The crisis from human development perspective Andrey Ivanov, UNDP Budapest, 13 July 2009

What is it all about? Financial crisis – just the top of the iceberg Mortgage crisis – just a trigger Overproduction fueled by expansion of ‘fiduciary money’ and resulting in excessive supply This temporal shift (borrowed consumption). The price of China’s miraculous growth Where’s the money? The issue of the “hollow value” and global redistribution of wealth

The evolution of the issue Terminological: from “mortgage” through “financial” crisis to “economic” Of the focus: on the mortgage crisis in the US to broader global implications Conceptual: part of the natural economic cycle or something more?

The crisis from pure economic perspective

Is it over? GDP decline forecasts keep deteriorating Anticipated decline (June 2009): –For Central and Eastern Europe – 3.7% –For CIS countries – 5.1% The “green shoots” and the stimulus Second “post-transition shock”: –Central and Eastern Europe expected to restore pre-crisis GDP level on 2012 –CIS countries – 2011 with Russia – 2012 –Italy, Spain, UK – not before 2015

Even if growth resumes, what kind of growth? Two-way connections between growth and human development: –Economic growth provides the resources necessary –Improvements in the level of education, health, people’s capacities make sustainable growth possible Not any growth is desirable! As the Global HDR 1996 argues, we should avoid –jobless growth - that does not expand the opportunities for employment –ruthless growth – its fruits mostly benefit the rich, –voiceless growth – has not been accompanied by expansion of democracy and empowerment, –rootless growth – at the expense of people’s cultural identity –futureless growth – at the expense of future generations (squandered resources, debt burden etc.).

The temporal shift seen from the production side Sources: Bloomberg L.P.; IMF, International Financial Statistics database; and IMF staff estimates

The temporal shift seen from the demand side Source: The Economist Intelligence Unit.

Sustainability? Sources: International Monetary Fund, World Economic Outlook Database, April 2009

Looking beyond economics Human development aspects – not just in the outcomes but of the fundamental causes Enhancement people’s potential to be and do. To have – a means or the end of human progress? The focus on consumption in the demand/supply nexus. The “patriotic duty” to shop “Commodity  functionality  capability” chain broken

The immediate implications Declining living standards Increased risk for vulnerable populations Decreasing level of social solidarity Stimulus packages (those who can afford) Shrinking savings The big question: where has the money gone?

The issue of “value” “The ￡ 33 billion trade surplus in financial services made a substantial contribution to the balance of payments in 2007, up ￡ 7 billion on In 2007, financial services accounted for 10.1 per cent of UK GDP, and for 14 per cent of UK GDP when added to associated services such as legal, accounting and management consultancy. Financial services also account for roughly one in 30 jobs in the UK. In 2007 the UK’s share of global markets speaks volumes: 20 per cent of cross-border bank lending; 34 percent of derivatives turnover; 53 percent of foreign equities turnover and the world’s largest share of global bond trading – a massive 70 per cent.” Source: UK INWARD INVESTMENT 2007/2008. Report by UK Trade & Investment, p. 20. Available at:

The long-term implications Bad example to follow – the history already being “rewritten”? Revision of state interventionism Huge public debt The end of export-driven model of growth (“unless we find another planet to export to” – Paul Krugman) The capacity of the eco-systems and the planet in general

The capacity of the planet: Club of Rome scenario 6 Source: Meadows, D., Randers, J. & Meadows, D. (2005), Limits to Growth: The 30-year Update, UK: Earthscan

The capacity of the planet: Club of Rome scenario 6 Source: Meadows, D., Randers, J. & Meadows, D. (2005), Limits to Growth: The 30-year Update, UK: Earthscan

The capacity of the planet: Club of Rome scenario 6, human welfare and footprint Source: Meadows, D., Randers, J. & Meadows, D. (2005), Limits to Growth: The 30-year Update, UK: Earthscan

Sustainability? Club of Rome scenario 2, Material standard of living Source: Meadows, D., Randers, J. & Meadows, D. (2005), Limits to Growth: The 30-year Update, UK: Earthscan

Sustainability? Club of Rome scenario 2, State of the world Source: Meadows, D., Randers, J. & Meadows, D. (2005), Limits to Growth: The 30-year Update, UK: Earthscan

Sustainability? Club of Rome scenario 2, Human welfare and footprint Source: Meadows, D., Randers, J. & Meadows, D. (2005), Limits to Growth: The 30-year Update, UK: Earthscan

Restoring the commodity  functionality  capability chain A radical paradigm shift—not the restoration of the system—is what is needed Redesigning rather than rescuing the global economic system with sustainability of the planet in mind Approaching the financial system as part of the problem Reconsidering the dominating approaches to “value generating activity” Adequate pricing of inputs and externalities The economic crisis will cause a second shock but could be an opportunity for human development