The Global

Economic Crisis

Lecture given by Duncan Green

Head of Research at Oxfam GB

Notre Dame University, September 2009

Part of a series of From Poverty to Power lectures.

Main Messages

The global financial crisis has become an

economic and now a development crisis

Social impact in poor countries is serious and

multi-faceted

Origins of the crisis lie in deregulation and

financialization of the global economy

The crisis brings both dangers and opportunities

for change

Where are we at?

Growth and Poverty

The more integrated the countries are, the faster/deeper the contagion

Almost no economy is fully decoupled

Crisis has knocked 5.3% off GDP for 115 low and middle income countries in 2009, and a predicted 3% in 2010

Growth collapse greater in less poor countries, so

reduces overall poverty impact a bit

= +50m on < $1 a day in 2009 (another 39m in 2010)

Figs for < $2 a day 64m and 120m

This is superimposed on a downward trend

– Source: Chen and Ravallion

Trade and Finance drying up

Africa loses $250bn in exports in 09

Commodity prices (Zambia/mining tax)

Garment other export industries (Bangladesh v

Cambodia)

Tourism (Madagascar)

Financial flows (all)

Remittances (Pacific islands, Bangladesh)

Social Impact Interwoven with food price crisis: food riots etc.

5,000 Kwacha in Zambia buys you……

Social Impact (continued)

‘Signs of strain’: fears of conflict, crime,

abandoned children and old people; kids dropping

out of school (Bangladesh)

Social Impact (continued)

40 million jobs lost worldwide (ILO) and unemployment lags growth in recoveries

Women workers in global supply chains: women are often first to be laid off, with employers refusing to pay outstanding wages and evading legal obligations to give notice and pay compensation.

Migrant workers: illegal migrants are particularly at risk both from redundancy and abusive employers; in Vietnam and China, families are taking girls out of school to try and raise family incomes; plus returning to places of origin, or being subsidised from home

How did we get here?

Financialization of global economy post ‘71

Asset bubbles in North

Integration of global economy means countries

rise and fall together

Lack of systemic oversight

Crisis = Danger + Opportunity

So is this the Great Depression,

or the 97-8 Asian Financial Crisis?

Some shifts have accelerated or become more likely

Others have slowed down or become harder

Some could go either way

What gets easier/more likely?

International

– Rise of China and the G2

– G20 replaces the G8

– Some level of de-financialization

National

– Washington Consensus a damaged brand, esp. in developing countries

– Hence re-regulation and an enhanced role for the state (e.g. industrial policy)

– Stressing role of domestic and regional markets > exports

– Switch to domestic resource mobilization (e.g. tax)

What gets harder/

becomes less likely?

International

– Aid volumes likely to slow or fall

– Less attention to climate change

National

– Fiscal pressures on government spending on essential services, agriculture etc

– Recession makes small reforms harder

– Low growth increases risk of conflict (Collier)

– Some social partners (e.g. trade unions) weakened by recession

– MDG progress likely to slow

And some things could go either way

Aid: demand will rise as supply falls, innovative

financing may square the circle

Foreign investors may get more powerful (Zambia)

or weaker (tax havens)

Privatization may fall out of favour (critique of

Washington Consensus) or grow (fiscal crisis)

IFIs become more powerful again, but have

promised reforms

Principles for a Sustainable Recovery

Well-being is the end, growth just one of the means

Assess impact on people and planet before legislating

Finance must be servant, not master

Build states, not undermine them

Process matters

Policy Implications for Governments

Be counter-cyclical and poverty-focussed – But most LDCs hitting fiscal crunch, so more aid is

needed

Small (and medium) is beautiful

Jobs (quality and quantity) crucial

Expand social protection and get cash into the hands of the poor

In the longer term– Build the fiscal covenant (i.e. sort out tax)– Regional strategies for the worst hit countries– Diversify economy

Further Reading from the Blog

The rise of the G2 (US + China),

www.oxfamblogs.org/fp2p/?p=482

UN response to the crisis,

www.oxfamblogs.org/fp2p/?p=377

How governments are responding in poor

countries, www.oxfamblogs.org/fp2p/?p=308

Is the global crisis big enough? Shocks and

change, www.oxfamblogs.org/fp2p/?p=309

Further Reading and Links

World Bank crisis website,

http://www.worldbank.org/financialcrisis/

International Labour Organization ‘global jobs

crisis’,

http://www.ilo.org/pls/apex/f?p=jobcrisis:1:118843

9453829401

Stiglitz Commission report on crisis and response,

http://www.un.org/ga/president/63/interactive/finan

cialcrisis/PreliminaryReport210509.pdf