "difficultés" de l'Etat à trouver des ressources pour financer les dépenses publiques.

"Il s'agirait de faire preuve de responsabilité que de comprendre que la crise peut être surmontée uniquement par la solidarité", avait estimé le président dans une allocution télévisée.

Frappée par la crise économique, la Roumanie a contracté un prêt d'environ 20 milliards d'euros auprès du Fonds monétaire international (FMI) et de l'UE, s'engageant en échange à réduire le déficit budgétaire, en gelant notamment les salaires dans le secteur public.

Source: Ivo de Crée, ITUC and Harold Tor, EI

The crisis gavely affects Africa, says OECD

The 2009 African Economic Outlook (AEO) covers 47 African countries, up from 35 last year. The report finds the region gravely affected by the global economic downturn. Following half a decade of above 5 per cent economic growth, the continent can expect only 2.8 per cent in 2009, less than half of the 5.7 per cent expected before the crisis. The AEO’s authors anticipate growth rebounding to 4.5 per cent in 2010. Growth in oil-exporting countries is expected to fall to 2.4 per cent in 2009 compared to 3.3 per cent for the net oil importers.

Source: OECD, from Nancy Knickerbocker, EI
http://www.africaneconomicoutlook.org/en/home/

Dutch youth leader: follow youth to reduce unemployment

The future of graduation students of the MBO (middle level applied education/vocational training), including their contact details, must be recorded over the next four weeks, to avoid their long-term unemployment.

That is the first step which is needed to avoid soaring youth unemployment as a consequence of the economic crisis.

This is the opinion of Hans de Boer, expressed in his advice “Tegen de Stroom in” (“swimming against the tide”) that he presented today to the government for an action plan against youth unemployment. According to the former president of association MKB-Nederland and ex-captain of the Youth Task Force Youth Unemployment, youth are likely to be heavily affected by the crisis.

According to De Boer, it is especially risky to lose sight of young people when they leave school. “Not that this is only about problematic youth, but they just have bad luck with this crisis in the labour market.” He points to expectations that unemployment among young people under 27 will rise from about 80,000 to about 150,000 unemployed.

Teachers and deans in MBO education have to talk to students approaching graduation about work and/or continued schooling, according to De Boer. The registration of students’ contact information before they leave school, places schools in the position to contact students approximately half a year after their graduation, in October, to see how they are doing.

Youth who do not work and are not in education, have to be assisted in returning to school or to take up an apprenticeship. According to De Boer, annually approximately 1 million jobs are still available, even in a recession. A campaign to better align supply and demand on the labour market alignment should be established.

Funding is also not the problem according to De Boer. In the crisis package of the Dutch government, 250 million Euros has been reserved for the fight against youth unemployment in the coming years.

Furthermore, De Boer welcomed the agreement of employers and unions, to offer a job or training position to school leavers, after three months of unemployment. 25,000 apprenticeships have already been approved. In this set-up young people will earn a little more than social benefits, and the employers is compensated for half of this amount through wage subsidies.

Source: NRC, Netherlands (from Mireille de Koning, EI)
http://www.nrc.nl/binnenland/article2240138.ece/De_Boer_volg_mboers_om_werkloosheid_te_beperken

Fonds mutuels et de solidarité face à la crise

Aujourd’hui, c’est le lancement à Paris du Réseau Education et Solidarité, fondé par l’IE, l’Association Internationale de la Mutualité et la Mutuelle Générale de l’Education Nationale (France). L’Assemblée Constitutive sera composée d’environ 300 délégués de 59 pays.

Les fonds mutuels des enseignants, tel que les mutuelles pour la santé, pour les compléments de caisse de pensions ou encore pour les assurances, ont une base commune avec le mouvement syndical, fondé sur le concept de la solidarité. Ce concept est plus pertinent que jamais dans le contexte de la crise mondiale provoquée par la privatisation à outrance et l’avarice des acteurs d’un marché dérégulé. Mais quelques grandes caisses de pension des enseignants ont aussi participé dans les hedges funds, private equity et partenariats publics-privés.

Hasard du calendrier, le Wall Street Journal d’avant-hier cite le Directeur de l’Ontario Teachers Pension Plan dans un article sur une tentative par un « hedge fund mogul » de mettre la main sur le discounter Target Corp. Est-ce vraiment le rôle de nos caisses de pension de participer à ce genre de « deal making » ?

Le Secrétaire Général de l’IE, Fred van Leeuwen, posera lors de l’ouverture aujourd’hui des questions sur l’investissement éthique de ces fonds, sur le rôle des représentants des membres, sur le besoin de transparence, sur les perspectives de renforcer la confiance des adhérents. Comme Fred, je crois dur comme fer au concept de solidarité des mutuelles qui ont existé dans certains pays depuis plus d’un siècle, et qui ont tant contribué à la sécurité et au bien-être des enseignants. Dans le contexte de la crise, un « retour aux sources » de nos fonds de solidarité est plus que jamais nécessaire.

