Tackling unemployment key issue

Tackling unemployment must remain a central issue in the World Bank’s agenda for tackling poverty, the multilateral’s new chief economist Kaushik Basu said on Friday.

“There is a relationship between youth unemployment and [political] instability,” Basu observed, but if conditions are right, having a glut of young workers can be a developmental boon. “The bulge in a working age population can pay a huge dividend, as was the case of Ireland,” he said.

India’s working age population will peak in 2034, and that demographic can help drive growth. “This creates opportunities but also huge challenges,” he said. To respond to those challenges “not everything has to be done by government, markets can help”, allowing young entrepreneurs to emerge.

The Bank has identified this as a critical issue in regions like the Middle East and Africa, where MENA region sector director for human development Steen Jorgensen this week identified “low productivity equilibrium” as hampering growth and social mobility.

Martin Rama, author of the new World Development Report 2013, which is focused on jobs, observed that increases in instability due to rising unemployment are “not just a matter of demographics.”

Countries in East Asia have translated their population bulge into a dividend, he said. This year’s report stresses how strong private sector-led growth can create jobs and “spur a virtuous cycle” where “poverty falls as people work their way out of hardship.”

Distinguished academic Basu – who joined the bank on 1 October, having been chief economic advisor to India’s government and taking leave from Cornell University – agreed, reflecting on China’s success at modernizing and pulling people out of poverty after the Mao Zedong period “with an interesting blend of government and markets... and [at times] a very intelligent government at the helm”.

India can also achieve such levels of growth, although “there is a lag, and China has taken a big lead,” said Basu. India’s policy needs to work through what Basu called its “cantankerous democracy,” but when “consensus builds up,” major steps forward are possible.

Among policy measures needed to deliver the right conditions that create jobs, the Bank is arguing strongly for measures that reinforce social safety nets while scrapping universal subsidies — which is now central to policy initiatives in the MENA region, where many economies are foundering under the weight of subsidy payments.

“As much as possible it’s best to deliver subsidies by delivering benefit directly to the poor,” Basu said. It’s being heavily debated and the argument has to be one.

Basu feels comfortable joining a bank whose “focus is on the bottom end of the world”, helping to bring people put of poverty.

Asked by Emerging Markets whether a new approach was needed, Basu replied: “Good ideas are certainly not necessarily new ideas.” The eurozone crisis suggests you “don’t trash old ideas, but we also need to go into the box to find some new ones,” he said.