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

Video Americans, Tourists, Reflect on Meaning of Thanksgiving

VOA garnered opinions from several people soon after November 13 Paris attacks, which colored many of their thoughts

Video Thais Send Security Concerns Down the River

In northern Thailand, the annual tradition of constructing floating baskets to carry away the year’s bad spirits highlights the Loy Krathong festival

Video Tree Houses - A Branch of American Dream

Workshops aimed at teaching people how to build tree houses have become widely popular in America in recent years

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Islamic State Unfazed by Losses in Iraq, Syriai
November 26, 2015 5:21 AM
Progress in the U.S.-led effort to beat Islamic State on its home turf in Iraq and Syria has led some to speculate the terror group may be growing desperate. But counterterror officials say that is not the case, and warn the recent spate of terror attacks is merely part of the group’s evolution. VOA National Security correspondent Jeff Seldin has more.

Video Islamic State Unfazed by Losses in Iraq, Syria

Progress in the U.S.-led effort to beat Islamic State on its home turf in Iraq and Syria has led some to speculate the terror group may be growing desperate. But counterterror officials say that is not the case, and warn the recent spate of terror attacks is merely part of the group’s evolution. VOA National Security correspondent Jeff Seldin has more.

Video Taiwan Looks for Role in South China Sea Dispute

The Taiwanese government is one of several that claims territory in the hotly contested South China Sea, but Taipei has long been sidelined in the dispute, overshadowed by China. Now, as the Philippines challenges Beijing’s claims in an international court at The Hague, Taipei is looking to publicly assert its claims. VOA’s Bill Ide has more from Beijing.

Video Syrian Refugees in US Express Concern for Those Left Behind

Syrian immigrants in the United States are concerned about the negative tide of public opinion and the politicians who want to block a U.S. plan to accept 10,000 Syrian refugees. Zlatica Hoke reports many Americans are fighting to dispel suspicions linking refugees to terrorists.

Video After Paris Attacks, France Steps Up Fight Against IS

The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video US, Cambodian Navies Pair Up in Gulf of Thailand

The U.S. Navy has deployed one of its newest and most advanced ships to Cambodia to conduct joint training drills in the Gulf of Thailand. Riding hull-to-hull with Cambodian ships, the seamen of the USS Fort Worth are executing joint-training drills that will help build relations in Southeast Asia. David Boyle reports for VOA from Preah Sihanouk province.

Video Americans Sharpen Focus on Terrorism

Washington will be quieter than usual this week due to the Thanksgiving holiday, even as Americans across the nation register heightened concerns over possible terrorist threats. VOA’s Michael Bowman reports new polling data from ABC News and the Washington Post newspaper show an electorate increasingly focused on security issues after the deadly Islamic State attacks in Paris.

Video World Leaders Head to Paris for Climate Deal

Heads of state from nearly 80 countries are heading to Paris (November 30-December 11) to craft a global climate change agreement. The new accord will replace the Kyoto Protocol on Climate Change that expired in 2012.

Video Uncertain Future for Syrian Refugee Resettlement in Illinois

For the trickle of Syrian refugees finding new homes in the Midwest city of Chicago, the call to end resettlement in many U.S. states is adding another dimension to their long journey fleeing war. Organizations working to help them integrate say the backlash since the Paris attacks is both harming and helping their efforts to provide refugees sanctuary. VOA's Kane Farabaugh reports.

Video Creating Physical Virtual Reality With Tiny Drones

As many computer gamers know, virtual reality is a three-dimensional picture, projected inside special googles. It can fool your brain into thinking the computer world is the real world. But If you try to touch it, it’s not there. Now Canadian researchers say it may be possible to create a physical virtual reality using tiny drones. VOA’s George Putic reports.

Video New American Indian Village Takes Visitors Back in Time

There is precious little opportunity to experience what life was like in the United States before its colonization by European settlers. Now, an American Indian village built in a park outside Washington is taking visitors back in time to experience the way of life of America's indigenous people. Carol Pearson narrates this report from VOA's June Soh.

Video Even With Hometown Liberated, Yazidi Refugees Fear Return

While the northern Iraqi town of Sinjar has been liberated from Islamic State forces, it's not clear whether Yazidi residents who fled the militants will now return home. VOA’s Mahmut Bozarslan talked with Yazidis, a religious and ethnic minority, at a Turkish refugee camp in Diyarbakır. Robert Raffaele narrates his report.

Video Nairobi Tailors Make Pope Francis’ Vestments

To ensure the pope is properly attired during his visit, the Kenya Conference of Catholic Bishops asked the Dolly Craft Sewing Project in the Nairobi slum of Kangemi to make the pope's vestments, the garments he will wear during the various ceremonies. Jill Craig reports.

Video Cross-Border Terrorism Puts Europe’s Passport-Free Travel in Doubt

The fallout from the Islamic State terror attacks in Paris has put the future of Europe’s passport-free travel area, known as the "Schengen Zone," in doubt. Several of the perpetrators were known to intelligence agencies, but were not intercepted. Henry Ridgwell reports from London European ministers are to hold an emergency meeting Friday in Brussels to look at ways of improving security.

Video El Niño Brings Unexpected Fish From Mexico to California

Fish in an unexpected spectrum of sizes, shapes and colors are moving north, through El Niño's warm currents from Mexican waters to the Pacific Ocean off California’s coast. El Nino is the periodic warming of the eastern and central Pacific Ocean. As Faiza Elmasry tells us, this phenomenon thrills scientists and gives anglers the chance of a once-in-a-lifetime big catch. Faith Lapidus narrates.

Video Terrorism in Many Forms Continues to Plague Africa

While the world's attention is on Paris in the wake of Friday night's deadly attacks, terrorism from various sides remains a looming threat in many African countries. Nigerian cities have been targeted this week by attacks many believe were staged by the violent Islamist group Boko Haram. In addition, residents in many regions are forced to flee their homes as they are terrorized by armed militias. Zlatica Hoke reports.

Video Study: Underage Marriage Rate Higher for Females in Pakistan

While attitudes about the societal role of females in Pakistan are evolving, research by child advocacy group Plan International suggests that underage marriage of girls remains a particularly big issue in the country. VOA’s Ayesha Tanzeem reports how such marriages leads to further social problems.

VOA Blogs

World Currencies


Rates may not be current.