Sources :

1. Réseau Education and Solidarité http://www.educationsolidarite.org/accueil.html
2. Wall Street Journal, 12 May 2009

Latvian GDP contracts by 29%

Two weeks ago the IMF forecasted a drop in GDP for the Baltic nations of over 10%. But the Wall Street Journal reported yesterday that Latvia’s GDP contracted a massive 29% in January-March 2009, compared with the same 3 months in 2008. Annual contraction for this year is now predicted to be at least 20%, far more than contractions in past crises like 12% for Argentina and 13% for Indonesia. The social consequences of those earlier crises were dramatic in those two countries. In Latvia, the Prime Minister said his government plans to continue slashing spending and public sector wages.

Source: Wall Street Journal, 12 May 2009

US: Obama looks to Higher Education Institutions to Solve Financial Problems

Positive developments are underway in the US, as President Barack Obama puts higher education in the centre of his policy goals. In a speech delivered last Friday 8 May, addressing the job creation and job training, President Obama referred to the loss of another 539,000 jobs in the US in the month of April, bringing the unemployment rate to its highest point in 25 years. As a solution to this problem, he identified higher education as the key to recovery.

Now, if we want to come out of this recession stronger than before, we need to make sure that our workforce is better prepared than ever before. [...] In a 21st century economy where the most valuable skill you can sell is your knowledge, education is the single best bet we can make -- not just for our individual success, but for the success of the nation as a whole.

He looked to community colleges as instrumental in solving the unemployment problem, announcing a relaxation of federal rules to make it easier for unemployed Americans to enrol for more education or training, particularly in Community Colleges.

First, we'll open new doors to higher education and job training programs to recently laid-off workers who are receiving unemployment benefits. And if those displaced workers need help paying for their education, they should get it -- and that's why the next step is to make it easier for them to receive Pell Grants.

President Obama aims to enable unemployed persons to benefit from a combined system of Pell Grants - which currently cover tuition at almost every community college in the US - and unemployment benefits across the US in order to help those who are studying to support their families at the same time. President Obama has asked his Secretary of Education, Arne Duncan, and his Secretary of Labor, Hilda Solis, to work closely with states and institutions of higher learning and encourage them not only to allow these changes, but to inform all workers receiving unemployment benefits of the training programs and financial support open to them.

This is a positive development in the struggle against the financial crisis. The affirmation that higher education is a central pillar to economic recovery is welcome.

Source: Higher Ed (online journal) from Monique Fouilhoux, EI.

More information at: http://www.insidehighered.com/news/2009/05/11/unemployed
For President Obama’s speech go to: http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-on-Job-Creation-and-Job-Training-5/8/09/

UN high-level paper ignores education!

On Friday 8 May, the President of the UN General Assembly released his first draft for the “Outcome Document”, to be adopted by Heads of State and Government at the “UN High-Level Conference of the World Financial and Economic Crisis and its Impact on Development”, New York 1-3 June.

BUT NOT A WORD ABOUT EDUCATION!

At first read the draft is a mixture of UN jargon, liberation theology and proposals for a bunch of new global entities (8 in all!). Many trade unionists and civil society activists will agree with much of the social and economic analysis – the references to values and ethics, and to the need to preserve Mother Earth. But it is hard to see this document as the basis for decisions that will get us out of the crisis!

Source: ITUC New York office. Link: First Draft of the Outcome Document

The current President of the UN General Assembly is Father Miguel d’Escoto Brockmann, former Foreign Minister of Nicaragua

IMF bailout conditions for Bosnia

IMF announced a new $1.5 billion loan. Among the conditions announced in the brief press release announcing the loan are "fiscal consolidation and public sector wage restraint"

IMF rescue packages are imposing the same conditionalities as in the past, including public sector budget and wage cuts. This is in contradiction with IMF Head Strauss-Kahn's call for "coodinated global stimulus". (See also Romania)

For more information: http://www.imf.org/external/np/sec/pr/2009/pr09151.htm

Source: Global Unions Washington office

13 billion euros IMF bailout for Romania

The IMF has announced a €13 billion (about US$17 billion) emergency lending agreement with Romania, which has been under negotiation for the past two months. The IMF's loan will be supplemented by €5 billion from the EU and smaller amounts from the World Bank and other sources.
According to the lending agreement, Romania will be required to reduce its fiscal deficit to under 3 per cent of GDP by 2011, from close to 5 per cent of GDP where it is currently. The IMF released a detailed press release about the loan yesterday:
http://www.imf.org/external/np/sec/pr/2009/pr09148.htm

The worst is yet to come

While some countries have already felt the impact of the financial crisis on education budgets, for others that impact will hit later in 2009 and in 2010. Dave Robinson, labour economist and representative of the CAUT, Canada, described the experience of earlier recessions at a TUAC meeting in Paris last week.

Typically, he said, an economic downturn impacts on public sector budgets, including education some time after a full-blown economic crisis hits bottom. So in this most serious crisis since the 1930s, the worst is still to come for education budgets in many countries.

(CAUT: Canadian Association of University Teachers. Dave also works with EI on higher education and trade issues.)