IMF paper on Africa exemplifies why the mainstream approach is problematic

During the – 1997 Asian financial crisis – when the IMF intervened and imposed harsh structural adjustment packages on the impacted countries (cuts in spending and interest rate hikes), we learned that IMF officials would swan in from Washington to, for example, Seoul, for a weekend, hole up in expensive hotels and by the end of the weekend profess to know everything about the country and what was good for it. Austerity followed. This is the way the IMF work. They apply mainstream New Keynesian macro theory on a one-size fits all basis ignoring history, culture, institutional specificity and all the rest of the nuances and complications that should be taken into account when appraising a situation in some nation. So for them, spending a day or so in some expensive hotel was the perfect place for them to ‘know the country’ – good food, good wine, air conditioning – what more is required. The problem is that besides the specifics that always need to be considered, the overriding theory is not fit for purpose, which is why the application of the IMF-model with the SAPs has been a uniform disaster for nations. The IMF though continues to operate in this vein. I read a report yesterday about sub-Saharan Africa written by a series of IMF officials most of whom seem to be French citizens who have gone to the best universities, who advocate harsh fiscal policy shifts in the poorest nations. I am sure none of their jobs or wages are at stake.

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Musicians should be paid at least a socially inclusive minimum living wage

It’s Wednesday and I am now ensconced in Kyoto, Japan for the months ahead. I will report on various aspects of that experience as time passes. Today, I reflect on a debate that is going on in Australia about the situation facing live musicians. Should promoters be able to employ them for poverty wages including ‘nothing’ while still profiting or should they be forced to pay the musicians a living wage. You can guess where I sit in the debate.

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Income support for children improves brain development

When I first came up with the idea of a buffer stock employment approach to maintain full employment and discipline the inflationary process (back in 1978), the literature on guaranteed incomes was still in its infancy. The idea of a basic income guarantee was still mostly constructed within the framework Milton Friedman had laid out in his negative income tax approach, which I first came across when reading his 1962 book Capitalism and Freedom, while I was an undergraduate. I wasn’t taken with the idea and the preferred an approach to income security that not only integrated job security but also had a built-in inflation anchor. When I developed that idea, inflation was still conceived of the main problem and governments were fast abandoning full employment commitments because mainstream economists told them TINA. I thought otherwise. However, as I developed the buffer stock approach further in the 1990s as part of the first work that we now call Modern Monetary Theory (MMT), nuances about additional cash transfers became part of our approach. I refined those ideas in work I did developing a minimum wage framework for the South African government in 2008. I was reminded of all this when I read a report in New Scientist last week (January 24, 2022) – Giving low-income US families $4000 a year boosts child brain activity. Some might think this justifies the BIG approach, whereas it strengthens the case for a multi-dimensional – Job Guarantee.

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Inclusive growth means poverty reduction and declining income inequality

I am doing some work on the way technology can be chosen to maximise employment in the pursuit of advancing general well-being. This is in the context of some work I am doing on advancing what is known as ‘relative pro-poor growth’ strategies in Africa via employment creation programs and draws on my earlier work in South Africa on the Expanded Public Works Program. In the current work, I have been assessing ways in which the Labour Intensive Public Works program in Ghana has been deployed to serve this purpose. The problem one confronts when working as a development economist in less well-off nations is that the institutional bias promoted by the IMF and the World Bank is towards advancing, at best, what we term ‘absolute pro-poor growth’. But that sort of agenda typically fails to strengthen other aspects of a strong civil society because it is almost always accompanied by rising inequality which continues to concentrate power and influence at the top and leads to resources being disproportionately expropriated by the wealthy (and usually foreign) classes. Institutions such as democracy, justice, law and order and causes such as environmental sustainability are then compromised.

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Cash transfers are not squandered on booze but do not replace the need for jobs

Some years ago I was asked to design a framework for the implementation of minimum wage system in South Africa as part of an ILO project my research group was involved. We were evaluating the first five years of the Expanded Public Works Programme in South Africa, which was a cut-down employment guarantee program (limited by supply-side constraints on public expenditure largely conditioned by the bullying of the South African government by the IMF). One of the issues I had to deal with was the belief among many economists that the existing cash transfer system introduced by the South African government after 1994 should be expanded into a full-blown Basic Income Guarantee and that any notion of employment guarantees should be rejected. Our work demonstrated quite clearly (in my view) the flawed logic in this argument. The cash transfer system was productive as it stood but was no reasonably extensible into a widespread income guarantee without significant negative consequences. The creation of an employment guarantee scheme to absorb the social transfers and leave them as supplemental to cope with varying family structures was a much better option. That conclusion holds for less developed nations and advanced nations alike.

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Large-scale employment guarantee scheme in India improving over time

Today I am reflecting on employment guarantees. I ran into a mate in a computer shop in Melbourne yesterday, totally by accident. He happens to be one of the big players in the job services sector – the unemployment industry. We exchanged our usual pleasantries and then we got angry together about the government policies – the usual interaction. Then I said well what we need is all you guys and the related charities (such as the Brotherhood of St Laurence, the Smith Family) and other groups (such as Greenpeace, Amnesty International etc) all getting out of their comfort zones and agreeing that being angry is stupid and that action is required. These are the people who lobby government. Academics only create ideas and write them out. I suggested that these groups use their significant public profiles to organise a coalition of support for the Job Guarantee and really push it hard – if only to expose the denials and failures of the orthodoxy that besets us all. Anyway, that conversation just happened to dove-tail with an article I read last week about employment guarantees in practice that I found interesting and which was exposing the deniers for what they are – ideological sycophants. That is what this blog is about.

