Someone handed me a document last week.
It was presented at the G20 Sherpa Meeting in Melbourne in June, which was a closed-door meeting.
It hasn’t been published publicly.
It draws on the most up-to-date work of the IMF and OECD, and is titled: “Recent work on income inequality: Macroeconomic implications and policy recommendations.”
This is its opening sentence:
“Rising income inequality is now universally acknowledged as a critical economic, social, and political issue, not confined to a particular group of countries or region.”
A few pages later it explains why the IMF and World Bank are taking rising inequality so seriously these days:
“Inequality matters not only as an ethical and social issue, but also because it can have dramatic macroeconomic consequences … [it] can affect economic growth through several mechanisms; it can undermine progress in health and education, cause investment-reducing political and economic stability, and undercut the social consensus required to adjust in the face of major shocks.”
It says several IMF economists have been arguing that rising inequality in the US intensified the leverage and financial cycle in the lead up to the GFC, sowing the seeds of the crisis.
It says other IMF economists have been stressing “the role of political-economy factors (especially the influence of the rich) in allowing financial excesses to balloon ahead of the crisis”.
It then references the papers in which those arguments are made. All of those papers are publicly available.
The documents then goes on to say that recent empirical research suggests “high dispersion” in income is “particularly likely” to be a brake on economic growth if the incomes of the lower and middle-classes fall behind the rest.
“On average, an increase in income inequality by 1 Gini point lowers yearly GDP per capita growth by around 0.2 percentage points,” the paper says.
“The result tends to be driven by income disparities at the bottom of the distribution, suggesting that the limited opportunities for youth from poor socio-economic backgrounds to invest in their human capital and skills present a drag on growth.”
You get the picture.
The fact that this paper was presented at a G20 Sherpa Meeting this year is significant.
G20 Sherpa meetings are a crucial part of the G20 process because they are top-level meetings of the personal representatives of the heads of state or governments of G20 member countries.
Australia’s G20 Sherpa is Dr Heather Smith. She was appointed G20 Sherpa in the Department of Prime Minister and Cabinet in September 2013.
If she was not at that meeting, she would know what was discussed there.
Hugh Jorgensen, a research associate at the G20 Studies Centre in the Lowy Institute for International Policy, made the point last week that “inequality” has barely rated a mention in official G20 reports while Australia has been in the chair.
“Of the 60-plus official meetings that have taken place under Australia’s 2014 G20 presidency, a grand total of one has managed to produce a final communique or meeting report that mentions the word ‘inequality’. To be fair, it does mention it twice: the 10-11 September declaration of G20 Labour and Employment Ministers first notes that ‘tackling inequality (is a priority) for all our economies’ and then designates it as an issue for future employment working-group discussions,” Mr Jorgensen wrote.
“Yet on a purely public relations basis, the absence of more explicit references to inequality thus far seems to be oddly out of step with global momentum around the issue.”
With the G20 Leaders’ Summit being held this weekend, a slew of reports from groups like ACOSS, Oxfam and the ACTU have tried to bring this issue to the fore.
Oxfam will publish a report on Wednesday called “Turn the Tide: Why the G20 must act on rising inequality,” that shows that since the Australian Government took over the presidency of the G20 in December 2013, the total wealth in the group of 20 nations that comprise the G20 – and which account for 85 per cent of global GDP – increased by US $17 trillion.
But it also shows that the richest 1 per cent of people in the G20 captured US $6.2 trillion of this wealth – 36 per cent of the overall increase.
Why doesn’t the Abbott government want to mention this?
I suspect because it is heading into the meeting with some highly contradictory policies.
On the one hand, it has been promoting the idea that we need to close global tax loopholes so that multinational companies cannot shift untaxed profits overseas so easily.
It should be commended for its efforts here. The OECD argues that inequality will be reduced, both between and within countries, if these tax loopholes are closed.
But on the other hand, according to a draft of the Abbott government’s growth strategy to be submitted to the G20 Leaders’ summit, the government is citing cuts to controversial unemployment benefits as one of the key structural reforms that will increase Australia’s economic activity by 2 per cent.
How will cutting unemployment benefits lead to an increase in economic growth?
That’s one of those “zombie” economic ideas that refuse to die (which John Quiggin wrote about in 2010).
Australia’s top economists have been arguing, ever since the government handed down its first budget, that cutting benefits to the unemployed will make Australia more unequal.
More news from G20 Brisbane 2014
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