REPORT FOR THE GENERAL COMMITTEE ON

ECONOMIC AFFAIRS, SCIENCE, TECHNOLOGY AND ENVIRONMENT

Rapporteur: Mr. Tony Lloyd (United Kingdom)

As the effects of the global financial downturn started to unfold four years ago, governments ofparticipating States across the OSCE region deployed an arsenal of stimulus measures to cushionthe inevitable fall of trade, growth, and employment.In the United States, the 2009 Recovery Act dedicated $787 billion to prevent massiveunemployment and spur economic activity. Kazakhstan adopted a $25 billion stimulus package tosave its banks, encourage loans to small businesses, and modernise its transportation network.Across the European Union, countries devoted a significant portion of their GDP (between 1 and4 per cent) to aid their car industries, the housing sector, or invest in infrastructure.Recalling landmark programmes such as the Marshall Plan, which set the basis for a prosperousera of economic development and integration in Europe, governments noted the importance ofinternational co-operation and solidarity to rebuild the global economy.Today, however, orthodox financial policies prevail.1In Europe in particular, regressive spendingcuts are the predominant approach to tackling the crisis, regardless of the political leaning ofgovernments. Going further, the EU Fiscal Stability Treaty will require the introduction ofbalanced-budget constitutional amendments in order to streamline fiscal discipline within theEurozone.We are witnessing the great impact credit rating agencies have on the formulation of today’seconomic and financial policies. Over-reliance on analyses which are sometimes influenced byconflicts of interest and often taken as undisputable has opened the door to widespread financialspeculation. Fear of a credit downgrade has encouraged many OSCE participating States toimplement deficit-cutting plans.Yet, there is a great deal of evidence that the austerity policies introduced to answer Europe’ssovereign debt crisis are starving growth and leading to a negative circle of demand collapse.2Indeed, the Institute of International Finance (IIF) recently acknowledged that austerity is“excessive when carried out across the board,” and encouraged governments to move beyondstrict fiscal discipline to “avoid the risk of an austerity overload” on the world economy.3As parliamentarians, we have a key role to play in overseeing and debating the economic policiesimplemented by our governments. As a unique forum bringing together representatives fromNorth America, Europe, and Asia, the OSCE Parliamentary Assembly has a central role toencourage greater economic solidarity, foster policy coordination between participating States,and to discuss new approaches to tackling the economic crisis and promoting growth.

Bearing the Cost of Austerity

At our Annual Session in Vilnius in 2009, discussions in our General Committee underlined that“responses to the current crisis should keep in mind that those who are most affected by the crisisare not necessarily banks and investment firms, but rather, average people who have lost theirjobs, their homes and their livelihood.”Three years later, we are all witnessing that those bearing the social cost of economic failure tendto be the young and the old, the women more than men, those with disabilities, and thoseindividuals coming from marginal and ethnic communities. Moreover, austerity-driven cuts havetargeted healthcare and education budgets,4even though the healthy and the educated have greaterchances to be employed.In the short-term, the crisis has put considerable pressure on individuals and family budgets. Withlittle confidence in the future, families have slowed down consumption – one of the engines ofour economic model – in order to face up to cuts in income and the higher cost of living.Foreclosures and stricter loan policies have also increased the level of housing exclusion acrossthe OSCE region.5We are witnessing growing income disparity, with the rich becoming richerand the poor getting poorer. Overall, the crisis has exacerbated poverty, increased inequality, andhas rendered vulnerable a wider segment of our populations.In the medium-term, rising inequalities are likely to increase social tensions, and lead to crimeand disorder. Poverty and unemployment also provide fertile grounds for ethnic tension6and anegative view of immigration. In the longer term, the poverty and unemployment trap can bedetrimental to the physical and mental health of individuals7and lead to the alienation of wholesections of society.Four years after the start of the global economic downturn, many young people across the OSCEregion are losing hope as they begin to bear a “wage scar” that may persist into their middle age.Prolonged unemployment, and fierce professional competition in times of recession, leads manyof our young graduates to accept jobs where the pay is low and the opportunities for training andcareer progression are few.8In the long run, unemployment and under-employment leave youngpeople with declining wage prospects, increased depression and stress, and higher suicide rates.9

Friedrich Ebert Stiftung: “Budget Consolidation and the European Social Model – The Effects of EuropeanAusterity Programmes on Social Security Systems,” March 2011, http://library.fes.de/pdf-files/id/ipa/07891.pdf.5European Social Housing Observatory: “Impact of the Crisis and Austerity Measures on the Social HousingSector,” February 2012, http://www.iut.nu/Literature/2012/CECODHAS_Impact_ofCrisis2012.pdf.6UNDP: “Inequality, poverty, risk conflict in East Europe and Central Asia,” 3 June 2010,http://content.undp.org/go/newsroom/2010/june/inequality-poverty-weak-safety-nets-risk-conflict-and-a-lost-generation-in-east-europe-and-central-asia.en.7M. W. Linn, R. Sandifer, and S. Stein: “Effects of unemployment on mental and physical health,” AmericanJournal of Public Health, May 1985, http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1646287/pdf/amjph00281-0056.pdf.8The Economist: “The Jobless Young – Left Behind,” 10 September 2011,http://www.economist.com/node/21528614.9New York Times: “Increasingly in Europe, Suicide ‘by Economic Crisis’,” 14 April 2012,http://www.nytimes.com/2012/04/15/world/europe/increasingly-in-europe-suicides-by-economic-crisis.html?_r=3.

