By Vassilis Kostoulas
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The World Bank’s top executive in Europe this week cautioned that Greece must not slacken efforts to implement reforms in the crisis-battered country, especially structural changes. In an interview with “N”, Dr. Arup Banerji, the World Bank Group’s regional director for European Union countries, first predicted that “there is a long road ahead” in the country’s economic recovery, while citing several items on a “to do” list for Athens, such as eliminating remaining obstacles to business start-ups and entrepreneurship, investing in human resources as well as improving the social protection “safety net”, but towards the direction of helping return the unemployed to the job market. In terms of Europe, he called for the creation of sufficient fiscal space in order to deal with a future crisis.
Ηow alarming are the signs of a slowdown in the global economy? How do you assess the course of the Eurozone and what would you stand out as the biggest threat to the European economy?
Indeed, the global economy is facing a slowdown. Our indicators show this happening across the globe. I should say though that this is a global slowdown, not a global recession – and part of the normal business cycle. So countries need to be cautious, proactive- but not alarmed. And what countries need to do, as part of their vigilance, is to make sure that the correct policies – monetary, fiscal and structural – are adopted so that this slowdown is managed and doesn’t become a full-blown crisis.
The situation is similar in Europe. We see slowdowns in Germany, which is of course the region’s largest economy; in countries such as Italy, we do see the initial signs of a recession.
Countries in eastern Europe that have traditionally grown the fastest (within Europe) will see their growth rates coming down from the stratospheric levels of 5-7% to around 3-4%. So overall, and for Europe as well, there are a signs of the post-crisis recovery now tapering off.
The challenge for countries in Europe and across the world is to make sure that they use the opportunity that they still have today before the next crisis emerges. They can do this by making sure that the vulnerabilities in their economies are addressed. These include looking very carefully at the financial and banking sectors, particularly non-performing loans and state-owned enterprises. And it is to make sure that there is enough fiscal space to undertake countercyclical policy measures if needed.
Would you say that Greece has come out of the crisis or has just come out of the adjustment program but still remains in crisis?
Greece has done an admirable job over the last few years of taking very tough measures and making great efforts to come out of the crisis. Obviously, the country is not out of the woods; and there is a large agenda of things that still need to be done. However, I think the fundamental reforms that Greece has undertaken — at quite a sacrifice — are beginning to show dividends.
What I would underline is that there is a long road ahead. Greece needs to keep on working at completing the reforms that it has started, especially in the structural areas. It needs to continually improve the business environment to get rid of some of the remaining impediments to businesses starting up and prospering. It needs to invest deeply in the human capital of its people, including to prepare them for the new world of technology. It needs to continue improving its social protection system to ensure that those who are unemployed, especially long-term, are given the support that they need to re-enter the labor market again as opportunities emerge.
It also needs to think about how to undertake the fundamental reforms needed to foster growth in modern sectors – such as technology, or logistics (using the huge potential of the Port of Piraeus as a transportation hub) – and to build on these emerging nodes of prosperity.
Automation and labor market: more losses or more opportunities?
The question that everyone asks is: ‘are robots going to take over all of the jobs?’ The answer is no. Robots are not going to take all the jobs. Robots are going to take over some jobs but technology more broadly is also going to create opportunities for others.
The question that the world is struggling with is how to make sure that those parts of society and the labor force that will be hurt by automation (obviously those in more manual and repetitive types of work) are able to avail of the opportunities that are opening up in more creative, cognitive, managerial and scientific areas in this new world.
One example: Think of the fact that 10 years ago there was no industry around video games. Now this is one of the largest growing industrial segments in the world, which is going to employ a huge number of people: both creative types as well as programmers. At the same time, the gaming industry has also increased demand for manufacturing products such as more powerful computers and better peripherals. These are new opportunities that would not otherwise exist.
The challenge for every country in the world is to make sure that these sorts of jobs don’t just go to a privileged few. But that everyone, including poorer parts of the population, has the education and available training to avail of these opportunities.
Is labor flexibility part of the solution to reduce unemployment in countries with a competitive disadvantage? Or not?
The new types of jobs are been created at a pace that is unthinkable. In the past, our parents’ generation would enter a job soon after leaving high school or university and stay in that job until retirement. It would typically be the same type of job requiring the same types of skills in the same sector. Today, most people in their teens and twenties are going to have five, six or seven jobs by the time they are 30 or 35. That is for a good reason. It is not because the economy keeps losing jobs. Instead, it is because the types of jobs are constantly changing, and opportunities are evolving.
It is important to allow people to leave jobs in sectors or areas that are shrinking and to allow them to move quickly to jobs where their prospects are better. It is also important for firms to be able to quickly adapt to this new world, so that they can also retool their structures to take advantage of the technologies, grow, and provide more income and jobs for others. For that you require a more flexible system which clearly allows people to move more easily from one job to another.
However, labor flexibility by itself is insufficient. Because what happens in the transition time between the jobs? How does a family support itself if the bread earner or earners are training themselves to prepare for the next job? This is where the concept of a strong social protection system comes in. Denmark is famous for its system of flexicurity, which means that there is flexibility for people to move from one job to another, while maintaining strong protections that cushion the adverse impacts of people changing jobs. That type of combination of flexibility and strong security is what the modern world needs.
Many talk about income inequalities, but few explain how these inequalities emerge. Have the poor become poorer or have the rich become richer?
In our recent report ‘Growing United’ we looked at what’s been happening to income inequality in Europe. What we found is that increasingly, technology is the driver of income inequalities in Europe. There is a group of Europeans who are doing extremely well by taking advantage of the benefits that technology brings – such as high-earning jobs and growth. However, there’s another group of Europeans who are falling behind, because they do not have the skills or the education to avail of the new type of jobs that are emerging.
They are increasingly being substituted out of jobs by technology, particularly those who are in manual or repetitive jobs that are easily replaced by technology. So the growing inequality that is happening is a factor of these two groups of people. Those who have the skills or the capital to take advantage of this new globalized technological world are prospering. And those who are not able to access these opportunities are not. Society and governments must make sure that the second group of people are given the opportunities to take advantage of the new jobs, new schools and the new income earning possibilities that will reduce inequalities in the future.
Would you say that the biggest problem on the planet is overpopulation?
By current projections, the total number of people in this world is going to grow, and it’s going to be growing for the next 20, 30, or 40 years. That’s going to put a stress on the resources that the planet has in terms of clean water, the needs to develop clean forms of energy, and to provide food to everyone by the methods we have right now.
However, what is important to understand is that the pattern of overpopulation is quite skewed and might change very quickly. Most of the population growth over the next 40 to 50 years is going to come from Africa and to some extent from the Middle East. But as these countries grow richer and the population becomes more educated, the population trends may quickly change. As such, the alarmist rates of population growth that many researchers are projecting may slow down… as we are already seeing in many countries.
The key factor is education, and especially women’s education. That is one of the ways of slowing down population growth. This is what we have historically seen in Europe, and in other richer parts of the world including East Asia –where the problem is shrinking populations, not overpopulation.
This is not necessarily a bad thing, because populations that are older also live longer. And they’re productive longer. Therefore, one of the things that we must look at is how to make sure that people live productively much longer and remain healthier much longer… to better enjoy a productive and fulfilling long lifespan.
