Bob Harris, EI's Senior Consultant to the General Secretary, shares information and commentary on the impact of the financial crisis on education funding, and how education can be part of the solution.
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?
Financial recovery?
Labels: G20, Great Depression |
“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
Labels: G20, G8, ITUC, MDGs, TUAC |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 ?
Labels: G20, IMF, public sector, World Bank |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
Labels: AFL-CIO, AFT, G20, IMF, NEA, OECD, TUAC |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 ?
Labels: central banks, G20, IMF, public sector |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
Labels: Brazil, Eurozone, G20, Global Unions, Hungary, IMF, Indonesia, Latvia, Ukraine |- 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!
Education International 2009