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.
TEXT SIZE - +
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

Algerians Vote in Presidential Election

There were few media reports of protests and clashes around the country, but so far no significant violence More

Sharks More Evolved than Previously Thought

The discovery could “profoundly affect our understanding of evolutionary history” More

Pakistan Military Asked to Protect Polio Workers

Request comes as authorities say a Taliban ban on vaccinations in 2012 and deadly attacks on anti-polio teams have prevented thousands of children from getting inoculated More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Google Buys Drone Companyi
|| 0:00:00
...
 
🔇
X
George Putic
April 15, 2014
In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
Video

Video Ray Bonneville Sings the Blues and More on New CD

Singer/songwriter Ray Bonneville has released a new CD called “Easy Gone” with music that reflects his musical and personal journey from French-speaking Canada to his current home in Austin,Texas. The eclectic artist’s fan base extends from Texas to various parts of North America and Europe. VOA’s Greg Flakus reports from Austin.
Video

Video Millions Labor in Pakistan's Informal Economy

The World Bank says that in Pakistan, roughly 70 percent work in the so-called informal sector, a part of the economy that is unregulated and untaxed. VOA's Sharon Behn reports from Islamabad on how the informal sector impact's the Pakistani economy.
Video

Video Passover Celebrates Liberation from Bondage

Jewish people around the world are celebrating Passover, a commemoration of their liberation from slavery in Egypt more than 3,300 years ago. According to scripture, God helped the Jews, led by Moses, escape bondage in Egypt and cross the Red Sea into the desert. Zlatica Hoke reports that the story of the Jewish Exodus resonates with other people trying to escape slave-like conditions.
Video

Video Police Pursue Hate Crime Charges Against Kansas Shooting Suspect

Prosecutors are sifting through the evidence in the wake of Sunday’s shootings in a suburb of Kansas City, Missouri that left three people dead. A suspect in the shootings taken into custody is a white supremacist. As VOA’s Kane Farabaugh reports, he was well-known to law enforcement agencies and human rights groups alike.
Video

Video In Eastern Ukraine, Pro-unity Activists Emerge from Shadows

Amid the pro-Russian uprisings in eastern Ukraine, there is a large body of activists who support Ukrainian unity and reject Russian intervention. Their activities have remained largely underground, but they are preparing to take on their pro-Moscow opponents, as Henry Ridgwell reports from the eastern city of Donetsk.
Video

Video Basket Maker’s Skills Have World Reach

A prestigious craft show in the U.S. capital offers one-of-a-kind creations by more than 120 artists working in a variety of media. As VOA’s Julie Taboh reports from Washington, one artist lucky enough to be selected says sharing her skills with women overseas is just as significant.
Video

Video UN Report Urges Speedier Action to Avoid Climate Disaster

A new United Nations report says the world must switch from fossil fuels to cleaner energy sources to control the effects of climate change. The Intergovernmental Panel on Climate Change released the report (Sunday) following a meeting of scientists and government representatives in Berlin. The comprehensive review follows two recent IPCC reports that detail the certainty of climate change, its impacts and in this most recent report what to do about it. VOA’s Rosanne Skirble has the details.
AppleAndroid

World Currencies

EUR
USD
0.7225
JPY
USD
102.27
GBP
USD
0.5953
CAD
USD
1.0982
INR
USD
60.349

Rates may not be current.