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Employment guarantees should be unconditional and demand-driven

There was an interesting paper published by the World Bank (March 1, 2012) – Does India’s employment guarantee scheme guarantee employment? – which offers some insights into how the Indian employment guarantee works. I thought it was an odd title because by definition the NREGA scheme is an employment guarantee. The relevant issue is a guarantee to whom. The World Bank research confirms the outcomes of my own work on the Indian scheme that it’s conditionality reduces its effectiveness. Those who gain jobs benefit but there is a shortage of jobs on offer relative to the demand for them. Modern Monetary Theory (MMT) shows that an unconditional, demand-driven employment guarantee, run as an automatic stabiliser, is the most superior buffer stock approach to price stability. Conditional (supply-driven) approaches not only undermine the job creating potential but also reduce the capacity of the scheme to act as a nominal anchor.

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The best way to eradicate poverty is to create jobs

In their rush to create justifications for reducing the footprint of government on the economy (and society), economists have invented a number of new “approaches” to economic development, unemployment and poverty which rely on an increased private sector presence. Concepts such as social entrepreneurship and new regionalism emerged as the governments embraced the so-called Third Way – neither free market (right) or government regulation (left) – as a way to resolve unemployment and regional disadvantage. Microcredit was another version and the 2006 Nobel Prize was awarded to the Grameen Bank in Bangladesh and its founder. The media held microcredit out in various positive ways but gave the impression that it was another solution. Insiders knew it wasn’t but the I have always argued that the best solution for poverty is to initially create decent paying jobs. I have also argued for many years that only the national government has the capacity to really intervene in this way. For it is was “profitable” in the free market sense, the private sector would have already done it.

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We gonna smash their brains in

I get a lot of hate E-mail. The hate used to be expressed in handwritten tomes from those with old typewriters and too much time on their hands. Sometimes there would the anonymous phone call telling me that if I kept advocating the closure of say the coal industry (my region has the largest coal export port in the world) I wouldn’t see the week out. More often these days the spleen comes via E-mail from rather odd addresses (made up hotmail etc) telling me that I am a waste of space because I support active fiscal intervention to restore full employment. “How can I care so much for the unemployed … they are the dregs of the earth and would be better shot … like you” is a typical turn of phrase. Anyway, I notice that the right-wing always gets personal when evidence against their claims is produced. Then they slink back to their desks and determine that the facts before them are not facts at all (because they violate their ideological precepts) and precede to reinvent history. This exercise is otherwise known as making stuff up. I think in these situations interaction is less productive than action. Accordingly I regularly sing to myself as I work – “We gonna smash their brains in – Cause they ain’t got nofink in ’em” (curious? see later)!

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Employment guarantees are better than income guarantees

A debate in development economics concerns the role of cash transfers to alleviate poverty. This was reprised again in the New York Times article (January 3, 2011) – Beat Back Poverty, Pay the Poor – which I hopefully began reading with employment creation schemes in mind. I was wrong. The article was about the growing number of anti-poverty programs in the developing world, particularly in the left-leaning Latin American nations, based on conditional cash transfers. There is no doubt that these programs have been very successful within their narrow ambit. They also are used by some progressives to argue for an extension of them into what is known as a Basic Income Guarantee (BIG). For reasons that are outlined in this blog I prefer employment guarantees as the primary way to attack poverty. I think the progressives who advocate BIGs are giving too much ground to the conservatives.

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The real World Cup

Regular readers will by now know I am not a soccer fan. And my national team (now locally known as the shockeroos) seemed like rank amateurs the other day against the might of Deutschers. The German coach described the game as “a good warm-up”. Reality check! But of-course, there is a competition going on in South Africa that a lot of people are interested in. So I have been following it myself. I am of-course referring to the The First Poor People’s World Cup which is currently underway in South Africa. This event involves 36 teams from 40 different communities coming together on a shoe-string budget to play soccer. In cost benefit terms it will add a lot more value to South Africa than the other less important competition that is being simultaneously run in South Africa.

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CofFEE conference – Day 1 report

Today is the first day of the 11th Path to Full Employment Conference/16th National Unemployment Conference in Newcastle, hosted by my research centre. As host I am of-course tied up in the event but I thought it would be of interest to visitors to my blog to provide some feel for what has transpired today. I only focus on the plenary talks. The other presentations in the parallel sessions have all been very interesting.

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Employment guarantees in vogue – well not really

Two related articles in The Economist last week (November 7, 2009) caught my attention. The first article – Battling joblessness – Has Europe got the answer – was about how the Continent may be a guide to all of us in tackling unemployment. The second article – Faring well – was extolling the virtues of India’s National Rural Employment Guarantee Act (NREGA). They provide a further basis for discussing employment guarantees.

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Employment guarantees in developing countries

Continuing the developing country theme of Friday and in response to a comment from a reader I decided to write a short blog on the applicability of employment guarantees to poorer nations. They have particular issues which means that a Job Guarantee scheme has to be carefully designed. But with the experience of several countries and extensive research and evaluation of these schemes, I conclude that the employment guarantee approach to income security is broadly applicable. Most of the arguments against providing a buffer stock of jobs to insulate the workers against the fluctuations of the private economy are based on false neo-liberal arguments about national government budget constraints. Once you get over that sort of fallacious reasoning, then there are real issues left to confront and overcome. This is now an important part of my academic work and a very interesting part to say the least.

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