News / Economy

UN Says Austerity Won't Boost Global Economy

Heiner Flassbeck, UNCTAD Director of the Division on Globalization and Development Strategies, speaks during a press conference about the Report on the Global Economic Crisis at the United Nations in Geneva, Switzerland, March 18, 2009.
Heiner Flassbeck, UNCTAD Director of the Division on Globalization and Development Strategies, speaks during a press conference about the Report on the Global Economic Crisis at the United Nations in Geneva, Switzerland, March 18, 2009.
Lisa Schlein
A new United Nations report warns fiscal austerity measures have not - and will not - lead to global economic growth. 

Heiner Flassbeck is a director at the U.N. Conference on trade and Development (UNCTAD), which issued the report. For him, the debate over austerity versus stimulus is over.

“Stop austerity,” said Flassbeck, who runs UNCTAD's Division on Globalization and Development Strategies.  

Flassbeck says austerity is clearly the wrong way to go to promote growth.  He notes private companies in Europe, Japan and the United States are saving their money and not spending because they fear the future economic outlook will continue to be bad.

“They have no expectation that their income will rise," he said.  "So, if everybody saves, and the government says we are doing austerity so we are going to be savers also.  So, what is going to happen? 

"The result is very simple, the economy will collapse," Flassbeck said. "The only way out of the slump and to avoid a recession is more stimulus.  If we do not get incentives for investment, if we do not get stimulus for investment and if we do not get better conditions for consumption, and if governments are going on with austerity, the situation can only deteriorate.”  

But not everyone agrees with the UNCTAD conclusion. Terry Miller, director of the Center for International Trade and Economics at the Heritage Foundation, a conservative research group in Washington, says the U.N. agency is considering a "false question" about austerity or stimulus.

Miller says the austerity measures adopted by some governments, particularly in Europe, are designed to reduce sovereign debt, not inhibit economic growth. He says that reduction of such debt in turn cuts the borrowing costs for governments to finance their operations, as well as for private interests in regional economies to grow their businesses.

He says that "sensible policies" of government austerity "let the private sector get back to the job of investment and job creation." He said countries "that have spent more have had lower rates of growth."

The UNCTAD report, however, warns that growth is slowing in all regions of the world.  Global growth fell from more than four percent in 2010 to 2.7 percent last year.  And UNCTAD expects a further decline to below 2.5 percent in 2012.

The report says economic expansion in developing and transition economies is expected to grow by five and four percent respectively in 2012.  Although this is stronger than in the advanced economies, it notes those growth rates are also slower than previous years.

UNCTAD economists explain developing countries are doing better because they are less dependent on the large economies than they used to be, and they have more resilient domestic demand.

The report criticizes governments for following wage-compression policies.  Flassbeck says the data show lowering people's wages has done nothing to bring down the rates of unemployment.  He says governments must reverse these policies.

“Only the government can overcome this situation where the market gives the wrong signal.  Markets give the wrong signal that wages should fall further," he said.  "But, if wages should fall further, you can be sure that consumption will be falling.  When consumption falls, investment falls and then growth falls.”  

UNCTAD economists predict there will be no significant recovery from the recession until low-and middle-income groups earn enough money to spend on consumption.  They argue that reducing the widening gap in wealth and income is not only fair, it also has social benefits and will lead to higher economic growth.

**The original version of this story was presented with only one side of debate, the updated version reflects another viewpoint. 

You May Like

Ukraine President Appeals for More US Support

Speaking before Congress ahead of meeting with President Obama, Petro Poroshenko urges lawmakers to back Ukraine in its quest for freedom and democracy More

Photogallery Global Audience Watches as Scots Go to the Polls

People were almost equally divided over a vote for independence, watched closely by Britain's allies, investors and restive regions at home and abroad More

China to Invest $20B in India Amid Border Dispute

Border spat between armies of two countries in Himalayas underlines mutual tensions despite growing commercial ties highlighted by Xi Jinping's high-profile visit More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
A Dinosaur Fit for Land and Wateri
X
September 17, 2014 8:44 PM
Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Video

Video A Dinosaur Fit for Land and Water

Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Video

Video Iraqi Kurdistan Church Helps Christian Children Cope find shelter in churches in the Kurdish capital, Irbil

In the past six weeks, tens of thousands of Iraqi Christians have been forced to flee their homes by Islamic State militants and find shelter in churches in the Kurdish capital, Irbil. Despite U.S. airstrikes in the region, the prospect of people returning home is still very low and concerns are starting to grow over the impact this is having on the displaced youth. Sebastian Meyer reports from Irbil on how one church is coping.
Video

Video NASA Picks Boeing, SpaceX to Carry Astronauts Into Space

The U.S. space agency, NASA, has chosen Boeing and SpaceX companies to build the next generation of spacecraft that will carry U.S. astronauts to the International Space Station by the year 2017. The deal with private industry enables NASA to end its dependence on Russia to send space crews into low Earth orbit and back. Zlatica Hoke has more.
Video

Video Future of Ukrainian Former President's Estate Uncertain

More than six months after Ukraine's former President Viktor Yanukovych fled revolution to Russia, authorities have yet to gain control of his palatial estate. Protesters occupy the grounds and opened it to tourists but they are also refusing to turn it over to the state. VOA's Daniel Schearf reports from Mezhigirya, just north of Kyiv.
Video

Video China Muslims Work to Change Perceptions After Knife Attacks

China says its has sentenced three men to death and one woman to life in prison for a deadly knife attack in March that left more than 30 dead and 140 injured. Beijing says Muslim militants from China's restive western region of Xinjiang carried out the attacks. Now, more than six months after the incident, residents in the city are still coping with the aftermath. VOA's Bill Ide has more from Kunming.
Video

Video Enviropreneur Seeks to Save the Environment, Empower the Community

Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video West Trades Accusations Over Ransoms

As world leaders try to forge a common response to the threat posed by Islamic State militants in Iraq and Syria, there is simmering tension over differing policies on paying ransoms. In the past month, the jihadist group has beheaded two Americans and one Briton. Both countries refuse to pay ransom money. As Henry Ridgwell reports for VOA from London, there is uncertainty in the approach of some other European nations.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid

World Currencies

EUR
USD
0.7718
JPY
USD
107.32
GBP
USD
0.6125
CAD
USD
1.0974
INR
USD
60.919

Rates may not be current.