Pro- -Employment Employment Pro Macroeconomic Policies Macroeconomic Policies Terry McKinley Terry McKinley Centre for Development Policy and Research, Centre for Development Policy and Research, SOAS, University of London SOAS, University of London ILO Retreat, ‘ ‘Employment Policy in a Changing World Employment Policy in a Changing World’ ’, , ILO Retreat, Geneva, 15 September, 2010 Geneva, 15 September, 2010 1 1
Brief Background and Context Brief Background and Context UNDP- -Supported Policy Supported Policy- -Oriented Research Oriented Research UNDP in 21 countries during 2001- -2007 focused on 2007 focused on in 21 countries during 2001 ‘Pro Pro- -Poor Growth Poor Growth’ ’ ‘ Asia: Bangladesh, Cambodia, China, Indonesia, : Bangladesh, Cambodia, China, Indonesia, Asia Mongolia, Nepal, Sri Lanka and Vietnam Mongolia, Nepal, Sri Lanka and Vietnam Eastern Europe & CIS: Armenia, Kyrgyz Republic, : Armenia, Kyrgyz Republic, Eastern Europe & CIS Moldova and Uzbekistan Moldova and Uzbekistan Middle East: Sudan, Syria and Yemen : Sudan, Syria and Yemen Middle East Sub- -Saharan Africa Saharan Africa: The Gambia, Ghana, Kenya, : The Gambia, Ghana, Kenya, Sub Mozambique, South Africa and Zambia Mozambique, South Africa and Zambia 2 2
Brief Background and Context Brief Background and Context Initially, poverty reduction was ‘ Initially, poverty reduction was ‘the entry point the entry point’ ’ for for discussing macroeconomic and structural policies discussing macroeconomic and structural policies But we realized that the reigning ‘ ‘macroeconomic macroeconomic But we realized that the reigning consensus’ ’ did not have a viable growth strategy (it did not have a viable growth strategy (it consensus was fixated on stability as a precondition for private was fixated on stability as a precondition for private sector- -led growth) led growth) sector Moreover, there were no policy tools identified for Moreover, there were no policy tools identified for translating growth into employment generation (the translating growth into employment generation (the latter assumed to follow automatically from growth) latter assumed to follow automatically from growth) So in later years, we focussed more on policies for So in later years, we focussed more on policies for Growth, Employment and Poverty Reduction Growth, Employment and Poverty Reduction 3 3
Connecting Macroeconomic Connecting Macroeconomic Policies to Employment Policies to Employment A Helpful Tripartite Framework : 1. A Helpful Tripartite Framework 1. : (S. Osmani Osmani 2005: growth, employment intensity & 2005: growth, employment intensity & (S. integrability for UNDP for UNDP- -ILO initiative): ILO initiative): integrability Macroeconomic Policies to stimulate A. Macroeconomic Policies A. to stimulate investment, growth and employment (with macro investment, growth and employment (with macro stability as a constraint rather than the objective) stability as a constraint rather than the objective) Structural Policies to influence the pattern B. Structural Policies B. to influence the pattern of growth (e.g.,the e.g.,the intensity of growth with intensity of growth with of growth ( respect to achieving productive employment) respect to achieving productive employment) Equity- -Enhancing Policies Enhancing Policies to improve C. Equity C. to improve the access of poor workers to expanding the access of poor workers to expanding employment opportunities employment opportunities 4 4
Proposed Alternative Proposed Alternative Macroeconomic Policies Macroeconomic Policies Examples of Relevant Publications: Examples of Relevant Publications: IPC Policy Research Brief #4, 2007 : 1) IPC Policy Research Brief #4, 2007 : 1) ‘The Macroeconomic Implications of MDG The Macroeconomic Implications of MDG- -Based Based ‘ Strategies in Sub- -Saharan Africa Saharan Africa’ ’ Strategies in Sub 2) IPC Policy Research Brief #6, 2008 IPC Policy Research Brief #6, 2008 : : 2) ‘Pro Pro- -Growth Alternatives for Monetary and Financial Growth Alternatives for Monetary and Financial ‘ Policies in Sub- -Saharan Africa Saharan Africa’ ’ Policies in Sub The MDG Agenda called for a dramatic scaling up of The MDG Agenda called for a dramatic scaling up of public investment in social and economic infrastructure public investment in social and economic infrastructure But there was little attempt to define a public investment- - But there was little attempt to define a public investment led macroeconomic stance for the MDGs MDGs led macroeconomic stance for the And employment generation was a completely missing And employment generation was a completely missing dimension dimension 5 5
Proposed Alternative Proposed Alternative Macroeconomic Policies Macroeconomic Policies Fiscal Policies : 1. Fiscal Policies A) More Expansionary B) More focused 1. : A) More Expansionary B) More focused on public investment (expanding opportunities) and C) on public investment (expanding opportunities) and C) More reliant on the mobilization of domestic revenue More reliant on the mobilization of domestic revenue A stronger focus on the supply side (e.g., expanding A stronger focus on the supply side (e.g., expanding productive capacity, mobilizing domestic resources) productive capacity, mobilizing domestic resources) Exchange- -Rate Policies Rate Policies : 2. Exchange A) A managed instead of a 2. : A) A managed instead of a laissez- -faire regime B) Focus on containing external faire regime B) Focus on containing external laissez shocks (terms- -of of- -trade or capital outflow shocks) and C) trade or capital outflow shocks) and C) shocks (terms Focus on maintaining a competitive exchange rate Focus on maintaining a competitive exchange rate Exchange- -rate management takes precedence over rate management takes precedence over Exchange monetary policies (such as setting low- -inflation targets) , inflation targets) , monetary policies (such as setting low especially in increasingly open economies especially in increasingly open economies 6 6
Pro- -Employment Employment Pro Monetary Policies Monetary Policies 3. Monetary Policies 3. Monetary Policies : A) support fiscal expansion and : A) support fiscal expansion and export promotion B) provide adequate liquidity to a export promotion B) provide adequate liquidity to a growing economy C) foster moderate but positive real growing economy C) foster moderate but positive real rates of interest for private (and public) investment rates of interest for private (and public) investment Strict inflation targeting (especially a low inflation target, Strict inflation targeting (especially a low inflation target, e.g., under 5%) is inconsistent with such an approach e.g., under 5%) is inconsistent with such an approach Moderate inflation (5- -10%, if not over 10% per annum for 10%, if not over 10% per annum for Moderate inflation (5 a while) need not be detrimental to growth, nor to export a while) need not be detrimental to growth, nor to export promotion (if the exchange rate is properly managed) promotion (if the exchange rate is properly managed) Managing the Capital Account Capital Account is a corollary of this is a corollary of this Managing the approach— —particularly for capital particularly for capital- -outflow shocks outflow shocks approach 7 7
Managing the Capital Account Managing the Capital Account There is a clear need to manage the volume and There is a clear need to manage the volume and composition of international private capital flows composition of international private capital flows (see Brazil’ ’s recent modest transaction tax) s recent modest transaction tax) (see Brazil Such management is complementary to Such management is complementary to management of the exchange rate management of the exchange rate Often investment- -focused macroeconomic policies focused macroeconomic policies Often investment have to confront the threat of a decline in ‘ ‘business business have to confront the threat of a decline in confidence’ ’, a surge of capital outflows and rapid , a surge of capital outflows and rapid confidence depreciation of the exchange rate depreciation of the exchange rate It would be difficult to implement independent It would be difficult to implement independent monetary (and even fiscal policies) without some monetary (and even fiscal policies) without some management of the capital account management of the capital account 8 8
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