The Opportunity Cost of a Stagnant Economy

Across the OSCE region, bloated unemployment restrains the long-run growth potential of theeconomy. It forces governments to increase social spending and to cope with a net fall in taxrevenues, ultimately resulting in greater public debt. For instance, in the United Kingdom, anadditional 750,000 people are now unemployed, at a total opportunity cost (added benefits andlost revenues) estimated to be $15 billion every year.High unemployment comes with a costly price tag. Indeed, $15 billion dollars could fund aquarter of Britain’s annual education budget. In other words, governments are shifting budgetaryexpenditure away from long-term strategic investments to mitigate the short-term effects of thecrisis and austerity policies. As such, stagnant growth depletes our social funds, lowers ourambitions, and mortgages our future.The slow pace of the recovery makes it all the more important to engage in new and innovativeways to encourage economic activity. Discussions with parliamentarians from across the entireOSCE region have pointed to the great potential of green investment, and the necessity ofeducating a smarter workforce.

The Transition Towards a Sustainable and Green Economy

Several international organizations and institutions, including our Assembly in Vilnius in 2009,10have underlined that the global financial crisis presented an opportunity for green investment tosupport the economic recovery. Indeed, the green economy provides a holistic response to thethree major world crises – climate change, food security, and economic stagnation – whileprotecting the ecosystem, alleviating poverty, and fostering growth.In recent years, it has become apparent that economic growth and environmental concerns can gohand in hand. Indeed, reports show that green investments have a dual positive economic effect –on supply and demand – leading in the long run to faster economic growth, thus automaticallyincreasing employment and reducing poverty.11For instance, estimates suggest that, by investingin renewable energies alone, up to 20 million jobs could be created worldwide by 2030.12Nevertheless, this transition toward a global green economy requires deeper internationalco-operation. While developed countries must take the lead by modifying their production andconsumption patterns, developing countries should adopt sustainable practices.Based on the overarching goal of transforming our approach to growth, international co-operationshould take various shapes:--financial support and technology transfers to encourage developing countries to move away frompolluting industries;reforms to the global economic and financial structures to foster greater inclusion with emergingpowers;10

the smart and effective protection and enforcement of intellectual property rights (IPRs) toencourage innovation without hampering technology transfers;lower barriers to trade and investment to encourage the diffusion of green technologies;fiscal incentives to make pollution more expensive and encourage a better use of naturalresources.13Government support is essential to drive innovation and foster the kind of scientific collaborationnecessary to spread green technologies.14In this respect, parliamentarians have an important roleto play in highlighting the correlation between economic growth and the environment in their owncountries. Given the OSCE PA’s role in advancing the debate on environmentally friendlypolicies with regards to business and industry, the Assembly should put a greater emphasis onhow these environmental discussions may generate economic solutions.

Educating a Smarter Workforce

Furthermore, training policies can play a major role within the global policy framework ofrealising green growth and achieving economic recovery, all the more so since the economiccrisis has triggered changes in the global demand for skills.Indeed, the demand for jobs requiring low qualifications is decreasing, while knowledge-basedindustries entail increasing levels of education. In 2010, the European Centre for the Developmentof Vocational Training (CEDEFOP) forecast that the share of highly qualified jobs would increaseby 16 million, from 29 per cent in 2010 to 35 per cent of all jobs in 2020. Meanwhile, the share ofjobs demanding a low-level of qualification would drop by 12 million, from 20 per cent to lessthan 15 per cent.15However, public budgets for education and training are under scrutiny. Most participating Stateshave adopted a wide range of measures to curb current levels of expenditure, by cutting staff costsor investment on infrastructure and equipment, slowing down reforms, or reducing financialsupport to students.16Yet, to emerge stronger from the global economic downturn, participating States need to basegrowth on knowledge and innovation. In this respect, investing in educational excellence canyield great long-term returns by stimulating economic activity and creating jobs across the OSCEregion.To combat unemployment, it is also vital to adapt our workforce’s skills to tomorrow’s trades. Byputting a greater emphasis on continuing education, we can train those who are unemployed andincrease their chances of returning to the job market. We can also help develop our professionalsto retain a competitive edge in the global demand for skills.Our Assembly should play a role in encouraging greater parliamentary oversight over educationand training policies in OSCE participating States. Through the regular meetings of our Second13

UN: “The Transition to a Green Economy: Benefits, Challenges and Risks from a Sustainable DevelopmentPerspective,” http://www.uncsd2012.org/rio20/content/documents/Green%20Economy_full%20report.pdf14The United Nations Environment Programme proposes that 2 per cent of the world’s GDP (or USD 1 trillion)be dedicated to green investments.15CEDEFOP: “Skills Supply and Demand in Europe – Medium Term Forecast Up to 2020,” 2010,http://www.cedefop.europa.eu/en/Files/3052_en.pdf.16European Commission: “Education and Training in a smart, sustainable and inclusive Europe,” 20 December2011, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0902:FIN:EN:PDF.