Friday, 18 September 2009

The United Nations Global Policy Model and Gordon Brown's Visions

A United Nations source (World Economic and Social Prospects-Update as of Mid-2009) estimates that, since September 2008, Governments worldwide have made available massive public funding (amounting to $18 trillion, or almost 30 per cent of WGP [World Gross Product]) to recapitalize banks, to acquire ownership stakes in ailing financial institutions, and to provide ample guarantees on bank deposits and other financial assets. The inadequacy of these monetary and financial measures to stave off a recession has led some countries to adopt fiscal stimulus plans, totalling about $2.6 trillion (about 4 per cent of WGP), to be spent over 2009-2011. ”While significant, this may still fall somewhat short of the stimulus of 2 to 3 per cent of WGP per year that would be required to make up for the estimated decline in global aggregate demand. “

The UN notes preconditions affecting fiscal stimulus effectiveness: the adequate recapitalisation of banks; the “fundamental reforms of the international financial system… to overcome the systemic flaws which caused this crisis” (a “macro-prudential regulatory system”, “counter-cyclical capital provisioning”, supervision of all financial market segments in which systemic risk is concentrated, including hedge funds and cross-border flows); “a new framework for global economic governance”, attributing to the IMF the role taken until now by the “Group of 7, the Group of 8, the Group of 20 or other ad hoc forums, lacking the participation or representation of important parts of the international community, especially from developing countries.”

The most important UN policy recommendation is, “with global sustainable development objectives” involving more than just co-ordination, but including an increase and redistribution of the stimulus, 80% of which is coming at present from developed, deficit countries. Greater efforts are required of surplus countries to reduce global imbalances and to contribute “about $500 billion extra over 2009-2012, compared with the uncoordinated scenario” to middle and low-income developing countries, strengthening their social protection systems and making long-term investments in sustainable development. “The additional resource transfers needed would include about $50 billion for the least developed countries.”

Global coordination should also eliminate unfair trading practices associated with many stimulus packages that provide subsidies to domestic firms, to benefit through trade those countries that cannot afford domestic subsidies and fiscal stimulus and “concerted efforts to provide countries with greater access to developed country markets as envisaged in a truly developmental Doha round of multilateral trade negotiations.”

The WESP-Update reports that the UN Department of Economic and Social Affairs has made simulations with their global policy model. The proposed larger, more balanced and coordinated global macroeconomic stimulus would yield significant gains in terms of global growth, compared with uncoordinated fiscal stimulus individually undertaken by national Governments. The simulations are summarised in the figures below.

The figures illustrate economic recovery under coordinated and uncoordinated global stimulus, 2009-2015. Source: United Nations/Department of Economic and Social Affairs, based on policy simulation within the UN Global Policy Model. From: UN WESP-World Economic Situation and Prospects, Update as of Mid-2009, New York.

In such a coordinated, development-oriented policy scenario, the world economy would recover at an annual growth rate of around 4 to 5 per cent in 2010-2015, led by robust growth of about 7 per cent per year in developing countries. In the uncoordinated scenario, developing countries - including transition economies - would recover at only 3 to 4 per cent per year.

Developed countries would also gain from the proposed policy broadening and coordination, with their GDP growth accelerating to about 4 per cent per year, up from 2 to 3 per cent in the uncoordinated scenario. “Furthermore, the simulation results for the coordinated policy scenario predict a benign unwinding of global imbalances, keeping external asset and liability positions of major economies in check, which would, in turn, support greater exchange-rate stability.” Coordination would require monitoring mechanisms. There would be net gains all round. Well, there would be if the model is right, and we are all happy to accept the political implications of progressive global governance rather than democracy.

It looks as if the 'leadership, vision and courage' Brown calls for (inter alia, it is a recognised symptom of certain mental conditions that there is an obsessive return to particular words and phrases) in this morning's Telegraph, is drawing wholly upon his inner world and the United Nations World Economic and Social Prospects Update for 2009.

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