By a Newsnet reporter
A new report from a UN backed agency has castigated the austerity agenda adopted by the Tory-led coalition as “suffocating”, and warns that it will damage the prospects of economic growth.
The report, published by the United Nations Conference on Trade and Development (UNCTAD), makes clear that fiscal austerity pursued by Chancellor George Osborne has meant that households do not have the disposable income needed to stimulate economic demand.
The authors warn that a further deterioration in the economy is possible if austerity policies are continued, and say:
“The chosen policy of unconditional austerity is suffocating the return to sustainable economic growth. Indeed, a further deterioration of economic conditions in Europe cannot be excluded.”
The authors insist that a return to growth will require “investment in productive capacity”. The report also states that rising inequality is not inevitable.
UNCTAD concludes that global economies will perform better with more even income distribution, and that reducing inequality through fiscal and income policies is crucial to promoting growth and development.
UNCTAD adds:
“Higher wages and lower inequality can stimulate demand and output growth, which in turn can provide incentives for increased investment in productive capacity, with attendant effects on employment creation and productivity gains.”
However, many countries, including the UK, have set themselves on a path which will lead to growing inequality of income. The report notes that in terms of wages as a percentage of GDP, the UK has seen one of the sharpest declines in the world, falling from 70.6% in 1975 to 62.6% in 2010.
The report concludes by warning that allowing large and growing disparities to arise between the richest and poorest, as has occurred in the UK under successive Labour and Conservative-led governments, makes a national economy more vulnerable during a period of economic crisis, and says:
“The experience of the past few decades has shown that greater inequality does not make economies more resilient to shocks that cause rising unemployment. On the contrary, it has made economies more vulnerable.”
The economic policies followed by the Tory-led coalition come in for severe criticism in the report, which warns that such policies are only likely to weaken growth and create unemployment.
The report notes that “attempts to overcome the present crisis are dominated by fiscal austerity, combined with calls to further ‘flexibilize’ their labour markets. In practice, this means wage restraint and in some cases massive wage reductions. However, these policies are more likely to further weaken growth dynamics and increase unemployment instead of stimulating investment and job creation.”
The report calls for a rethink of national economic policies in order to boost the wages of the working population and reduce income inequality, saying:
“… a fundamental policy reorientation is needed, recognizing that healthy and inclusive growth will require a stable expansion of consumption and investment in productive capacity based on favourable income expectations of the working population and positive demand expectations of entrepreneurs. This requires a rethinking of the principles underlying the design of national economic policy … “
Commenting, SNP MSP Kenneth Gibson who convenes the Scottish Parliament’s Finance Committee said:
“This report is utterly damning of the kind of austerity-agenda which the Tory-led coalition is determined to impose on us.
“It rightly makes clear that it is cutting off economic growth and consequently stifling jobs and investment.
“The simple fact of the matter is that this is the time to invest in shovel-ready projects to get our economy moving again.
“The obstruction from Westminster to doing what is necessary to get our economy growing is nothing less than an outrage and flies in the face of the needs of people in Scotland.
“Instead of being tied to a Tory cuts agenda which the whole world can see is suffocating growth, Scotland urgently needs the powers of an independent country so that decisions are made by people 100% elected in Scotland.”