A PROLONGED recession with a profound social impact in both eastern European and CIS countries is already in the cards. It is the consequence of a deep financial crisis, reinforced by a related roller-coaster ride of food prices and a gradually unfolding climate crisis. Early projections show a significant rise in unemployment and poverty. Behind these statistics lies growing human suffering. The crisis is increasing poverty in the region in numerous ways. Migrant labourers have to return to Moldova from their temporary work abroad, adding to the labour supply, increasing unemployment and reducing remittances. More marginalized Roma people are being pushed out of the formal economy throughout the region and deeper into poverty.
This systemic crisis—which originated in the world’s wealthiest countries and is now taking a growing toll on the welfare of the less fortunate in the developing world—highlights the fundamental unfairness of outcomes in the globalized economy. Moreover, the economic institutions and policies that produced the crisis also increased inequality within many countries, straining the social fabric and further complicating the search for collective solutions.
There are reasons to be optimistic that key countries can pull out of this financial crisis. But this is only one of three fundamental crises that the world is facing. There is strong science to back the argument that low carbon economies are the economies of the future. Taking these aspects into account, the first principle of management should be used in addressing the financial crisis – start with the end in mind. Translated into action, this principle calls for fiscal stimulus packages that put us on track to low carbon economies and a reversal of the rising inequality between people and nations. Several national stimulus packages reflect this logic and have allocated funds directly or indirectly to reduce energy use while bolstering economic activities and employment in low-carbon areas.
Largely absent, however, are attempts to decisively address inequality. The first round of bail-outs technically moved funds from taxpayers to help the financial system; additional funding for the IMF and the World Bank will have similar effect. This is a necessary first step, but social peace and sustainability requires more. Attention must be directed to the needs of the poor and vulnerable. They need leadership to help them survive the immediate threats of the financial crisis and get on the path towards a low-carbon economy.
Financing flows – lending and foreign direct investment – can be increased to bolster trade or development assistance. Given the financial crisis, the first is clearly urgently needed, but inadequate bank capital and a widespread lack of trust are limiting credit growth, especially to the poor. Foreign direct investment is dropping across the region. Trade is diminishing worldwide owing to falling demand and misguided protectionism that disproportionately hurts the poorest segments of society.
Compassion requires a commitment to try to ease the suffering caused by rising unemployment or collapsing levels of remittances. No doubt, donor countries have serious problems – but it is important to keep perspective and understand how severely the poor suffer in countries close to EU borders, currently without much hope of help.
Assistance must be given to stabilize countries during severe crisis. Rising poverty amid increased inequality is creating a deep social frustration and puts enormous pressure on the economic and political systems in several countries. This could generate a tidal wave of illegal economic migration, elevate crime levels, or spill over into conflict causing a surge in the number of refugees. Keeping in mind the large costs these would impose on the EU, the case for helping the poor also follows from cold economic logic.
Development assistance could be most cost-effective if it focused on the region east of the Schengen border and actively helped people to acquire gainful employment close to where they live while laying the groundwork for a sustainable low-carbon economy. This can take the form of green jobs renovating old buildings so they use less energy, giving poor communities access to solar energy, organising micro-credit to launch small businesses particularly in rural areas, and retraining to raise the employability of marginalized people and help them meet the requirements of a low-carbon economy. The United Nations Development Programme (UNDP) has a proven track record of implementing such projects in remote areas of the world.
The poor and the vulnerable should be actively included in the recovery efforts and should be helped onto the path towards a low-carbon economy. Otherwise, the proverbial light at the end of the tunnel may be switched off, leaving millions trapped inside.
Jens Wandel is the Deputy Regional Director & Regional Centre Director UNDP, Europe and the CIS Bratislava Regional Centre
27. Apr 2009 at 0:00 | Jens Wandel