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Can the three Rs help the world economy recover?

Updated Tuesday, 9th February 2010

Can the gentle stirrings of recovery be helped by applying three simple rules, asks Leslie Budd

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The slow recovery from the credit crunch and the global recession is still fraught with danger. The patient’s former robust outward health hid some serious acute and chronic conditions. In the event of it being discharged from clinical care to post-operative revival, what kind of preventative medicine is needed to prevent a future relapse?

The metaphor-turned-cliche of 'green shoots' [Image: timsamoff under CC-BY-ND licence] Creative commons image Icon timsamoff under CC-BY-ND licence under Creative-Commons license
The metaphor-turned-cliche of 'green shoots'

Any programme needs to centre on the three R’s, which to anyone growing up in the 1950s meant Reading; Writing and Arithmetic. For the world economy, it means Re-structuring; Re-balancing and Reform.

But, what do these three R’s consist of? The challenges to the future of the world economy include geopolitical and environmental ones, but perhaps - more importantly - combating poverty and the sustainability of everyday existence in a world characterised by growing inequality of wealth and income. This inequality is often manifested in issues of basic food and water security.

The possibility of a post-oil world led the Gulf States (and others) to pursue the development of dream cities. In one case - Dubai - this has led to the possible outcome of a Dead Sea city: it floats on a pool of debt whicjh just about keeps it above water.

The problem with this kind of economic strategy it assumes that increasing the supply of the built environment is axiomatically beneficial to the economy, but it ignores the importance of effective demand (as we economists call it). That is, a sufficient number of individuals and organisations paying for goods and services in order to maintain the economy’s holy trinity of output, income and employment.

The same kind of argument applies to building new ‘green’ infrastructure – it may create a one-off benefit in increased construction employment and the multiplier effects from this additional income flowing through the economy. It may also create social benefits and learning effects. But unless this is part of a sustainable economic strategy this apparently simple solution may prolong the economy’s health in the short-term but ultimately fail to arrest its long term decline.

Building work at Dubai airport Creative commons image Icon Makz under CC-BY-NC licence under Creative-Commons license
False dawn? Building Dubai airport in 2005

So “what is to be done?”, as the Russian revolutionary, Lenin, once asked.

  • Restructuring: New public and private institutions, including national and regional investment banks, to provide resources to undertake new and long term investment in sustainable technologies and products underwritten by a commitment to global social justice in order to distribute the benefits of these outcomes;
  • Re-balancing: A public commitment to full employment and a right to basic income, with the state underwriting a balance of economic activities, especially manufacturing;
  • Reform: Strengthening international economic institutions at local and regional levels in order to ensure more consistent management of the financial system, giving more equitable access to capital for non-standard businesses and other organisations. The introduction of a Tobin-like tax on global financial transactions to fund appropriate infrastructure, education and health programmes in poorer economies.

But what has the future of the world economy got to do with the health of a business’s employees? There is a body of research on the relationship between economic development and well-being which shows that those societies with relatively high living standards and less inequality score well on comparative indicators of health. If the citizens of a nation or region are effectively employees of an economy, should the health and well-being of employees be a concern of the constituent businesses?

The three Rs seem to be equally applicable to health: Recognition; Robustness and Restitution. That is, define the problem; utilise consistently strong methods of diagnosis based upon evidence; and, maintain recovery. So if it is good for the economy gander, logically it should be good for the business goose. But, business leaders might opine that it is a systemic problem and that regard for the health of one’s employees merely increases the transaction costs of a business.

A free ride? Will businesses take advantage to get a free ride? [Image: Theyoungones1984 under CC-BY licence] Creative commons image Icon Theyoungones1984 under CC-BY licence under Creative-Commons license
Will businesses be like this lazy lemur and take advantage to get a free ride?

However, this leads to the economic problem of free-riding , in that some firms may rely on health systems maintaining the well-being of their workers, whilst competitors may spend more of their own resources to ensure well-being of their workforce, thereby making a net contribution to a stable and sustainable labour market.

At the macroeconomic level, supporting well-being of workers maintains employment, income, output and thus demand goods and services for all goods and services across the whole economy; creating a virtual circle from business to economy and back again. The bottom line is that the future of the world economy and sustaining the well-being of employees rely on preventative medicine, as clinical intervention is costly at all levels of society,

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